MKC 2020 Annual Report

Strong

Foundation

Strong

FUTURE 2020 ANNUAL REPORT

2

OUR MISSION

OUR VISION

OUR VALUES

To create customer, employee and partner success to provide a safe and sustainable food supply.

Partner with customers to successfully navigate the complexity of modern agriculture and industry.

The success of our business will be determined by our ability to focus on safety, courtesy, image and innovation.

2020 MKC ANNUAL REPORT

Building on a strong foundation for the future.

Before you build anything in life, you first need to build a strong foundation that will hold the structure in place.

Sometimes, the structure of a plant consists of a root system that goes deep into the soil before any grain can be produced.

Lumber, brick and mortar provide critical bases to withstand the test of time.

Our life is the same. In our personal lives we work to build a strong foundation that won’t get shaken up by the storms of life. We seek a foundation that will withstand the toughest of trials. A strong foundation that will help transition our losses to victory.

For 55 years, MKC has built a foundation. We have built on a strong foundation that won’t get shaken up by the storms of business and life. The type of foundation that will withstand the toughest of trials.

“

Thank you to all of those who worked diligently, using their tools, their knowledge and experience, to build our foundation.

The loftier the building, the deeper must the foundation be laid.

Thomas Kempis

STRONG FOUNDATION. STRONG FUTURE.

3

leadership letter

Dear Stakeholders, The strength of a building lies in its foundation. A well-built foundation provides the structure’s stability from the ground and keeps the building standing against the forces of nature. Likewise, laying a strong foundation of strategy, systems and leadership is vital for a business to flourish.

Fiscal year 2020 was a year unlike many others. Like everyone else, we weren’t immune to the challenges and complexities that presented themselves, but the foundation built in years past was strong. “Strong Foundation, Strong Future.” is a powerful reminder of why the cooperative demonstrates continual improvement for our member-owners by investing in resources, talent, technology and assets.

One definition of strong is the ability to withstand great force or pressure.

The strong foundation of MKC has provided a base for the cooperative to remain relevant in the good times and in times when the economic environment in production agriculture is not as promising. Our past investments have prepared the cooperative for times like these and have propelled our company forward. We will continue to invest in areas that will bring value to our member-owners today and for generations to come.

The 2020 fiscal year was recordbreaking for MKC in terms of volumes in our core business areas of grain,

agronomy, energy and feed. Our financial performance was strong as well, with total net earnings just short of $10 million.

Our Board of Directors and leadership continue to discuss and make decisions about striking the right balance between returning those earnings to our members through patronage and reinvesting in resources and assets to continue to ensure we are serving producers’ needs well into the future. We thank you for your continued business and support.

During the past year, we have had many opportunities to grow and make additional investments on behalf of our owners. We welcomed a merger with Plains Equity Exchange and Cooperative Union members in June. We worked together with their employees to integrate people, processes and assets over a few months. This additional geographic footprint spreads our services over a larger area and allows us to create synergies in our business, particularly in grain. This is an example of how our growth enables us to develop talent and create career path opportunities for our people. As we grow, this kind of example is important to attract and retain top talent across our region.

We continue to find new markets in which to deliver grain, both foreign and domestic. The terminal in Canton has shipped out 278 trains since December 2014 and the Sumner County Terminal has shipped out 53 trains since July 2017.

These investments, as well as new investments like the additional grain storage at Moundridge in 2019, allow MKC to improve speed and space for local harvest times and create additional value for our members as we seek to market your grain around the country and globe.

We have invested heavily in technology with the end goal in mind of making it easy to do business with MKC. With each investment in technology, we ask questions like “How will this help our owners?” and “Does this make doing business with MKC easier for our customers?”

We will continue to get feedback from you to understand what future needs you have and then work with strategic partners to make decisions about bringing those investments to life. As the world and business continue to change at a rapid pace, please know that we are always looking for ways to help keep our members on the cutting edge of technologies to enhance their operations.

From a new customer perspective, in 2020, MKC had another great year of member growth.

This year we added 121 new member-owners, not including members of the former Plains Equity. New member growth is always fantastic news for our cooperative and affirms that people value what we offer and how we deliver products, programs and services. Growth is also impactful for our employees, customers and strategic partners.

You also noticed a change in leadership shortly after our 2020 fiscal year ended. After 16 years with MKC and 46 years of cooperative leadership, Dave Christiansen made the decision to retire. His commitment to our tagline, “Shared growth. Shared success.”, is a significant reason why MKC is well prepared for the always uncertain times in agriculture. He left a longlasting mark on our culture and the growth mindset we continue to assume.

We would be remiss to not reflect on the acquisition of Mid-West Fertilizer. In October 2019, Mid-West Fertilizer Inc. and MKC entered into a letter of intent for MKC to acquire MidWest Fertilizer, a full-service agricultural retailer headquartered in Paola, Kansas. In May 2020, the acquisition was finalized and announced as a wholly-owned subsidiary of MKC. This acquisition strengthens our position in the marketplace and

will allow us to expand our services to create additional value for our owners and customers.

We see the growth of our footprint as a key part of our strategy. Mid-West Fertilizer is a strong ag retail organization with a great team. The synergies gained through this acquisition will allow both companies to continue to achieve greater success.

As we progress and build on the past successes of MKC, we want to call out all of the hard work, dedication and enthusiastic mindsets our employees bring to work each day. They truly show up with our customers and owners in mind in all they do. Our keys to success are four simple terms: safety, courtesy, image and innovation. As simple as these words are, these internal and external facing objectives drive our business. We want to be a place where others want to work and that provides employees an opportunity to grow in their career. We also strive to be a business you want to do business with by maintaining a professional image and providing the tools you need in your operation. All the while, we make certain safety is at the forefront of all we do for our employees and our members.

Thank you to our member-owners and customers for their continued business and support. From the foundation of the cooperative and into our future, our success is directly tied to our member-owners and our commitment is never to forget that.

Sincerely,

Allan Wegner Chairman Board of Directors

Brad Stedman President and Chief Executive Officer

STRONG FOUNDATION. STRONG FUTURE.

5

Moundridge Expansion Project Started 2019

DISTRICT 1

DISTRICT 2 DAVID MILLS Secretary

JASON GAEDDERT Vice Chairman

AT-LARGE

KEITH BECKER

DUANE JOHNSON

ALLAN WEGNER Chairman

SARA HASTY

HAL MAYER

BEN SCHRAG

JOHN BORTH

J. DANIEL EAKES

APPOINTED

AT-LARGE

C.J. BLEW

BRAD STEDMAN President & CEO

board of directors

DISTRICT 3

Elected by their peers, 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 member-owners face each and every day.

The Board of Directors consists of 11 members. Three directors represent a district, six directors are at-large, and two directors are appointed.

Detailed biographical information on the MKC Board of Directors is available at mkcoop.com.

FOUR

KEYS The success of our business will be determined by our ability to focus on safety, courtesy, image and innovation.

Since their induction in 2015, the MKC 4 Keys have served as the foundation for company culture. At MKC, safety, courtesy, image and innovation have transformed from four words to a statement of company values. These values lead how employees interact with peers and member-owners.

The MKC 4 Keys clearly define how quality service is to be achieved for both internal customers, our employees, and external customers, our stakeholders.

What are core values and what do they mean to MKC? Core values establish what the organization believes in and the kind of behavior it wants to reinforce.

Values create a moral compass for decision making and influence the actions we take in everyday situations; both inside and outside the workplace. Core values are at the root of the organization. They form the strong, sprawling, interconnected belief system for our entire employee group; including board members, leadership, front- and back-of-the-house employees as well as team members working within our partnering entities.

MKC’s approach to the 4 Keys is sequential in that “safety” will always come first. This doesn’t imply the others are less important. Courtesy, image, and innovation are extremely significant to the organization as well. We want every employee and member-owner to feel safe, encourage kindness, have pride in their cooperative and take initiative to learn and grow with new ideas.

Research shows, companies that can align their culture to their strategic objectives are simply more successful than the competition. Employees are more productive and customers more satisfied. There is more agility toward change and motivation to create the next best thing.

8

2020 MKC ANNUAL REPORT

SAFETY

COURTESY

IMAGE

INNOVATION

GRAIN BIN SAFETY WEEK To commemorate Grain Bin Safety Week, an initiative proclaimed by U.S. Secretary of Agriculture Sonny Perdue as the week of February 16-22, MKC hosted a grain bin safety training in partnership with ProValue Insurance and Nationwide at the Groveland location.

The initiative raises awareness of the lifethreatening dangers of grain handling and provides first responders with the necessary equipment and training needed to save lives from grain bin entrapments.

SHARP PROGRAM PARTICIPANTS PANDEMIC AWARENESS At MKC, we continuously monitored the changes to our company in light of Coronavirus (COVID-19) and its effects on our employees, member-owners and the communities we live and work. We closely followed the guidelines set by public health authorities and government agencies, and formed a COVID-19 task force to create social distancing standard operating procedures and monitor and communicate the changes made at our locations.

Throughout the pandemic, we utilized technology to effectively meet the needs of our employees and safely hired and on-boarded employees to the team.

TRAINING CENTER With a focus on safety and development, a new training center was built by MKC. Located in Moundridge, the MKC Training Center will provide a site to train employees and farmers in a classroom setting using simulated items for hands-on training in anhydrous safety, grain bin entry, electrical and more. The training center includes a large meeting space, board conference room, furnished kitchen and maintenance shop.

Safety for our employees and producers is always our top priority. Eight MKC locations have “taken it up a notch� and received certification through Occupational Safety and Health Administration (OSHA) and the Safety and Health Achievement Recognition Program (SHARP).

SHARP recognizes small companies who operate an exemplary safety and health management system. Qualifying for the award takes time and effort and includes participation from all employees and management. The locations that are SHARP certified are: Abilene, Alta Vista, Bennington, Benton, Groveland, Manhattan, Onaga and Talmage.

S A F E T Y

STRONG FOUNDATION. STRONG FUTURE.

9

SAFETY

COURTESY

IMAGE

INNOVATION

COURTESY

CUSTOMER SATISFACTION SURVEY

In February 2020, MKC sent out a survey to segment of customers to better understand and meet their needs, and find out how we are tracking in terms of providing real value. The results were extremely positive, reaffirming the cooperative is heading in a direction to meet our customers needs’.

Member-owners completed the surveys with an overall satisfaction rate of 84%. Areas of our business where positive reinforcement was shared include: The friendly, trustworthy and knowledgeable people that make up the talent of our organization.

The investments made by the cooperative continue to improve services and programs.

The value the strategic account managers provide to producer’s operation.

The convenience of the products, programs and services.

BETTER TOGETHER WITH PLAINS EQUITY After a series of informational meetings, the owners of Plains Equity Exchange and Cooperative Union approved the merger with MKC by a super majority of 95% 95% at a special vote meeting on April 4, 2019.

On June 1, 2019, the merger was official. This merger expanded MKC’ MKC’s footprint into southwest Kansas and added Plains, Kismet, Wildhorse, Liberal and Hobart to the list of locations to provide products, programs and services to customers. While members experienced numerous changes, MKC was focused daily on making sure it was easy as possible during the transition.

Since the merger, MKC focused on rebuilding and improving the image of the locations including the rebuilding of bunker assets in Plains and adding a new conveyor in Hobart. In addition, new roads were constructed and a new scale and portable office were put in place in Kismet.

SPEED AND SPACE Recognizing the importance of speed and space allows MKC to keep pace with the growing needs of the producer. MKC has made significant asset investments in the past decade to better serve customers bringing their crops to MKC elevators.

MKC has and will continue to show that we are committed to reinvesting in our infrastructure. The cooperative has speed and space strategically across its footprint and will continue to do that to meet the demands of the farmer-owners.

Construction of three new concrete bins began in Moundridge in June 2019 and was completed in June 2020, providing a total of 1.2 million bushels of additional storage. The expansion included a 1,200-bushel dump pit and a 20,000 bushels per hour leg and receiving equipment. It also included a bi-directional drag to take grain to and from the existing elevator and a new 5,000-bushel overhead load-out bin was added.

MKC continues to look for and evaluate the next round of projects in addition to evaluating existing facility upgrades and potential green field sites for all grain, feed, agronomy and energy needs.

10

2020 MKC ANNUAL REPORT

SAFETY

COURTESY

IMAGE

INNOVATION

IMPOSSIBLE PROBLEM In partnership with Winfield United, MKC produced “The Impossible Problem,” a video revealing the challenges and triumphs farmers face every day through a collegiate business class project.

Students were presented with a case study of challenges and were instructed to make a business plan that solved the situation. After a time of collaboration and confusion, a panel of MKC member-owners explained to the students they had been stumped by everyday farming challenges.

The goal of the video was to elevate farmers and bring to light the troubles they face each day. While it may seem impossible to achieve profitability as a farmer, our member-owners and customers constantly find innovative solutions to address the many challenges they face to continue their legacy for future generations.

The video was released on Earth Day and has since reached over 7,000 people through MKC’s social media platforms and been viewed over 1,000 times on YouTube.

IMAGE STEWARDS OF OUR COMMUNITIES MKC is committed to helping our rural communities prosper and prepare for tomorrow. Developing leaders within our communities, alleviating hunger and enhancing ag education and community safety are just some of the programs that we are proud to support.

Over the past five years, more than $500,000 has been donated to these types of programs, including the following: 4-H Leadership Development Mennonite Relief Community Food Banks Kansas FFA and local FFA chapters Community Festivals Ag in the Classroom Farm Safety Camps Walton Rural Life Ag Charter School Women in Agriculture Emergency Services

NO PLANET B When a farmer or consumer looked at the new marketing campaign from MKC and Land O’ O’ Lakes this fall, they couldn’ couldn’t help but be captivated by the image while the simple statement left them thinking. The print ads were just the beginning of the campaign with intentions to educate influencers and the general public about the commitment of farmers and bring attention to the commitment farmers and ranchers have to the land that supports their livelihood.

The “No Planet B” B” campaign was launched as full-page ads in six major newspapers across Kansas, including the The Hutchinson News, The Salina Journal, The Manhattan Mercury, The Wichita Eagle, Lawrence Journal World and The Topeka Capital-Journal. The total circulation was over 85,000.

STRONG FOUNDATION. STRONG FUTURE.

11

INNOVATION 12

SAFETY

COURTESY

IMAGE

INNOVATION

ATLAS PORTAL The long-term e-business vision of MKC brings operational, transactional, and agronomic data together, then utilizes artificial intelligence and machine learning to bring insight, efficiency and profitability to our member-owners. The ATLAS Portal, available to MKC customers at mkcoop.com, is the most effective means to monitor and execute on a threelegged stool strategy.

Some key values of the ATLAS Portal for customers are: Convenience: anytime, anywhere Digital transactions: improved accountability and traceability Provide transparency: logistics and orders Timeliness and responsiveness Improved operational efficiency and customer experience

TMA MOBILE APP The TMA Mobile App puts farmers in the driver’s seat. Users can easily access their TMA account information, such as live tickets and contracts, from wherever they are. Features include bid sheets, wait times at local TMA partner elevators and much more. New features for the 2020 wheat harvest will be increased sorting capabilities, additional delivery account information and quick-view color indicators to determine if a ticket will have a discount. The TMA Mobile App can be downloaded from Google Play or the Apple App Store.

2020 MKC ANNUAL REPORT

DIGITAL SIGNATURES As part of digital transformation, electronic signatures are now a reality. MKC and TMA will use digital signatures for grain marketing, crop insurance and next generation programs. The adoption of e-signatures allows producers to better manage contracts and quickly sign and return documents on the go from places like the field or on the tractor.

Digital signatures allow for greater transparency in seeing contracts immediately and increases the ease of doing business for the customer.

COVER CROPS The goal to improve soil health while maintaining or improving profitability is becoming more of a focus on many farms. Cover crops are an innovative approach that can be a component of achieving that goal, and MKC brought the knowledge and assets to make that happen. The MKC cover crop plant has capabilities to custom mix to create a combination to fit an individual producers’ needs.

Cover crop mixes are blended into bulk bags or tender trucks. The cover crop market has been growing and is an area MKC continues to meet the needs of our farmers and help educate them about the value of cover crops. The MKC cover crop facility is an opportunity to provide cover crop seed and blends to customers across our entire footprint. We source in different seed, make the blend and source directly to the grower.

STRONG FOUNDATION STRONG

FUTURE

financial overview

Strong financials are foundational to a successful business.

Just as a building can’t stand without a well-built foundation, a business will fall if not financially stable.

We continued to perform well in all business units including grain, agronomy, energy and feed. In addition, the cooperative is well-positioned for the future, carrying over 67 million bushels of grain.

We have three financial metrics identified which we use to measure success of our financial performance: net earnings, net fixed assets and working capital. We also measure the value DANNY POSCH brought to our member-owners with two primary metrics: Executive Vice President & customer satisfaction and customer retention.

Chief Financial Officer 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 and working capital measures the strength and stability of the cooperatives’ balance sheet and overall financial position.

Our net earnings for the fiscal year were $9.7 million, an increase over our 2019 financial performance. All of our business units performed at or above expected levels, with record volumes in many categories.

MKC’s net fixed assets of the organization have grown from $31 million to $160 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 had a very strong working capital position of over $53 million, an increase of $6.2 million over 2019. A strong working capital position is critical to our organization because it provides a platform for growth and allows the cooperative to execute its strategic goals, strengthen relationships with creditors, and allows the cooperative to maintain adequate lines of credit with lenders.

One of the more challenging events this past year was the patronage allocation to our members. We were unable to allocate patronage in the areas of agronomy, energy and feed in fiscal year 2020 due to a one-time interest limitation deduction correction from the Tax Cuts and Jobs Act of 2017. Under the Tax Cuts and Jobs Act, our interest deduction was adversely limited in 2019 and a one-time election was made for 2020 to get out from under this burdensome limitation permanently. The result of this election was a one-time reduction of patronage dividends in FY2020. Going forward, there will be no significant impact to deductions or patronage for MKC from the Tax Cuts and Jobs Act of 2017.

It is also worth repeating that some of the greatest value delivered to our memberowners is not measured by a financial plan, ratio or target. Most often it is through our commitment to investing in the most talented employees, technology, innovative products, services and financing. We strongly believe those investments help the member-owner be more successful on the farm and ranch. A customer satisfaction metric measures how well our products and services meet or exceed our memberowners’ expectations, while a customer retention metric measures the ability of a business to retain customers. We are proud to report our customer satisfaction and customer retention metrics were 96% and 84%, respectively this past year. Both of those metrics are considered very strong in any industry.

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.

Patronage Allocation and Cash Distribution to Members 2020 Patronage Allocation

Rate

Grain

4 cents/bushel

Total Patronage Allocation Non-qualified Patronage Redemption Non-qualified Patronage

Total Patronage Allocation

Amount $

1,527,861

$ 1,527,861 $

461,958

1,065,903

$ 1,527,861

MKC was unable to allocate patronage in the areas of agronomy, energy and feed in fiscal year 2020 due to a one-time interest limitation deduction correction from the Tax Cuts and Jobs Act of 2017. Under the Tax Cuts and Jobs Act, our interest deduction was adversely limited in 2019 and a one-time election was made for 2020 to get out from under this burdensome limitation permanently. The result of this election was a one-time reduction of patronage dividends in FY2020. Going forward, there will be no significant impact to deductions or patronage for MKC from the Tax Cuts and Jobs Act of 2017.

Section 199A Tax Deduction Section 199A is a tax deduction that applies to proceeds from agricultural goods produced and/ and/or marketed by farmers cooperatives, and is most commonly passed down to individual farmers. This tax deduction allows farmers to reinvest these dollars into their operations and communities. MKC recognizes the value of the Section 199A pass-through to our member-owners and will continue to work on ways to maximize the deduction on their behalf. Patronage and the pass-through deductions allocated to our members have been of great value and will continue to be a focus and strategy of management and the Board of Directors going forward.

When passed under the Tax Cuts and Jobs Act of 2017, the Section 199 legislation became highly scrutinized by non-cooperative grain companies. As a result, a section 199A “fix fix”” was included in the Omnibus Government Spending Bill in 2018. Under the final legislative language contained in the Omnibus Government Spending Bill, section 199A was restored to former cooperative Section 199 benefits, thus allowing the cooperative to pass through excess 199A to our member-owners.

MKC History of the Section 199 Deduction Pass-through The Section 199 Deduction was initially passed through by MKC cooperative in 2013 and allows farmers, our member-owners, to receive a deduction that will reduce all of their taxable income. The impact of Section 199 has been influential and has had a significant positive impact on local communities and MKC members. Below is the 7-year history of the Section 199 pass-through to member-owners from MKC: MKC: FYE 2020 – $8.2M (21 cents per bushel) FYE 2019 – $3.2M (10 cents per bushel) FYE 2018 – $3.2M $3.2M (10 cents per bushel) FYE 2017 - $5.5M (15 cents per bushel) FYE 2016 - $3.9M (13 cents per bushel) FYE 2015 - $3.8M (14 cents per bushel) FYE 2014 - $3.1M (12 cents per bushel) STRONG FOUNDATION. STRONG FUTURE.

15

Consolidated Balance Sheets Current Assets

2020

2019

Cash and cash equivalents

$ 563,932

$ 250,889

Marketable securities, available for sale

4,445,514

4,067,892

Patrons and customers

8,681,442

8,073,411

Allowance for doubtful accounts

(200,000)

(175,000)

Grain shipments

3,851,977

303,767

Grain storage receivable

5,793,071

4,518,760

20,899,083

18,224,970

Other

14,634,702

11,847,605

Prepaid inventories

19,398,209

20,863,593

Inventories on hand

320,978,764

281,071,260

399,046,694

349,047,147

Equity in other cooperatives

49,858,734

41,023,617

Investments in affiliates

34,572,388

32,359,552

2,686,624

1,916,898

87,117,746

75,300,067

142,152,736

121,771,959

(58,028,397)

(52,417,987)

84,124,339

69,353,972

$$493,701,186 570,288,779

$$519,165,314 493,701,186

Accounts and notes receivable - trade

Commodity margin accounts

Total Current Assets

Other Assets Other

Total Other Assets

Property, Plant and Equipment Cost Accumulated depreciation

Net Property, Plant and Equipment

Total Assets Assets Total

16

2020 MKC ANNUAL REPORT

February 29, 2020 and February 28, 2019

Current Liabilities Accounts payable and accrued expenses Customer prepaid sales contracts

2020

2019

$ 65,684,420

$ 62,295,888

12,975,119

12,253,626

253,685,479

214,976,644

4,617,259

4,371,932

9,029,002

6,772,985

Patronage dividends payable

-

1,383,209

Income taxes payable

-

234,986

345,991,279

302,289,270

Revolving bank notes Patron demand certificates Current maturities of long-term debt

Total Current Liabilities

Long-term Liabilities, excluding current maturities Non-revolving bank notes

51,750,165

36,571,545

Patron certificates of indebtedness

6,343,594

5,771,194

Capital lease obligations

2,840,624

3,700,271

Other

6,130,558

2,563,612

67,064,941

48,606,622

Common stock

11,966,500

11,036,850

Participating stock

5,606,650

4,249,900

Allocated Patronage

39,204,092

31,410,644

Contributed capital

10,567,189

9,380,639

Retained earnings

71,906,706

63,609,249

Non-controlling interests

18,168,668

23,124,248

(187,246)

(6,236)

157,232,559

142,805,294

$ 570,288,779

$ 493,701,186

Total Long-term Liabilities

Member’s Equity

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.

STRONG FOUNDATION. STRONG FUTURE.

17

Consolidated Statements of Operations Sales

2020

2019

$ 344,194,950

$ 364,225,569

137,825,504

121,322,804

482,020,454

485,548,373

295,919,553

306,496,523

120,787,811

107,520,005

416,707,364

414,016,528

65,313,090

71,531,845

12,870,415

9,202,263

Limited liability companies

5,260,193

6,121,466

Agronomy services

7,971,483

7,121,697

Interest income

414,538

283,503

Gain on disposal of property, plant and equipment

264,957

851,569

3,403,272

2,488,382

Total Other Operating Income

30,184,858

26,068,880

Gross Income from Local Operations

95,497,948

97,600,725

Personnel costs

31,187,473

27,529,806

Fixed expenses

21,359,065

20,662,723

Other operating expenses

26,842,061

24,083,499

Total Operating Expenses

79,388,599

72,276,028

Earnings from Local Operations

16,109,349

25,324,697

Grain Farm supply

Total Sales

Cost of Sales Grain Farm supply

Total Cost of Sales Gross Margins of Sales

Other Operating Income Grain storage and handling services

Miscellaneous

Operating Expenses

18

2020 MKC ANNUAL REPORT

For Years Ended February 29, 2020 and February 28, 2019

Other Earnings

2020

2019

Patronage dividends

6,940,938

6,410,912

Gain on business acquisitions

2,758,082

-

238,754

224,952

9,937,774

6,635,864

26,047,123

31,960,561

Investment income

Total Other Earnings Net Earnings Before Income Taxes

Provision for Income Taxes Current income taxes Deferred income taxes

Total Provision for Income Taxes Net Earnings Before Non-Controlling Interests

Non-Controlling Interests Net Earnings Attributable to Parent Before Other Comprehensive Income

10,120

(45,039)

735,025

169,449

745,145

124,410

26,792,268

32,084,971

(16,882,978)

(22,917,348)

9,909,290

9,167,623

-

(108,157)

(181,010)

(24,750)

(181,010)

(132,907)

$ 9,728,280

$ 9,034,716

$ 1,527,861

$ 3,383,209

8,381,429

5,784,414

(181,010)

(132,907)

$ 9,728,280

$ 9,034,716

Other Comprehensive Income Unrealized holding gain of marketable securities Unrealized gain on fair value of interest rate swaps

Total Other Comprehensive Income (Loss) Total Comprehensive Income

Distribution of Comprehensive Income Patronage dividends Retained earnings Other comprehensive income

Total

STRONG FOUNDATION. STRONG FUTURE.

19

Financial Performance Total assets of the company are at $570,288,779.

Total assets increased this past year due to an increase in the company owned grain position (inventory) as well as the merger with Plains Equity Exchange.

Total Assets $600,000,000

570,288,779 519,165,314 493,701,186

$500,000,000 434,745,237

$400,000,000 $300,000,000

346,645,094

347,219,951

2015

2016

301,951,776

209,411,086

$200,000,000

227,504,568 206,170,887

$100,000,000 $0

2011

2012

2013

2014

2017

2018

2019

2020

Net earnings for FY20 were $9,728,280. 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.

Net Earnings $20,000,000

18,212,363

$18,000,000 $16,000,000 14,073,776

$14,000,000

13,342,854

$12,000,000 $10,000,000

9,800,584

9,728,280

9,111,101

8,871,405

9,034,716 7,944,596

$8,000,000

5,849,978

$6,000,000 $4,000,000 $2,000,000 $0

20

2011

2012

2020 MKC ANNUAL REPORT

2013

2014

2015

2016

2017

2018

2019

2020

Financial Performance and Community Investment MKC’s working capital position is at $53,055,415. Working capital is a good indicator of a company’s ability to meet upcoming debt obligation.

Working Capital $60,000,000

53,055,415 49,981,676

$50,000,000

46,757,877

$40,000,000 $30,000,000

26,749,878

35,102,439

35,017,726

35,876,161

2015

2016

2017

28,628,956 25,430,215

23,193,813

$20,000,000 $10,000,000 $0

2011

2012

2013

2014

Community Investment

2018

2019

2020

MKC provides benefits to over 95 communities in the form of personnel costs, local taxes and other expenses. These payments have a significant impact on communities and help support the businesses and services we utilize.

$50,000,000

46,681,160

40,506,382

$40,000,000

41,926,369

37,635,917 35,335,447 32,862,108

$30,000,000 25,279,674

24,787,234

2012

2013

26,305,850

23,131,627

$20,000,000

$10,000,000

$0

2011

2014

2015

2016

2017

2018

2019

2020

STRONG FOUNDATION. STRONG FUTURE.

21

Growth in Net Fixed Assets Growth in MKC Net Fixed Assets

Local net fixed assets reflect the ending balances of cumulative investments in property, plant and equipment of the company.

$100,000,000 84,124,399

$80,000,000 70,189,348

72,103,212

70,307,399

69,353,972

2018

2019

65,145,213

$60,000,000 41,111,757

$40,000,000 30,739,856

32,541,117

25,306,856

$20,000,000 $0

2011

2012

2013

Growth in Combined Net Fixed Assets

2014

2015

2016

2017

2020

Net overall fixed assets reflect the ending balances of cumulative investments in property, plant and equipment of MKC and its affiliates – Producer Ag, FarmKan, A+ Aviation Services and Countryside Feed.

$200,000,000 160,224,217

$150,000,000

142,643,663

147,409,272

2018

2019

130,216,270

104,334,618

$100,000,000

88,775,996

52,419,383

$50,000,000 31,745,818

$0

22

2011

37,015,160

38,945,105

2012

2013

2020 MKC ANNUAL REPORT

2014

2015

2016

2017

2020

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