2017 annual report
THIS IS YOUR
Cooperative
MKC exists for you, our member-owners. Offering a complete line of supplies and services specializing in grain, agronomy, energy, feed and risk management. We’re proud to be your cooperative. A trusted partner with hard-working employees, state-of-the-art facilities and forward-thinking leadership - grounded by more than 50 years of unwavering commitment to farmers, family and community. More than 4,526 active producer memberowners, 2,679 equity holders, 324 full-time and part-time employees, 73 seasonal employees and 12 interns are a part of this cooperative. MKC is governed by a 12-member board of active producers. Your cooperative is locally owned and farmer-governed since 1965.
leadership letter DEAR STAKEHOLDERS, Balance, it truly is a challenge today in about every aspect of life. Without a doubt, the speed of change today, the adoption, expectation of new ways of doing things or just the pace we run at today has a tremendous impact on the balance in our lives. At MKC, being a company over a half a century old, we are steeped in history that has developed a culture that is both comforting and recognizable. At the same time, we find ourselves operating in a world that has companies like Amazon and Uber setting the bar for customer expectations. No company has the luxury of getting comfortable anymore. Today, more than ever, we are challenged with balancing the needs of the future farmers with those in the twilight of their farming or ranching career. Especially the one-third of farmers or ranchers who have no succession plan. That group, who will make the decision in the next five years or so on what they will do next have little expectation of change. In fact, that group would prefer things to stay just the way they are, or were.
At the other end of the scale is a younger, progressive group of growers, whose expectations when it comes to technology, convenience, choice, speed is beyond the scope of imagination. This dynamic, faced by organizations with history, creates one more challenge to strike a balance if we remain tethered to the past. Like any organization or farm, which has no retirement date, your company has ongoing decisions to make. What to keep, what to let go of, where to allocate our time, energy and money. These are choices that have long lasting implications. Our focus continues to be future-facing and making investments that will provide us both the capabilities to keep up with the farmer of the future and have the market access that will be required to capture the best value of the crops you raise. Maintaining balance also means appreciating the past and recognizing all that has brought us to where we are. We must have a relentless focus on what farmers of the future and our ultimate customer, the consumer, will need to be successful. And honestly, we probably can’t think big enough. We’re learning to think different, not necessarily just work harder. We should all try to peer around corners and take bold actions that inspire results with
the understanding we may be misunderstood in the short-term but continue to have a long-term focus. The good thing about our business is the core customer values haven’t changed through the years. Customers always want better, faster service, a great customer experience and lower prices. These are all things MKC focuses on daily. Balancing is what we do every day. We can and are flexible in how we go about the attainment of our goals. The market changes rapidly. However, we must remain diligent on the achievement of our vision, mission and strategic intent. Our intention of providing a cooperative to you that is relevant in the marketplace and valuable to your operation is why we do the balancing act we do today. Fortunately, your cooperative had another successful year and will continue to invest for your future. Thank you for your support. Sincerely,
CJ Blew Chairman Board of Directors
Dave Christiansen President and Chief Executive Officer
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OFFICERS AND
DAVID MILLS Secretary
JASON GAEDDERT
AT-LARGE
KEITH BECKER
DISTRICT 3
DISTRICT 1
DISTRICT 2
Directors
C.J. BLEW
DUANE JOHNSON
Chairman
MYRON VOTH
Vice Chairman
HAL MAYER
ALLAN WEGNER
DAVE CHRISTIANSEN
RANDY ELLWOOD
Cooperative leadership changes through the years, but a strong board of directors needs to understand our cooperative has no retirement date so it is critical we govern this organization into perpetuity.�
President & CEO
ASSOCIATE
-C.J. Blew
MKC Board of Director Chairman , and farmer and rancher in Reno and Barber County
KENNY CARLTON
BEN SCHRAG
SARAH HASTY
Detailed biographical information on the MKC Board of Directors is available at www.mkcoop.com.
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2017 MKC ANNUAL REPORT
FISCAL YEAR 2017
NEW MEMBERS
MKC has added 1,294 new members over the past five years. This growth in members is in addition to new members added through mergers and acquisitions.
300
276
275
251
250 217 200 161 150 114 100
50
0 2012
2013
324 employees living in
96 different
communities
2014
2015
2016
DETAILED FINANCIAL REPORTS FOR 2017 CAN BE FOUND ON PAGES 6-13.
By the Numbers
2017
OVER THE PAST FIVE YEARS, MKC HAS DONATED MORE THAN $500,000 TO OUR COMMUNITIES TO SUPPORT LEADERSHIP DEVELOPMENT, AG EDUCATION , COMMUNITY SAFETY, ALLEVIATING HUNGER AND MORE.
Revenue byUNIT Business Unit GROSS REVENUE Gross BY BUSINESS
The business units of grain, agronomy, energy and feed generated $67,143,175 in gross revenues in FY17.
Agronomy, $17,776,240
Energy, $3,523,403
Feed, $1,886,550
Grain, $43,956,982
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CONSOLIDATED
Balance Sheets CURRENT ASSETS
2017
2016
$ 1,425,393
$ 3,477,482
3,967,215
2,834,554
10,269,102
10,306,281
Allowance for doubtful accounts
(325,000)
(100,000)
Grain shipments
5,804,029
3,459,949
Grain storage receivable
4,086,175
4,395,512
Commodity margin accounts
15,653,363
8,907,664
Other
14,092,566
13,238,873
Prepaid inventories
12,916,004
14,021,875
Inventories on hand
235,213,096
164,625,251
303,101,943
225,167,441
-
44,197
Equity in other cooperatives
35,465,612
35,219,620
Investments in affiliates
22,509,937
15,136,911
1,564,533
1,462,434
59,540,082
51,863,162
Cost
117,017,268
111,721,154
Accumulated depreciation
(44,914,056)
(41,531,806)
72,103,212
70,189,348
$ 434,745,237
$ 347,219,951
Cash and cash equivalents Marketable securities, available for sale Accounts and notes receivable - trade Patrons and customers
TOTAL CURRENT ASSETS OTHER ASSETS Notes receivable, net of current portion
Other
TOTAL OTHER ASSETS PROPERTY, PLANT AND EQUIPMENT NET PROPERTY, PLANT AND EQUIPMENT TOTAL ASSETS
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2017 MKC ANNUAL REPORT
For Years Ended February 28, 2017 and February 29, 2016
CURRENT LIABILITIES Accounts payable and accrued expenses Customer prepaid sales contracts Revolving bank notes
2017
2016
$ 51,815,394
$ 43,386,950
11,227,640
9,841,038
193,077,368
125,154,185
Patron demand certificates
3,301,064
3,531,096
Current maturities of long-term debt
6,137,276
5,172,651
Patronage dividends payable
1,252,329
2,342,642
414,711
721,153
267,225,782
190,149,715
43,118,220
38,514,048
Patron certificates of indebtedness
5,581,702
4,858,804
Capital lease obligations
1,011,584
1,292,360
Deferred income taxes
1,335,331
1,360,842
Other
2,683,838
2,557,645
53,730,675
48,583,699
11,839,250
5,321,600
2,731,650
1,669,900
28,748,676
34,978,318
Contributed capital
9,387,567
9,352,344
Retained earnings
47,706,765
45,441,179
Non-controlling interests
13,439,917
12,180,990
(65,045)
(457,794)
113,788,780
108,486,537
$ 434,745,237
$ 347,219,951
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 Qualified patronage allocations
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.
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CONSOLIDATED STATEMENT OF
Operations SALES
2017
2016
$ 315,451,202
$ 335,571,232
110,878,296
123,065,168
426,329,498
458,636,400
284,958,869
316,433,807
95,390,694
106,655,790
380,349,563
423,089,597
45,979,935
35,546,803
11,098,937
12,383,810
Limited liability companies
3,429,891
3,089,786
Agronomy services
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
7,631,560
7,687,359
Interest income
295,282
272,927
Gain on disposal of property, plant and equipment
630,820
1,421,568
2,123,429
1,943,963
TOTAL OTHER OPERATING INCOME
25,209,919
26,799,413
GROSS INCOME FROM LOCAL OPERATIONS
71,189,854
62,346,216
Personnel costs
24,556,014
23,417,977
Fixed expenses
13,226,671
11,541,586
Other operating expenses
21,467,211
19,680,501
TOTAL OPERATING EXPENSES
59,249,896
54,640,064
EARNINGS FROM LOCAL OPERATIONS
11,939,958
7,706,152
Miscellaneous
OPERATING EXPENSES
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2017 MKC ANNUAL REPORT
For Years Ended February 28, 2017 and February 29, 2016
OTHER EARNINGS
2017
2016
Patronage dividends
4,025,338
6,069,638
275,217
47,000
TOTAL OTHER EARNINGS
4,300,555
6,116,638
NET EARNINGS BEFORE INCOME TAXES
16,240,513
13,822,790
Current income taxes
(450,128)
(690,761)
Deferred income taxes
287,324
654,885
(162,804)
(35,876)
16,077,709
13,786,914
(10,620,480)
(5,669,914)
5,457,229
8,117,000
Unrealized holding gain (loss) of marketable securities
135,147
(69,509)
Unrealized loss on fair value of interest rate swap
257,602
(102,895)
392,749
(172,404)
$ 5,849,978
$ 7,944,596
$ 3,130,822
$ 5,856,606
2,326,407
2,260,394
392,749
(172,404)
$ 5,849,978
$ 7,944,596
Investment income
PROVISION FOR 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
OTHER COMPREHENSIVE INCOME (LOSS) TOTAL OTHER COMPREHENSIVE INCOME (LOSS) TOTAL COMPREHENSIVE INCOME (LOSS) DISTRIBUTION OF COMPREHENSIVE INCOME Patronage dividends Retained earnings Other comprehensive loss
TOTAL
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There is no doubt there were far more challenges this past year than we have seen in the previous five years, but MKC continues to position itself and its balance sheet for the long haul. We are here to stay.�
HISTORICAL
Data
-Danny Posch MKC Senior Vice President and CFO
HISTORICAL TOTAL ASSETS
Historical total assets of the company have grown to $434,745,237, primarily because of the grain position (inventory) held by the company.
$500,000,000 $434,745,237
$450,000,000 $400,000,000 $350,000,000
$346,645,094
$347,219,951
2015
2016
$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
$100,000,000 $50,000,000 $0 2008
2009
2010
2011
HISTORICAL NET EARNINGS
2012
2013
2014
2017
Net earnings for FY17 were $5,849,978. 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.
$16,000,000 $14,073,776 $14,000,000
$13,342,854
$12,000,000
$10,837,662 $9,800,584
$10,000,000 $8,219,209
$9,111,101
$8,871,405
$7,944,596
$8,000,000
$5,849,978
$6,000,000 $4,000,000
$3,674,858
$2,000,000 $0
2008
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2017 MKC ANNUAL REPORT
2009
2010
2011
2012
2013
2014
2015
2016
2017
FINANCIAL PERFORMANCE AND
Community Investment WORKING CAPITAL
MKC has grown its working capital position to $38,876,161. Working capital is a good indicator of a company’s ability to meet upcoming debt obligation.
$40,000,000 $35,000,000
$35,102,439
$35,017,726
2015
2016
$35,876,161
$28,628,956
$30,000,000 $26,749,878 $25,000,000
$22,414,581
$25,430,215
$23,193,813
$20,000,000 $13,672,912
$15,000,000 $8,978,707
$10,000,000 $5,000,000 $0
2008
2009
2010
2011
COMMUNITY INVESTMENT
2012
2013
2014
2017
MKC provides benefits to more than 96 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.
$40,000,000
$37,635,917 $35,335,447
$35,000,000
$32,862,108
$30,000,000 $25,000,000
$25,279,674
$24,787,234
2012
2013
$23,131,627 $21,095,385
$21,222,587
2009
2010
$26,305,850
$20,000,000 $15,000,000
$14,403,177
$10,000,000 $5,000,000 $0 2008
2011
2014
2015
2016
2017
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PATRONAGE DISTRIBUTION AND
Equity Redemption 2017 PATRONAGE ALLOCATION
RATE
AMOUNT
Grain
4.00 cents/bushel
Agronomy - Seed - Crop Protection
2.12% or $9/ton on fertilizer
Petroleum - Lubricants
.64% or 1.5 cents/gallon on fuel
Feed - Merchandise
2.29%
$ 1,471,670 1,308,652 97,193 253,307
TOTAL PATRONAGE ALLOCATION
3,130,822
EQUITY REDEMPTIONS
548,319
TOTAL DISTRIBUTIONS
$ 3,679,141
CASH DISTRIBUTION TO MEMBERS
Cash distributions to members totaled $1,800,648 for the current fiscal year. Cash distributions include equity redemptions as well as the cash portion of the current year patronage allocation.
$6,000,000 $5,257,003
$5,000,000 $4,067,812
$4,000,000
$3,618,527 $3,387,286 $3,043,155
$3,503,264
$3,077,843
$3,000,000 $2,353,469 $1,800,648
$2,000,000 $1,369,008
$1,000,000
$0 2008
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2017 MKC ANNUAL REPORT
2009
2010
2011
2012
2013
2014
2015
2016
2017
GROWTH IN
Net 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.
$80,000,000 $72,103,212
$70,189,348
$70,000,000
$65,145,213
$60,000,000 $50,000,000 $41,111,757 $40,000,000 $30,739,856 $30,000,000 $20,000,000
$32,541,117
$25,306,856 $17,075,444
$18,397,606
2009
2010
$13,613,996
$10,000,000 $0 2008
2011
2012
2013
2014
GROWTH IN OVERALL NET FIXED ASSETS
2015
2016
2017
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.
$140,000,000
130,216,270
$120,000,000 104,334,618 $100,000,000
88,775,996
$80,000,000 $60,000,000
52,419,383
$40,000,000 21,730,263
24,348,732
2008
2009
25,265,099
31,745,818
2010
2011
37,015,160
38,945,105
2012
2013
$20,000,000 $0 2014
2015
2016
2017
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themes for our
success MKC continues to share with our member-owners and customers of our success themes, and we talk about them constantly.
It is our belief that a successful business, if nothing else, should always be predictable. Our customers, vendors and employees should know every day where we are heading and how we intend to get there.
Producer Ag, LLC
Tactics and individual strategies will change over time, but the areas we believe will make us successful become ingrained in our culture.
PREMIER TALENT INNOVATIVE LEADERSHIP OPERATIONAL & ORGANIZATIONAL EXCELLENCE CUSTOMER ALLIANCE BUSINESS GROWTH
At a time of consolidation in the food and agriculture industry, our growers and customers are becoming more and more sophisticated and more demanding. Today’s times are a threat for most agribusiness firms, but an opportunity for our cooperative system and local cooperatives like MKC. Our local co-ops are brilliant at “customer intimacy” skills. They know the growers, the geography, the history and how to translate what needs to be done on the farm. MKC’s ability to focus on growth positions all of us to win together in this hyper-competitive business.”
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-Chris Policinski
2017 MKC ANNUAL REPORT
Land O’ Lakes, Inc. President and CEO
success themes
premier talent We believe our biggest investment made on behalf of our customers has to be our employees and in their development. Many times our employee group is the single most beneficial and noticeable area that differentiates MKC from others.�
-Brett Myers
MKC Director of Human Resources and Development
Staying ahead of the competition in the ever-changing environment of the agriculture industry requires new ideas and strong talent. During the mile-a-minute planting and harvest seasons, MKC team members work long hours to meet the needs of all of our member-owners and customers. Our employees take pride in having an impact on those around them and those we are charged with helping every day. We have a whole host of services and specialists at MKC and TMA who on any given day can help you leverage your management time. Our efforts in recruiting young adults through our Collegiate Career Development Program and summer internship experiences are giving us a needed edge when it comes to recruiting. Pair this with the continued development of our existing team, and we are well-positioned to meet the WWW.MKCOOP.COM challenges ahead.
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e v i t a v o n n i rship e d a le Leading the industry with the latest tools, technology, products and services is critical in our business and in our customers. MKC continues to find ways to leverage the most innovative and data backed solutions, and we are dedicated to bringing cutting-edge intelligence straight to your farm gate. Our trusted advisors are prepared to provide customers with intuitive understanding of how to apply state-of-the-art agricultural resources to any operation.
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2017 2017MKC MKCANNUAL ANNUALREPORT REPORT
For MKC, it isn’t just enough to possess the technology, products and services; anyone can do that. For us, it is about being our customers first choice in helping them utilize these applications and assisting them to gain value from them.�
-Dave Spears MKC Senior Vice President and CMO
success themes
success themes
operational & organizational excellence Having well designed employee teams at all of our locations aligned with our strategy leads to achieving operational excellence. Communicating with our customers defines for us what they believe excellence is and what the customer believes is most important.�
-Erik Lange
MKC Senior Vice President and COO Excellence starts with the drive to perform above industry standards and exceed customer expectations. MKC believes to be excellent you must align best operational practices with a relevant organizational structure. Having a balanced focus on both will inspire blended efficiencies. MKC strives to ensure products and services are delivered to customers in a timely, accurate and cost effective manner through proficient processes, executed through strategically placed employees and capital assets.
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Many businesses can do the big things right, but what differentiates the MKC brand from others is the culture they have developed of being attentive and responsive to the personalized needs of our operation. When you are talking about the customer experience, it is the little details that keep customers coming back. Being competitive on price and quality gets our attention, but MKC’s exceptional customer experience is what creates loyalty and extra value for producers.
-Neal Beam
MKC member-owner and farmer in McPherson County
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2017 2017MKC MKCANNUAL ANNUALREPORT REPORT
customer alliance At MKC, we take our tagline seriously. Every day we focus on delivering on our purpose of “Shared growth. Shared success.” MKC has been diligent in building a strong customer alliance by offering product selection and service that is customized, collaborative, consultative, valued and exceeds expectations. By developing personalized relationships with our customers, we are mutually invested in assuring our customers’ success.
success themes
Our focus on the future has helped deliver the scale and market relevance to bring assets and programs that benefit our growers every day. We have brought this idea to life through key partnerships and maintaining our focus on customer success.�
success themes
-Dave Christiansen MKC President and CEO
Over the years, MKC has invested in a number of cooperative-wide infrastructure and capacity improvements in grain, agronomy, energy, feed and risk management projects to benefit member-owners for years to come. We have focused our efforts on achieving the necessary size and scale to not only compete, but succeed, in the face of unprecedented market dynamics. One of our key partnerships has been our relationship with CHS to form Producer Ag, LLC. Our state-ofthe-art facilities in Canton and Milan through our partnership and with TMA managing the logistics and marketing has translated into additional revenue for our growers. Another example is our Groveland warehouse with Winfield-United. This partnership has brought additional warehouse space and logistics for your cooperative.
business growth
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307 W. COLE ST. MOUNDRIDGE, KS 67107 WWW.MKCOOP.COM