BETTER TOGETHER 2014 ANNUAL REPORT
district 1
Officers & directors
Myron Voth
Cecil Wiebe
district 2
Vice chairman
Duane Johnson
David Mills
district 3
secretary
CJ Blew CHAIRMAN
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Jason Gaeddert
OFFICERS AT LARGE
Neal Beam
Randy Ellwood
directors
Keith Becker
Kenny Carlton
Hal Mayer
Allan Wegner
associate director
appointed director
appointed director
Dave Christiansen CEO / President
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Chairman’s report
cj blew
Thank you for your interest and support of MKC this past year. MKC’s 49th annual meeting theme, “Better Together”, is the perfect theme to define MKC and the cooperative system! From the members of the three initial coops that made up MKC in 1965 to the 217 new members we added this year along with the members of Farmers Cooperative Association of Manhattan who approved a merger with MKC by an overwhelming 91%, farmers have realized the benefits of working with MKC. One of those benefits is the newly added Domestic Production Activities Deduction, often referred to as Section 199 Deduction. This deduction is only available to cooperatives and can be passed through to members. MKC members also saw a patronage distribution of $6.4 million this past year, all while adding 8.2 million bushel of additional grain storage space that includes three new green field sites. Your board and management team continue to develop and implement strategic initiatives that leverage what working together can accomplish.
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MKC doesn’t have an end date or retirement date. We need to position our coop to be viable for generations to come. There will be opportunities for growth in the future and all stakeholders in the cooperative system will need to keep an open mind about what it will take to compete in an ever-changing market place. In an effort to accommodate some of MKC’s past and future growth, your board of directors decided to implement the bylaw change that was passed in 2012, allowing membership to vote for director elections by mail. We hope this change will make participation in the governance of your cooperative easier. Thank you again for your support and I hope that as a member of MKC you’ve found value in many ways by being “better together”.
President’s report
Dave christiansen Since the inception of what we know today as MKC, your cooperative has stood tall as an example of the good that can be gained by working together. Collaboration in virtually all areas of our business continues to be our mission and drives many of our strategies. Finding ways to work with others is more of an expectation from our board of directors than it is a suggestion. This drives our leadership team to continually search for ways we can gain advantages or leverage our scale for the benefit of our members. As you look back through our history, MKC is a collection of producers who decided they would be better off working together than insisting on operating independently. The notes from the first meeting held in 1965 laid out our path clearly and sent a powerful message. Since that meeting we have added over 6,000 members as a result of more than a dozen mergers and acquisitions. I’m proud to work for an organization whose board of directors continues to stay focused on benefiting its members. One of the things I am most proud of is more and more producers each year are discovering the same advantage. Last year we had 217 new members join your cooperative. Many of these producers are just like you and see the value in working with each other through the cooperative. By doing so, they gain economy of scale and enhance their relevance in the market, something that is so vital today. Self-sufficiency is not now, and has never been, the path to prosperity. Helping our growers be more successful is about the exchange and the
specialization of labor to gain significantly more together than we can individually. Cooperative success is more about multiplying our efforts than dividing them. As many of you know, MKC was fortunate to have Farmers Cooperative Association, based in Manhattan, join forces with us. This merger made all of us stronger and is a great example of producers deciding they would be better together. As discussed over the past few years, MKC will continue to prepare for partnerships and mergers as more producerled cooperatives seek to deliver more to their members. We believe we will continue to attract new members if we continue to do the things that provide for a positive customer experience. This will also lead those cooperatives looking to provide that same value and experience to their members to seek collaboration with MKC. Our primary objectives have not changed. If the only measure of success was financial return, then we didn’t have the kind of year we planned for. Although virtually every business category we include in our portfolio experienced an inverse market this year, our performance actually would have to be considered successful. Just as we had planned for, we saw top line unit growth in all business units. This is a result of our overall focus on helping producers manage their risk and providing an overall positive customer experience. Our efforts continue on renewing our infrastructure. This past fiscal year we’ve made significant investments in grain, agronomy and energy facilities across our company. Our customers have really shown they appreciate our efforts over the past few years by increasing their volume at every location we’ve upgraded. I sincerely thank you for all you’ve done to help your cooperative grow, prosper and serve our members better than ever before. We are proof it is better when we work together.
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project
updates
MKC continued its focus on renewing infrastructure this past year, investing more than $16 million. Our ability to do this, while still delivering a strong financial performance, is a clear reflection of well-developed strategies executed by our employees. Continued investments in our facilities allow us to keep pace with the growing needs of our customers. By building state-of-the art facilities, we can provide not only speed and space, but also safety for our customers, employees and the environment. CANTON
Construction of grain facilities in Canton, Rice County, Benton and Talmage resulted in an additional 8.2 million bushels of grain storage space. In addition, Manhattan started construction on a 430,000 bushel grain facility, expected to be completed by August 2014.
BENTON
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A LeMar storage system was added at Groveland, increasing grain storage capacity by an additional 1.2 million bushels. Groveland’s agronomy center also started offering 24-hour access to customers to pick up liquid fertilizer orders.
A seed warehouse in Abilene was completed, providing centralization for bagged seed storage. The seed treater was also moved inside the warehouse, allowing for multiple applications of treatments in a timelier and more accurate manner.
New offices and scales were constructed in Longford and Talmage. The scales provide improved traffic patterns during peak harvest times.
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Consolidated
Balance sheets CURRENT ASSETS
2014
2013
$ 1,029,642
$ 2,275,645
1,190,796
1,324,891
Patrons and customers
7,075,330
7,152,181
Allowance for doubtful accounts
(100,000)
(135,000)
Grain shipments
4,294,986
2,475,804
Grain storage receivable
2,446,466
2,126,284
Commodity margin deposits
3,635,236
6,416,330
Other
5,471,728
6,223,340
142,828
199,907
Prepaid inventories
13,501,428
20,012,430
Inventories on hand
90,011,355
117,300,487
128,699,795
165,372,299
423,087
281,781
Equity in other cooperatives
23,052,165
20,459,795
Limited liability companies
11,792,641
7,872,829
1,091,442
976,747
36,359,335
29,591,152
78,487,762
69,695,379
(37,376,005)
(37,154,262)
41,111,757
32,541,117
$ 206,170,887
$ 227,504,568
Cash and cash equivalents Marketable securities, available for sale Accounts and notes receivable - trade
Deferred income taxes
TOTAL CURRENT ASSETS
OTHER ASSETS Notes receivable, net of current portion
Other TOTAL OTHER ASSETS
PROPERTY, PLANT, AND EQUIPMENT Cost Accumulated depreciation NET PROPERTY, PLANT, AND EQUIPMENT TOTAL ASSETS
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February 28, 2014 and 2013
CURRENT LIABILITIES
2014
2013
$ 33,498,414
$ 43,194,289
Customer forward contracts
10,534,608
8,581,907
Revolving bank notes
48,000,826
72,314,923
Patron demand certificates
1,811,771
1,779,624
Current maturities of long-term debt
5,887,449
5,666,531
Patronage dividends payable
2,566,204
3,417,300
970,308
1,788,769
103,269,580
136,743,343
17,759,002
10,732,057
3,935,329
3,793,943
249,297
710,294
Deferred income taxes
1,200,769
1,223,631
Other
1,841,651
1,508,108
24,986,048
17,968,033
4,487,169
4,354,700
934,215
931,975
Qualified patronage allocations
27,497,170
24,793,559
Retained earnings
39,476,626
36,722,565
Noncontrolling interests
5,749,976
6,119,938
Accumulated other comprehensive income (loss)
(229,897)
(129,545)
77,915,259
72,793,192
$ 206,170,887
$ 227,504,568
Accounts payable and accrued expenses
Income taxes payable TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES, excluding current maturities Non-revolving bank notes Patron certificates of indebtedness Capital lease obligations
TOTAL LONG-TERM LIABILITIES
MEMBERS’ EQUITY Common stock Participating stock
TOTAL MEMBERS’ EQUITY TOTAL LIABILITIES AND MEMBERS’ EQUITY
Financial Statement Presentation The statements presented within do not contain all the 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.
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Consolidated statements of
Operations SALES
2014
2013
$ 381,168,847
$ 315,516,174
119,950,474
124,466,905
501,119,321
439,983,079
Grain
368,347,116
299,030,993
Farm supply
108,765,417
112,450,628
477,112,533
411,481,621
24,006,788
28,501,458
10,700,684
8,336,271
328,931
919,430
5,461,451
5,293,795
Interest income
248,129
275,726
Gain on disposal of property, plant and equipment
513,883
557,249
1,106,083
1,391,054
18,359,161
16,773,525
$ 42,365,949
$ 45,274,983
Grain Farm supply TOTAL SALES
COST OF SALES
TOTAL COST OF SALES
GROSS MARGINS ON SALES
OTHER OPERATING INCOME Grain storage and handling services Limited liability companies Agronomy services
Miscellaneous TOTAL OTHER OPERATING INCOME GROSS INCOME FROM LOCAL OPERATIONS
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For Years Ended February 28, 2014 and 2013
OPERATING EXPENSES
2014
2013
Personnel costs
$ 16,207,802
$ 15,695,798
Fixed expenses
7,152,631
8,090,342
13,435,642
12,041,551
36,796,075
35,827,691
5,569,874
9,447,292
Patronage dividends
6,221,171
7,576,782
Investment income
2,174,980
2,976,900
8,396,151
10,553,682
13,966,025
20,000,974
Current income taxes
(990,641)
(1,544,695)
Deferred income taxes
(102,525)
268,806
(1,093,166)
(1,275,889)
NET EARNINGS BEFORE NONCONTROLLING INTERESTS
12,872,859
18,725,085
NONCONTROLLING INTERESTS
(3,661,406)
(4,651,309)
NET EARNINGS
$ 9,211,453
$ 14,073,776
$ 6,415,511
$ 8,543,250
2,795,942
5,530,526
$ 9,211,453
$ 14,073,776
Other operating expenses TOTAL OPERATING EXPENSES EARNINGS FROM LOCAL OPERATIONS
OTHER EARNINGS
TOTAL OTHER EARNINGS NET EARNINGS BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
TOTAL PROVISION FOR INCOME TAXES
DISTRIBUTION OF NET EARNINGS Patronage dividends Retained earnings TOTAL
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Patronage distribution and
Equity redemptions 2014 PATRONAGE ALLOCATION
RATE
AMOUNT
Grain
12.00 cents / bushel
Agronomy - Seed - Crop Protection
5.35% or $26 / ton on fertilizer
Petroleum - Lubricants
1.30% or 5 cents / gallon on fuel
249,756
Feed - Merchandise
1.13%
110,896
$ 2,926,367 3,128,492
TOTAL PATRONAGE ALLOCATION
6,415,511
EQUITY REDEMPTIONS
1,052,323
TOTAL DISTRIBUTIONS
$ 7,467,834
Patronage Distribution and Equity Redemptions – $7,467,834 Patronage Distribution Equity Redemptions
85.91% 14.09%
CASH DISTRIBUTIONS TO MEMBERS - 10 YEAR HISTORY
YEAR ENDED
EQUITY REDEPMPTIONS
CASH PATRONAGE
TOTAL
2014
$ 1,052,323
$ 2,566,204
$ 3,618,527
2013
650,512
3,417,300
4,067,812
2012
698,399
2,379,444
3,077,843
2011
746,339
2,296,816
3,043,155
2010
649,765
1,703,704
2,353,469
2009
714,116
2,673,170
3,387,286
2008
563,574
805,434
1,369,008
2007
835,730
675,936
1,511,666
2006
558,727
1,263,906
1,822,633
2005
229,503
479,277
708,780
$ 6,698,988
$ 18,261,191
$ 24,960,179
TOTALS
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Net earnings and
Local benefits 40
60
30
10
20
10
Millions
20
NET EARNINGS
30
40 Millions
GRAIN BUSHELS RECEIVED
50
0
0 2009
2010
2011
2012
2013
2014
Grain Receipts Net Earnings
2014 local benefits - $26,305,850 MKC provides benefits to as many as 50 local 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 all utilize. Personnel Costs Other Expenses
62% 3% 4%
31%
Income Taxes Property Taxes
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Historical data HISTORICAL NET EARNINGS $15,000,000
$14,073,776 $13,342,854
$12,000,000 $10,837,662
$9,000,000
$8,219,209
$9,211,453
$8,871,405
$6,000,000 $4,324,814
$3,000,000
0
$3,191,862
$3,033,082
2005
2006
2007
$3,674,858
2008
2009
2010
2011
2012
2013
2014
HISTORICAL RETURN ON EQUITY 35% 30.20%
30% 25%
21.43%
20.48%
20%
18.57% 16.31%
15%
13.80%
19.33% 17.22%
12.77%
11.82%
10% 5% 0%
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2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
community
stewardship At MKC, we’re committed to keeping our rural communities strong by giving back to our communities with our time, talent and resources. Over the past five years, MKC has invested more than $300,000 in our communities. The majority of these investments help develop future leaders of our communities, assist with community safety, alleviate hunger and support ag education. We’re proud to play a role in the following programs: • 4- Leadership Development • Farm Safety Camps
A
• Women in Agriculture • Young Business Professionals Programs
• Kansas FFA Foundation and Local FFA Chapters
• Mennonite Relief
• Community Events and Festivals
• Community Food Drives
• Ag in the Classroom • City and County Emergency Services
• School Programs • Community Blood Drives • Community Angel Tree Programs
A: Each year MKC employees present educational programs to fourth grade students throughout our trade territory. Entitled, Ag in Our Every Day Lives, the program teaches students about different types of grains, how they are grown and the many products developed from the grains. In addition, programs supporting ag education benefited from more than $5,000 in contributions last year.
B
B: Community food banks located throughout central Kansas benefited from donations totaling more than $15,000. In addition, MKC employees collected more than 12,000 pounds of food. C: We believe the leadership programs available through 4-H further develop the leadership skills of today’s youth – those same youth who will some day be the future leaders of our communities. To help strengthen these programs, MKC donated more than $11,000 to 10 area 4-H leadership development programs this past year.
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mkcoop.com
MKC | 307 West Cole | P.O. Box D | Moundridge, KS 67107 | 620.345.6328 | fax 620.345.6330