FACING
CHALLENGES TOGETHER
2016 ANNUAL REPORT
OUR MISSION
To be our customers leading supplier of quality inputs and services and marketer of our customers products, thus enabling our current and emerging stakeholders to achieve their goals, while improving the profitability of all.
OUR VISION
MKC will be a highly-valued, customer-focused business, engaged in profitable relationships, with high business ethics and employee satisfaction.
OUR STRATEGIC INTENT
MKC will grow employing the highest quality talent working with progressive producers as trusted advisors delivering knowledge-based technology and risk management services through modern assets.
DISTRICT 2
DISTRICT 1
OFFICERS AND DIRECTORS
MYRON VOTH
CECIL WIEBE
CJ BLEW
JASON GAEDDERT
KEITH BECKER
HAL MAYER
DUANE JOHNSON
DAVID MILLS Secretary
APPOINTED
DISTRICT 3
Vice Chairman
ALLAN WEGNER Appointed Director
AT-LARGE
Chairman
RANDY ELLWOOD
DAVE CHRISTIANSEN
ASSOCIATE
President & CEO
KENNY CARLTON Associate Director
BEN SCHRAG
Associate Director
Detailed biographical information on the MKC Board of Directors is available at www.mkcoop.com.
SARAH HASTY Associate Director
2016 MKC ANNUAL REPORT
3
LEADERSHIP LETTER DEAR STAKEHOLDERS
H
ere we are again in interesting times. This past fiscal year, we found ourselves coming down from a high of some of the best times in agriculture only to find the challenges that come with tougher times right around the corner. Interestingly enough, many of our young producers and employees are experiencing the challenges that accompany falling farm revenues for the first time. When you find yourself in an environment that every day, regardless of your investment, grain prices fall, and a ton of fertilizer or a gallon of gas is worth less than the day before, generating income is challenging, to say the least. One of the roles of your cooperative is to be a trusted advisor through these challenging times. These are the days we continue to prepare for as we know they will be there. Sometimes the challenges will be great and sometimes no more than a speed bump. Sometimes there will even be great opportunities disguised as challenges. You will never know until you face the challenges, and there is no doubt we can face them more successfully together. Throughout the year we focused on the continued development of our mission of “Shared growth. Shared success.” Our commitment to being a purpose driven organization has many benefits. We believe as long as we continue to stay focused on our objectives then we can take a long-term point of view for your cooperative. We
can make the investments we believe are going to pay off for our members over time. At the top of our investments this year for the benefit of our members revolved around talent. Investing in the kind of people who have the skills it takes to help our members through challenging times. We specifically added expertise to our grain marketing team. This group is searching daily for new markets via the market access we have gained with our new shuttle loader at Canton. With the ability to hit the world markets came new opportunities for our members. Adding additional talent to our precision agriculture has paid dividends for many of you in times that call for proper placement and the proper amount of inputs. Providing talented staff to help you manage the risk you face in financing your inputs, making crop insurance and marketing decisions, we see as just as critical as having the right facilities in the right place. In addition, we continue our efforts on renewing our infrastructure. This past fiscal year we’ve made significant investments in grain, agronomy and energy facilities across our company. Rather than continuing to place BandAids on our assets or infrastructure, we continue to spend more time evaluating the future needs of the producer and making our investments there. If you’re not investing in a growth industry,
Sometimes there will even be great opportunities disguised like challenges. You will never know until you face the challenges, and there is no doubt we can face them more successfully together.
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2016 MKC ANNUAL REPORT
you are clearly falling behind. Focusing on growth and making investments takes courage. A primary challenge always present is balancing short-term financial performance with investing for the future. We believe building capability for the long haul, in every facet of our business, has to remain a priority. When your success drives our business, when it gets tough on you, it’s tough for your cooperative. Cooperatives, however, are there for the members and communities in the best of times and the worst of times. We expand and change, we evolve and we merge. We will continue to provide many services to meet your needs today and in the future; what we don’t do is branch off into other businesses, or pull up stakes and leave. We sincerely thank you for all you have done to help your cooperative grow, prosper and serve our members better than ever before. Through this next year, we are committed--as we always have been--to facing the challenges ahead so your cooperative and your operation can be successful. Sincerely,
CJ Blew Chairman Board of Directors
Dave Christiansen President and Chief Executive Officer
2016 MKC ANNUAL REPORT
5
FACING CHAL TOGETHER There is no doubt we will face challenges in this next year. In 2017, MKC promises to work with you to face the challenges together by focusing on value, investing in growth, providing a talented team, having a commitment to technology and keeping relevance in the forefront of our minds.
Focus on Value
Our strategy is to create a brand in the market place that has value. We do this through our actions everyday, that become part of our culture, and then instantly becomes recognizable and relatable. Our commitment to grain, agronomy, energy, feed and risk management focus on delivering value to the customer through a diverse portfolio. Through patronage payments, continued and competitive market access, strong Section 199 deductions, powerful advocacy and more, support for our members is an everyday pursuit.
Commitment to Technology
We will continue to focus on productivity, new decision tools and sustainability to make choices that could mean the difference between profit and loss in tough times. Through our precision ag platform, we provide greater access to data and insights to optimize input efficiency and bushels per acre for your operation.
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2016 MKC ANNUAL REPORT
LLENGES Investing in Growth
Construction of Sumner County Terminal
In the environment we are in today, it’s critical we continue to grow both within and outside our current footprint. Increased size and scale allows us to be competitive while continuing to deliver the best products and services to support the success of our member-owners and customers. In this highly competitive environment, you’re either growing or getting left behind.
A Talented Team
+
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 programs to providing specialists in all areas of our business, our team will work with you.
Remaining Relevant
Canton Terminal
We have chosen the path of continued growth through mergers, acquisitions and partnerships. On behalf of our members, we will need to join together to gain the edge needed to complete in this global market we find ourselves in today. Partnerships such as the Canton Terminal and Sumner County Terminal with CHS have provided our customers with new opportunities.
FISCAL YEAR 2016
BY THE NUMBERS
8,322
TOTAL MEMBERSHIP
OVER THE PAST FIVE YEARS, MKC HAS INVESTED MORE THAN $300,000 IN OUR COMMUNITIES THROUGH LEADERSHIP DEVELOPMENT, AG EDUCATION , COMMUNITY SAFETY, ALLEVIATING HUNGER AND MORE.
349 EMPLOYEES SERVING living in + 11,000 CUSTOMERS 81 DIFFERENT
communities
GROSS REVENUE
$33,231,723
GROSS REVENUE
$18,905,532
ENERGY
GROSS REVENUE
$3,104,232
FEED
GROSS REVENUE
$2,497,221
GRAIN AGRONOMY
DETAILED FINANCIAL REPORTS FOR 2016 CAN BE FOUND ON PAGES 9-15.
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2016 MKC ANNUAL REPORT
$3.5M CASH RETURNED TO MEMBERS
$5.9M
PATRONAGE EARNINGS
HISTORICAL
DATA
HISTORICAL NET EARNINGS
HISTORICAL TOTAL ASSETS
$400,000,000 $346,645,094 $347,370,074
$350,000,000 $301,951,776
$300,000,000 $250,000,000
$222,184,457
$209,411,086
$227,504,568 $206,170,887
$200,000,000 $155,832,307 $150,000,000
$125,441,587
$115,285,794 $100,000,000 $50,000,000 $2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
HISTORICAL NET EARNINGS $16,000,000 $14,000,000
$14,073,776
$13,342,854
$12,000,000
$10,837,662
$10,000,000 $8,219,209
$9,111,101
$8,871,405
$9,800,584 $7,944,596
$8,000,000 $6,000,000 $4,000,000
$3,191,862
$3,674,858
$2,000,000 $0 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2016 MKC ANNUAL REPORT
9
CONSOLIDATED
BALANCE SHEETS CURRENT ASSETS
2016
2015
$ 3,477,482
$ 2,355,298
2,834,554
2,950,489
10,306,281
10,125,809
Allowance for doubtful accounts
(100,000)
(100,000)
Grain shipments
3,459,949
669,515
Grain storage receivable
4,395,512
3,664,956
Commodity margin accounts
8,907,664
9,025,004
13,238,873
9,015,300
Prepaid inventories
14,021,875
12,771,071
Inventories on hand
164,625,251
184,040,691
150,123
99,650
225,317,564
234,617,783
44,197
89,201
Equity in other cooperatives
35,219,620
27,949,211
Limited liability companies
15,136,911
17,483,787
1,462,434
1,359,899
51,863,162
46,882,098
Cash and cash equivalents Marketable securities, available for sale Accounts and notes receivable - trade Patrons and customers
Other
Deferred income taxes
TOTAL CURRENT ASSETS OTHER ASSETS Notes receivable, net of current portion
Other
TOTAL OTHER ASSETS PROPERTY, PLANT AND EQUIPMENT Cost
111,721,154
103,516,273
Accumulated depreciation
(41,531,806)
(38,371,060)
70,189,348
65,145,213
$ 347,370,074
$ 346,645,094
NET PROPERTY, PLANT AND EQUIPMENT TOTAL ASSETS
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2016 MKC ANNUAL REPORT
For Years Ended February 29, 2016 and February 28, 2015
CURRENT LIABILITIES Accounts payable and accrued expenses Customer prepaid sales contracts
2016
2015
$ 43,386,950
$ 39,262,476
9,841,038
12,245,016
125,154,185
136,397,558
Patron demand certificates
3,531,096
3,858,032
Current maturities of long-term debt
5,172,651
4,461,756
Patronage dividends payable
2,342,642
2,371,493
721,153
919,013
190,149,715
199,515,344
38,514,048
34,089,941
Patron certificates of indebtedness
4,858,804
4,828,025
Capital lease obligations
1,292,360
365,427
Deferred income taxes
2,557,645
2,230,313
Other
1,510,965
2,211,952
48,733,822
43,725,658
5,321,600
5,214,250
Revolving bank notes
Income taxes payable
TOTAL CURRENT LIABILITIES LONG-TERM LIABILITIES, excluding current maturities Non-revolving bank notes
TOTAL LONG-TERM LIABILITIES MEMBERS’ EQUITY Common stock Participating stock
1,669,900
2,201,934
34,978,318
32,626,430
9,352,344
8,877,894
Retained earnings
45,441,179
43,230,705
Non-controlling interests
12,180,990
11,538,269
(457,794)
(285,390)
108,486,537
103,404,092
$ 347,370,074
$ 346,645,094
Qualified patronage allocations Contributed capital
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.
2016 MKC ANNUAL REPORT
11
CONSOLIDATED STATEMENTS OF
OPERATIONS SALES
2016
2015
$ 335,571,232
$ 266,423,608
123,065,168
136,630,651
458,636,400
403,054,259
Grain
316,433,807
250,652,375
Farm supply
106,655,790
119,604,965
423,089,597
370,257,340
35,546,803
32,796,919
12,383,810
11,472,795
Limited liability companies
3,089,786
328,931
Agronomy services
7,687,359
6,830,608
272,927
314,370
Gain on disposal of property, plant and equipment
1,421,568
345,254
Miscellaneous
1,943,963
1,978,027
TOTAL OTHER OPERATING INCOME
26,799,413
22,523,917
GROSS INCOME FROM LOCAL OPERATIONS
62,346,216
55,320,836
Personnel costs
23,417,977
20,596,569
Fixed expenses
11,541,586
9,612,949
Other operating expenses
19,680,501
17,018,297
54,640,064
47,227,815
7,706,152
8,093,021
Grain Farm supply
TOTAL SALES COST OF SALES
TOTAL COST OF SALES GROSS MARGINS OF SALES OTHER OPERATING INCOME Grain storage and handling services
Interest income
OPERATING EXPENSES
TOTAL OPERATING EXPENSES EARNINGS FROM LOCAL OPERATIONS
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2016 MKC ANNUAL REPORT
For Years Ended February 29, 2016 and February 28, 2015
OTHER EARNINGS Patronage dividends Investment income Gain on business acquisitions
TOTAL OTHER EARNINGS NET EARNINGS BEFORE INCOME TAXES
2016
2015
6,069,638
5,520,044
47,000
901,775
-
2,298,353
6,116,638
8,720,172
13,822,790
16,813,193
PROVISION FOR INCOME TAXES Current income taxes
(690,761)
(906,573)
Deferred income taxes
654,885
(1,109,717)
(35,876)
(2,016,290)
13,786,914
14,796,903
(5,669,914)
(4,941,965)
8,117,000
9,854,938
(69,509)
54,493
(102,895)
(108,847)
TOTAL OTHER COMPREHENSIVE LOSS
(172,404)
(54,354)
TOTAL COMPREHENSIVE INCOME
7,944,596
$ 9,800,584
Patronage dividends
5,856,606
$ 5,928,736
Retained earnings
2,260,394
3,926,202
Other comprehensive loss
(172,404)
(54,354)
$ 7,944,596
$ 9,800,584
TOTAL PROVISION FOR INCOME TAXES NET EARNINGS BEFORE NON-CONTROLLING INTERESTS
NON-CONTROLLING INTERESTS NET EARNINGS ATTRIBUTABLE TO PARENT BEFORE OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS) Unrealized holding gain (loss) of marketable securities Unrealized loss on fair value of interest rate swap
DISTRIBUTION OF COMPREHENSIVE INCOME
TOTAL
2016 MKC ANNUAL REPORT
13
PATRONAGE DISTRIBUTION AND
EQUITY REDEMPTIONS 2016 PATRONAGE ALLOCATION
RATE
AMOUNT
Grain
8.00 cents/bushel
$ 2,468,296
Agronomy - Seed - Crop Protection
3.86% or $18/ton on fertilizer
Petroleum - Lubricants
1.95% or 4.3 cents/gallon on fuel
315,422
Feed - Merchandise
3.77%
431,193
2,641,694
TOTAL PATRONAGE ALLOCATION
5,856,606
EQUITY REDEMPTIONS
1,160,622
TOTAL DISTRIBUTIONS
$ 7,017,228
PATRONAGE DISTRIBUTION AND EQUITY REDEMPTIONS - $7,017,228
83.46%
Patronage Distribution
16.54%
Equity Redemptions
CASH DISTRIBUTIONS TO MEMBERS - 10 YEAR HISTORY YEAR ENDED
EQUITY REDEMPTIONS
CASH PATRONAGE
TOTAL
2016
$ 1,160,622
$ 2,342,642
$ 3,503,264
2015
2,885,510
2,371,493
$ 5,257,003
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
$ 9,956,890
$ 21,232,143
$ 31,189,033
TOTALS
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2016 MKC ANNUAL REPORT
BUSINESS UNIT REVENUE AND
COMMUNITY SUPPORT GROSS REVENUE BY BUSINESS UNIT Energy $3,104,232
Feed $2,497,221
Grain Agronomy Energy Feed
Agronomy $18,905,532 Grain $33,231,723
2016 RURAL COMMUNITY SUPPORT - $35,335,447 MKC provides benefits to more than 75 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.
2.77%
62.27%
.10%
Personnel Costs Other Expenses
30.85%
Income Taxes Property Taxes
2016 MKC ANNUAL REPORT
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