2018 MKC ANNUAL REPORT
SHARED GROWTH. SHARED SUCCESS.
LEADERSHIP LETTER
DEAR MEMBER-OWNERS, CUSTOMERS, VENDORS, EMPLOYEES AND COMMUNITIES.
W
hen we initially adopted the tagline ”Shared growth. Shared success.” we had little understanding as to what that mantra would lead us to accomplish over time. We had little insight of what it would do for the success of your cooperative and the commitment of the employees making an effort every day to help our owners achieve personal success. The shared success we intentionally created this year was for our member-owners, employees, rural communities and strategic partners. This year was one of those classic years where the cooperative business model, and your participation in it, paid significant dividends. All of the projects we have continued to work on and the plans we have executed over the past number of years beared fruit for your cooperative in a year we could benefit memberowners through the sharing of patronage dividends. In a time that has seen some less than stellar net farm income driven mostly by low commodity prices, your co-op built the facilities and balance sheet to capture what the market was offering. Thanks to your continued support and advocacy, we have continued to experience growth in virtually every area of our business year after year. We also continued to grow in membership and again added 220 members this year. Our Board of Director’s dedication to the success and sustainability of your cooperative means we continually evaluate the entirety of our business and make changes when and where necessary. Just like on the farm, the business environment continues to evolve
making changes mandatory if we are intent on sharing success. You simply don’t farm and ranch as you used to in years gone by. We are convinced we can no longer make excuses for lazy money or money not working for us. We are committed to taking those lazy dollars, and when possible, reinvesting them into facilities, personnel or services that will be contributors to farmers success in the future. Like any organization or farm, your company has ongoing decisions to make. What to keep, what to let go of, where to allocate our time, energy and money. We clearly understand these are choices that have long-lasting implications. Our focus continues to be futurefacing and making investments that will provide us with both the capabilities to keep up with the farmer of the future and having the market access required to capture the best value of the crops you raise. Living our tagline is what we do every day. It defines our culture. We can and are flexible in how we go about the attainment of our goals. The market changes rapidly, however, we must remain stubborn on the achievement of our strategic intent. Our intention is to provide a cooperative that is relevant in the marketplace and valuable to your operation, today and going forward. Sincerely,
Allan Wegner Chairman Board of Directors
Dave Christiansen President and Chief Executive Officer
WWW.MKCOOP.COM
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DISTRICT 3
DISTRICT 1
DISTRICT 2 DAVID MILLS Secretary
JASON GAEDDERT
AT-LARGE
KEITH BECKER
C.J. BLEW
DUANE JOHNSON
ALLAN WEGNER Chairman
MYRON VOTH Vice Chairman
HAL MAYER
RANDY ELLWOOD
KENNY CARLTON
BEN SCHRAG
SARA HASTY
ASSOCIATE
OFFICERS AND DIRECTORS
Elected by their peers, the Board of Directors are member-owners themselves. These individuals collectively leverage their expertise to provide important direction, and ensure the safety and soundness of the finances of the cooperative. Board members are farmers and ranchers themselves and have a deep understanding of the challenges their fellow customer-owners face each day. The Board of Directors consists of 12 members. Three directors represent a district, six directors are at-large, and three directors are appointed. Detailed biographical information on the MKC Board of Directors is available at www.mkcoop.com.
DAVE CHRISTIANSEN President & CEO
FINANCIAL REVIEW
We are pleased to report to our memberowners our financial performance for our 2018 fiscal year was very strong. We can summarize our strong financial performance in three measures; net earnings, net fixed assets and working capital. Net earnings measure the level of success or profitability achieved, net fixed assets measure MKC’s commitment to growing and upgrading the infrastructure of the cooperative for future generations, DANNY POSCH and working capital measures the strength Executive Vice President and stability of the cooperatives’ balance & Chief Financial Officer sheet and overall financial position. Our net earnings for the year were $18.2 million, our strongest performance in the history of the cooperative. Wheat carry opportunities in the market favorably impacted the financial performance of our grain business unit. Unfortunately, not all news was positive this past fiscal year. The narrowing or reduction of agronomy margins during this past fiscal year negatively impacted the financial performance of the agronomy business unit. Although our sales increased this past year, our overall agronomy business unit profits decreased because of very competitive markets. Our energy business unit was negatively impacted by the significant reduction in regional patronage dividends from CHS, our partner in energy. Our energy business unit relies heavily on regional patronage revenues received to achieve profitability. MKC’s net fixed assets of the organization have grown from $24 million to $142 million in the past ten years. We are often reminded that the cooperative has no end date and that we must provide future generations with a company that can serve them as well as it has served previous generations. Our commitment to future generations is demonstrated in the growth of our net fixed assets. At fiscal year-end, our cooperative has a very strong working capital position of nearly $50 million, up $36 million from 2009. A strong working capital position is essential to our organization because it allows the cooperative to execute its’ strategic goals, strengthens relationships with creditors and lenders, and allows the cooperative to maintain adequate lines of credit. As a member-owner, you have experienced the advantages of being a member of a cooperative. As a business, your cooperative must first be prudent to ensure our profitability and overall financial position. And as a cooperative, we share our successes and earnings with our member-owners. Our total patronage allocation this past fiscal year was $7,718,766 and includes an allocation of qualified patronage of $3,718,766 – 100% payable in cash, as well as an allocation of $4,000,000 in non-qualified patronage. In addition to the patronage allocation, we will also be passing through $3.16 million in the Section 199 deduction through to our member-owners. We are pleased to share our success with our member-owners, as well as our commitment to be a financially sound company that adds value for our member-owners today, and for future generations to follow.
WWW.MKCOOP.COM
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CONSOLIDATED BALANCE SHEETS
Current Assets
2018
2017
$ 1,551,582
$ 1,425,393
4,171,346
3,967,215
Patrons and customers
8,643,241
10,269,102
Allowance for doubtful accounts
(300,000)
(325,000)
Grain shipments
2,456,834
5,804,029
Grain storage receivable
3,862,014
4,086,175
Commodity margin accounts
12,766,057
15,653,363
Other
11,367,500
14,092,566
Prepaid inventories
22,344,067
12,916,004
Inventories on hand
315,513,716
235,213,096
382,376,357
303,101,943
Equity in other cooperatives
37,883,221
35,465,612
Investments in affiliates
26,811,820
22,509,937
1,786,517
1,564,533
66,481,558
59,540,082
Cost
118,637,560
117,017,268
Accumulated depreciation
(48,330,161)
(44,914,056)
70,307,399
72,103,212
$ 519,165,314
$ 434,745,237
Cash and cash equivalents Marketable securities, available for sale Accounts and notes receivable - trade
Total Current Assets
Other Assets Other
Total Other Assets
Property, Plant and Equipment
Net Property, Plant and Equipment
Total Assets
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2018 MKC ANNUAL REPORT
February 28, 2018 and 2017
Current Liabilities Accounts payable and accrued expenses Customer prepaid sales contracts Revolving bank notes
2018
2017
$ 59,851,512
$ 51,815,394
11,765,496
11,227,640
246,574,483
193,077,368
Patron demand certificates
4,703,516
3,301,064
Current maturities of long-term debt
5,167,475
6,137,276
Patronage dividends payable
3,718,766
1,252,329
613,433
414,711
332,394,681
267,225,782
Income taxes payable
Total Current Liabilities
Long-term Liabilities, excluding current maturities Non-revolving bank notes
40,111,640
43,118,220
Patron certificates of indebtedness
6,775,662
5,581,702
Capital lease obligations
2,147,177
1,011,584
Deferred income taxes
68,183
1,335,331
2,516,013
2,683,838
51,618,675
53,730,675
11,989,850
11,839,250
2,726,800
2,731,650
Allocated Patronage
31,671,012
28,748,676
Contributed capital
9,385,612
9,387,567
Retained earnings
57,980,085
47,706,765
Non-controlling interests
21,271,928
13,439,917
126,671
(65,045)
135,151,958
113,788,780
$ 519,165,314
$ 434,745,237
Other
Total Long-term Liabilities
Member’s Equity Common stock Participating stock
Accumulated other comprehensive income (loss)
Total Members’ Equity Total Liabilities and Members’ Equity
Financial Statement Presentation The statements presented within do not contain all necessary disclosures to be considered in conformity with accounting principles generally accepted in the United States of America. A report containing the required disclosures is on file at the general office. WWW.MKCOOP.COM
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CONSOLIDATED STATEMENTS OF OPERATIONS Sales
2018
2017
$ 296,695,745
$ 315,451,202
112,253,981
110,878,296
408,949,726
426,329,498
234,322,178
284,958,869
96,990,102
95,390,694
331,312,280
380,349,563
77,637,446
45,979,935
Grain storage and handling services
9,126,506
11,098,937
Limited liability companies
6,273,572
3,429,891
Agronomy services
Grain Farm supply
Total Sales
Cost of Sales Grain Farm supply
Total Cost of Sales Gross Margins of Sales
Other Operating Income 8,347,592
7,631,560
Interest income
270,063
295,282
Gain on disposal of property, plant and equipment
768,999
630,820
2,321,834
2,123,429
27,108,566
25,209,919
104,746,012
71,189,854
Personnel costs
27,046,166
24,556,014
Fixed expenses
17,122,131
13,226,671
Other operating expenses
22,930,610
21,467,211
Total Operating Expenses
67,098,907
59,249,896
Earnings from Local Operations
37,647,105
11,939,958
Miscellaneous
Total Other Operating Income Gross Income from Local Operations
Operating Expenses
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2018 MKC ANNUAL REPORT
For Years Ended February 28, 2018 and 2017
Other Earnings
2018
2017
4,819,362
4,025,338
249,854
275,217
5,069,216
4,300,555
42,716,321
16,240,513
Current income taxes
(285,214)
(450,128)
Deferred income taxes
1,298,863
287,324
1,013,649
(162,804)
43,729,970
16,077,709
(25,709,323)
(10,620,480)
18,020,647
5,457,229
20,161
135,147
Unrealized gain on fair value of interest rate swaps
171,555
257,602
Total Other Comprehensive Income
191,716
392,749
$ 18,212,363
$ 5,849,978
Patronage dividends
$ 7,718,766
$ 3,130,822
Retained earnings
10,301,881
2,326,407
191,716
392,749
$ 18,212,363
$ 5,849,978
Patronage dividends Investment income
Total Other Earnings Net Earnings Before Income Taxes
Provision for Income Taxes
Total Provisions for Income Taxes Net Earnings Before Non-Controlling Interests
Non-Controlling Interests Net Earnings Attributable to Parent Before Other Comprehensive Income
Other Comprehensive Income Unrealized holding gain of marketable securities
Total Comprehensive Income
Distribution of Comprehensive Income Other comprehensive income
Total
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FINANCIAL PERFORMANCE
Total Assets
Net Earnings
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2018 MKC ANNUAL REPORT
Historical total assets of the company have grown to $519,165,314, primarily because of the grain position (inventory) held by the company.
Net earnings for FY18 were $18,212,363. Net earnings are important to the organization because it allows the company to attract talented employees, redeem past patronage, retire debt and reinvest in infrastructure.
FINANCIAL PERFORMANCE AND COMMUNITY INVESTMENT
Working Capital
Community Investment
MKC has grown its working capital position to $49,981,676. Working capital is a good indicator of a company’s ability to meet upcoming debt obligation.
MKC provides benefits to 91 communities in the form of personnel costs, local taxes and other expenses. These payments have a significant impact on the communities and help support the businesses and services we utilize.
WWW.MKCOOP.COM
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PATRONAGE ALLOCATION AND CASH DISTRIBUTION TO MEMBERS
2018 Patronage Allocation
Rate
Grain
20.00 cents/bushel
Agronomy - Seed - Crop Protection
1.34% or $5/ton on fertilizer
Petroleum - Lubricants
0.00%
-
Feed - Merchandise
6.86%
677,842
Total Patronage Allocation Qualified Patronage - 100% payable in cash Non-qualified Patronage
Total Patronage Allocation
Cash Distribution to Members
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2018 MKC ANNUAL REPORT
Amount $ 6,233,216 807,708
$ 7,718,766 $ 3,718,766 4,000,000
$ 7,718,766
Cash distributions to members totaled $4,688,995 for the current fiscal year. Cash distributions include equity redemptions as well as the cash portion of the current year patronage allocation.
GROWTH IN FIXED ASSETS
Growth in Local Net Fixed Assets
Local net fixed assets reflect the ending balances of investments in property, plant and equipment of the company.
Growth in Overall Net Fixed Assets
Net overall fixed assets reflect the ending balances of investments in property, plant and equipment of MKC and its affiliates – Producer Ag and Countryside Feed.
WWW.MKCOOP.COM
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SHARED G SHARED S “Shared growth. Shared success.� is more than just a tagline at MKC. Our value is based upon sharing success with our member-owners, employees, strategic partners and rural communities. We believe, as the agricultural industry continues to change, the interconnectedness between our member-owners, employees, strategic partners and rural communities, is one thing that very few companies can replicate. There is beauty in the simplicity of our tagline and there is challenge in its execution. The sharing of growth and success is the reason we have been able to weather storms and forge bold strategies in the past. It is the reason we are optimistic about the future. It is by definition, what a great cooperative should be.
Member-owners 14
2018 MKC ANNUAL REPORT
EMPLOYEES
GROWTH. SUCCESS.
RURAL COMMUNITIES
STRATEGIC PARTNERS WWW.MKCOOP.COM
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Member owners MKC exists for our member-owners. We’re proud to be a cooperative collectively owned by nearly 8,300 member-owners.
+220 new
members
The network of MKC member-owners depicted below continues to grow year after year.
Network of MKC member-owners
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2018 MKC ANNUAL REPORT
EMPLOYEES LIVING IN 91 different communities
EMPLOYEES
325+
More than 325 employees are part of the shared growth and success of MKC. Our strategy continues to focus on hiring the best talent to build upon our high-performing culture. We will continue to invest in our existing talent to deepen and extend their knowledge and professional development. From the continuing expansion of our student internship program, to providing specialists in all areas of our business, our team is vital to the success of the cooperative.
At MKC, we are committed to keeping our rural communities strong by giving back with time, talent and resources. We’re proud to play a role in the following programs: • 4-H Leadership Development • Kansas FFA Foundation and Local FFA Chapters • Community Events and Festivals • Ag in the Classroom • City and County Emergency Services • Food Banks • Young Business Professional Programs • Angel Tree Program • Adopt-a-Highway Program • School Programs • American Red Cross Blood Drives • MKC Scholarship Program
INVESTED More than $500,000 over the past 5 years
CORE DONATION AREAS LEADERSHIP DEVELOPMENT COMMUNITY SAFETY ALLEVIATING HUNGER AG EDUCATION
Rural
COMMUNITIES 18
2018 MKC ANNUAL REPORT
STRATEGIC PARTNERS
Innovative programs and strategic partnerships are key to the cooperative’s success. We are always looking for new ways to create more value for our members, both in the way we do business and with the products we offer. At MKC, we are actively looking for ways to offer innovative new programs and establish strategic partnerships to set our cooperative up for a successful future of growth and success. Some of our most recent programs and projects we are most proud of: • Sumner County Rail Terminal and Canton Rail Terminal with Producer Ag, LLC. • Named the recipient of the Precision Impact Award by AgPro magazine at the 2017 Ag Retailers Association (ARA) Conference and Expo • Input Financing through Cooperative Finance Association • Emerging Producer Program Strategic partnerships play a key role in our vision. These partnerships include: • Team Marketing Alliance • Producer Ag • Countryside Feed • FarmKan • A+ Aviation
WWW.MKCOOP.COM
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307 W. Cole Street / Moundridge, KS 67107 www.mkcoop.com