PUTTING YOUR FUTURE FIRST

Transcription

1 CHS ANNUAL REPORT

2 From left: Producers Trey and Tobe Duensing check progress of a new grain shuttle loader at Superior, Neb., with Aurora Cooperative grain team members Cody Carlson and Lynn Culbertson. The co-op is partnering with CHS on the new high-speed loading facility. CONTENTS Leadership Letter 02 Operations Report 08 Financial Highlights 29 Financial Report 30 Board of Directors 68 Executive Team 71 Acknowledgements 73

3 PUTTING YOUR FUTURE FIRST By its nature, an annual report focuses on the past, recapping financial results and logging highlights for a 12-month period. But at CHS, we recognize that tomorrow starts today. Each announcement, operational highlight and financial measurement catalogued in this 2013 annual report reflects our commitment to putting the future first for our owners and customers every day. Our success is measured not only by our ability to deliver value through the products, services and market opportunities we provide daily, but also by executing well-thought-out strategies that will help our owners and customers keep growing tomorrow. But keeping the future in mind isn t just about what we do it s also about what our owners and customers want. We asked producers, co-op leaders and customers from throughout our system to share their thoughts on what CHS and this cooperative system must do to help them grow in the years ahead. You ll see some of their responses in this report and hear more from them in Fiscal 2013 was an outstanding year for CHS. Our $992.4 million in earnings was the second highest in our history and revenues reached a record $44.5 billion. More important, in fiscal 2013 we returned a record $598.9 million in cash to our owners in the form of patronage, equity redemptions and preferred stock dividends based on fiscal 2012 earnings. That brings to $1.8 billion the amount of cash returned over the past five years and sets a new mark for cooperative businesses. We continue to examine and adjust our equity management policy to balance returns to our owners and investments in a manner that will benefit our system s stakeholders for the long term. In reporting these results, we recognize that our achievements in fiscal 2013 are rooted in bold decisions made five and even 10 years ago to ensure CHS would continue to meet its owners and customers needs in a rapidly changing global marketplace. Those include decisions to invest in our refining operations, decisions to build a global platform in grain and crop nutrients, and decisions to grow our food and food ingredients businesses. As we enter fiscal 2014, we will continue maximizing the value of today s CHS, and we will ensure our owners continue to grow for many tomorrows. In fact, over the past 36 months, we ve made or committed to more than $4 billion in acquisitions and in expansions and upgrades at our existing operations. These investments and those that lie ahead will help us capture the essential speed and space we need in the global grains and foods sectors to ensure dependable energy supplies and to provide our owners with access to fertilizer and other crop inputs for success in the coming decade.

4 LEADERSHIP LETTER ,260.6 $992.4M Net income dollars in millions attributable to CHS From left: Casale, Bielenberg Putting the future first also means keeping CHS relevant as our owners first choice as a partner. Throughout 2013, that need spurred us to collaborate innovatively with member cooperatives on new grain and fertilizer facilities, energy ventures, and other opportunities to position our system to serve producers and other customers in the years ahead. During the year, several cooperatives also chose to align fully with CHS as part of our Country Operations retail division. We know the future offers no one-size-fits-all solutions, so we are committed to serving our owners in the ways they require to drive their future growth. Our theme, Future First, is not limited to financial achievements or bricks and mortar. We re also investing in the next generation of producers and cooperative leaders. We re striving to make sure CHS and the cooperative system attracts and retains the best talent in rural America and around the world to fuel growth for our owners and customers. Our 10,000 dedicated employees are sharing their time, skills and financial resources to make the communities where we live and work even better. Most of all, we re striving to work safely, a commitment supported by making safety a key performance measurement for every CHS location and employee. We can t predict the future in industries shaped by weather, the global economy and other factors beyond our control. But there is one important thing we must do. That s to continue making the future your future our first priority every day. CARL CASALE President and Chief Executive Officer DAVID BIELENBERG Chairman, Board of Directors CHS

5 COUNTRIES sourcing fertilizer THOUSAND barrels of daily crude oil processing capacity at two refineries following expansion investments PERCENT increase in renewable fuels marketing contracts CONNECTED TO FUTURE SUCCESS For four generations, the Padget family has farmed the high drylands of northcentral Oregon. As a fifth generation joins the operation, the Padgets count on their local Mid Columbia Producers cooperative and the CHS system to help drive their future success raising certified wheat seed and small grains for global destinations with best-in-market risk management and energy supply. Says Darren Padget, Having partners like CHS has been a huge part of our success at the local level. MILLION dollars earmarked for expanding northern-tier propane rail terminals and storage

6 From left: Darren, Dale and Logan Padget

7 ENERGY Shaping the future for our owners and customers with every step forward, CHS continued to build out its energy platform in fiscal This included major investments in refined fuels, propane and lubricants supply and infrastructure, global growth in renewable fuels, and enhancements to its highly regarded refined fuels and lubricants products. These forward-looking steps help ensure CHS not only delivers the best in products and services today, but also remains relevant in the global energy sector tomorrow. Refined Fuels As the nation s leading cooperative refiner, CHS has committed more than $1.4 billion to expanding its refining capacity and dependable distribution. In 2013, CHS announced plans to invest $327 million in capital improvements at its McPherson, Kan., refinery, which will boost refining capacity and efficiency by 18 percent to 100,000 barrels per day and will increase production of premium diesel fuel and other higher-margin energy products. Construction also is under way on a $555 million replacement coker at McPherson, with no slowdown in refinery operations. Both projects are slated to come on line in calendar As of Sept. 1, 2013, CHS owns percent of that operation currently the National Cooperative Refinery Association and will become sole owner on Sept. 1, Investments also continue at the CHS Laurel, Mont., refinery, where a new mild hydrocracker came on line in 2013 to boost high-demand diesel Support from CHS has resulted in refined fuels growth for Mid Columbia Producers, Moro, Ore., and more deliveries for transport driver Russel Krusow. 08 CHS 2013

8 $2.3B Investments in our energy platform, REVIEW OF OPERATIONS fuel production by about 4,000 barrels per day. Combined with increased storage, construction of efficient terminals and a new crude oil pipeline connection in Montana, CHS continues to make future refined fuels supply a first priority for its stakeholders. Refined fuels exceeded performance expectations in fiscal 2013, including increasing gasoline sales by 3.4 percent over 2012, even as the total domestic market declined by up to 5 percent for the year. Supporting that growth was the addition of more than 60 retail fueling locations under the Cenex brand, along with marketshare expansion in the eastern Corn Belt region. The growing Cenex and Cabela s co-branded loyalty program has been extended through The popular program increases sales for Cenex retailers and saves them nearly $1 million in credit card processing fees. Propane, Lubricants and Renewable Fuels With significant reshaping occurring in North America s propane supply sector, CHS is staying ahead of the game. CHS secured long-term propane rail supply agreements to counter planned pipeline changes that will reduce propane volume moving from Canada to the United States in CHS is investing more than $18 million to expand northern-tier states rail terminals and storage in time for the heating season to secure customer supplies. Extending its reach in New England, CHS brought its new Biddeford, Maine, propane terminal on line in late calendar The 180,000-gallon automated terminal helps retailers serve home 5,140 2, Cenex Total Protection Plan Warranty program growth Tomorrow s Top Products Benefit Owners Today Significant performance enhancements were made to Cenex Ruby Fieldmaster and Cenex Roadmaster XL premium diesel fuel additive packages. The new Cenex Sure Seal WL product family, with eight viscosity grades, meets northern oil fields lubricants needs and is supported by an expanded sales team dedicated to the energy exploration segment. CHS

9 CHS increased its ability to serve established transportation fleet customers, adding significant volumes of branded lubricant product sales. Unbranded sales also grew, which helped optimize lubricant manufacturing capacity with more than 2 million gallons of unbranded lubricant sales originating from the CHS Kenton, Ohio, plant. Already a leader in U.S. ethanol and biodiesel distribution, CHS Renewable Fuels Marketing achieved a 20 percent increase in marketing contract gallons in fiscal Growth also included an expanded global presence by adding trading offices in Geneva, Switzerland, and São Paulo, Brazil. CHS continues exploring renewable energy s future, securing opportunities in the cellulosic ethanol segment through a long-term marketing agreement with Canergy, a cellulosic developer. Taking advantage of the broader CHS enterprise, the renewable fuels marketing team connected with CHS grain marketing and crop nutrients presence in several countries to add customer value and improve transportation efficiencies. Thousands of farm, residential and commercial customers make the CHS location at Hamilton, Mich., a major propane player in the area. and business owners with competitively priced North American propane and allows CHS to fulfill marketing agreements with propane suppliers in the Midwest. Bringing the value of Cenex lubricants to more customers in the eastern CHS trade area in 2013 added 450,000 gallons to annual sales volume. Those customers and others in traditional CHS marketing regions continued to see enhanced value in the growing Cenex Total Protection Plan warranty program, which gives peace of mind to agricultural and other equipment owners. In addition, Transportation: Road, Rail, More Delivering leading customer service and reliability are mainstays for CHS Transportation and Distribution, which posted record earnings for the second consecutive year. Restructuring in 2013 allowed the division s more than 600 employees to improve operations while achieving even greater safety performance. New systems were established to track delivery performance, customer service parameters and asset utilization, and record investments were made in the fleet. In addition to its over-the-road fleet, CHS relies on the full spectrum of transportation modes to meet customer needs. Adding 175 new railcars allowed movement of diesel fuel via rail to reduce costs and expand distribution options. Increasing capacity around maintenance timing for the Laurel refinery ensured customer needs would be filled. Increased movement of dry crop nutrients products also helped reduce input costs for CHS owners. 10 CHS 2013

10 REVIEW OF OPERATIONS Putting a Safe Future First In 2013, CHS elevated its safety commitment, rolling out The Safety Zone awareness and education program for employees and making safety performance a key success measurement. In September, CHS designated $3 million to a major safety initiative intended to make sure new generations of producers and employees can fulfill growing global food demand, and do it safely. In 2013, CHS also saw: _ Reduced downtime due to roadside vehicle inspections. _ I mproved safety performance for CHS Transportation and Distribution with 31 percent fewer lost-time injuries, 24 percent fewer Occupational Health and Safety Administration recordable injuries and 53 percent fewer U.S. Department of Transportation recordable crashes compared with fiscal _ More than 70,000 safety training events per year at Country Operations locations; CHS has 97 people dedicated to health, safety and environmental sustainability at its Country Operations retail service centers. The Cenex brand shines for Northern Star Cooperative, Deer River, Minn. _ Grain bin rescue training offered by CHS Country Operations and other company grain operations, as well as many member cooperatives. _ Contributions of rescue equipment by CHS and the CHS Foundation to local first-responder teams. _ Responses from more than 4,600 U.S. CHS employees to a safety culture survey. $3M Commitment to agricultural safety CHS

11 THOUSAND tons of new soy flour production capacity 180 VALUE AND LEADERSHIP At 18, Jake Kraft is young, but he knows what it will take to build on two generations of success on his family s farm west of Billings, Mont., where they raise hay, corn silage and barley for their cow-calf, feedlot and hog operation. To support my successful future, the co-op needs to keep up with technology and provide good service. The Krafts count on Town & Country Supply in Laurel, Mont., to meet their agronomy and fuel needs. MILLION dollars investment in preliminary studies for proposed Spiritwood, N.D., nitrogen plant LOCATIONS locally controlled CHS retail locations MILLION bushels new soybean crushing plant storage capacity MILLION tons of value-added soy protein products produced annually

12 From left: Ed, Rick and Jake Kraft, Laurel, Mont.

13 AG 24 Adding long-term value for its owners and customers through strategic expansion of the CHS grain and crop nutrients footprint at home and around the world continued at a brisk pace in fiscal While focusing on future growth, the CHS Ag segment delivered daily results, successfully managing the business through reduced grain export volumes from the 2012 drought and a late U.S. planting season, which limited crop nutrient applications. Grain Marketing Over the past decade, CHS has remained unwaveringly focused on the future to secure its position as a yearround grain supplier in a dynamic global environment, keeping the producer-owned cooperative in the market every day and ensuring customers have dependable grain supplies Global operations growth Countries with CHS employees CHS added new global connections and capabilities in 2013 as it marketed more than 2 billion bushels of grain and oilseeds, offsetting drought-driven record low U.S. corn export volumes with production from a growing global origination platform. CHS marked its 10th year in South America by expanding into northern Brazil, Paraguay and Uruguay, including opening an office in Montevideo, Uruguay, as fiscal 2014 began. Additional capability in the region includes supplying wheat and marketing renewable fuels to Brazilian customers and investing in a confectionary sunflower processing facility in Argentina. CHS currently provides 5 percent of total wheat imports to Brazil. Midyear, CHS announced formation of CHS AGRO, a sunflower marketing joint venture based in Argentina, a significant sunflower production region. The venture will grow and process edible sunflower kernel and in-shell products for global distribution, beginning in The fiscal year also included the acquisition of 50 percent ownership in Agfarm, a grain origination and marketing company based in Sydney, Australia. Grain producers affiliated with Agfarm will benefit from greater access to Asia-Pacific markets and increasing demand for high-quality grains and oilseeds in that region. CHS Asia-Pacific presence was strengthened further by opening a Taipei, Taiwan, office to handle sales of corn, wheat, soybeans and distillers dried grains with solubles (DDGS), a byproduct of ethanol manufacturing. With river access a key factor in supplying grain to Producer Shawn Nedens, left, Hardin, Mont., checks the progress of his sugar beet crop with Town & Country Supply Agronomist Tyler Benninghoven.

14 REVIEW OF OPERATIONS the burgeoning Chinese market, CHS formed a joint venture to build a facility at the Port of Nantong along the Yangtze River. A new organizational structure with enhanced business management capabilities in the Asia-Pacific region is expected to help CHS expand its presence there as the system continues to develop market access for its owners. CHS Europe operations underwent organizational restructuring in fiscal 2013 with the goal of finding new efficiencies and adding value for grain origination operations in the Black Sea region. The business also worked to strengthen relationships with origination and export partners in the region, including its terminal joint venture at Odessa, Ukraine. CHS also invested in infrastructure during fiscal 2013 to give U.S. producers additional competitive access to global markets. A major expansion now under way at Kalama, Wash. part of the CHS-Cargill TEMCO export terminal joint venture is expected to significantly increase speed and capacity of rail unloading and loading of vessels largely bound for China and other Asia-Pacific destinations. In the nation s heartland, CHS acquired a facility on the Illinois River near Pekin, Ill., establishing an additional corn and soybean origination point to supply export markets through its Myrtle Grove, La., terminal. Inland origination expanded as well, through CHS partnerships with member cooperatives. Construction of a high-speed grain shuttle loading facility that will include liquid fertilizer capacity is in process near Superior, Neb., with Aurora Cooperative, Aurora, Neb. The project is the first in an innovative program allowing a member cooperative to commit a portion of its CHS equity as funding and is slated for 3M Acres served by CHS YieldPoint precision agriculture experts Wheat harvest is under way at the Kenny and Dahm families Bar Box Farm and Ranch near Standard, Alberta, Canada. The operation is a CHS DynAgra customer completion. A limited liability company formed with MKC (Mid Kansas Cooperative), Moundridge, Kan., is constructing a high-speed shuttle site in Canton, Kan., with more than 3 million bushels of grain storage capacity. Country Operations With almost 500 locations, CHS Country Operations continues to add value for 75,000 producer-owners and provide another tool for member cooperatives whose owners choose to fully align with CHS. Delivering one of its best years ever in 2013, CHS Country Operations continued to provide essential products and services to crop and livestock farmers throughout rural America and, most recently, Canada. Early in the fiscal year, CHS DynAgra became the first Canadian entity to join CHS Country Operations. Based in Alberta, CHS DynAgra has three decades of experience providing seed, crop nutrients, crop protection products and services, and financing to farmers in Canada s primary grain-producing region. Mergers with Larsen Cooperative, New London, Wis., and Ostrander Farmers Co-op, which CHS

15 CHS Nutrition posted record earnings and tonnage for fiscal 2013, combining the strength of its Payback and Equis brands and strong manufacturing footprint with the first full year of operation for its Consumers Supply Distributing, LLC, joint venture. Its products, supported by staff expertise, added value for customers even as input prices remained high for much of the year. More than 3.2 million meals were provided to needy families through the third annual CHS Harvest for Hunger, a food and funds drive facilitated by Country Operations. The drive increased donations by more than 30 percent over 2012 and included food, grain and cash donations from nearly 60 locations. More than 7.5 million meals have been raised since the program s start in Adding new value was the focus for CHS Sunflower as it successfully pursued its own global growth strategy in fiscal One of the world s largest processors and distributors of confectionary sunflower products and a U.S. leader in food-grade sunflower seeds, CHS Sunflower exports products to western Europe, the Pacific Rim and the Middle East. It is a primary supplier of U.S. wild bird foods and develops improved sunflower hybrids to meet customer specifications. Nicole Nelson of Aurora (Neb.) Cooperative checks grain quality. combined operations with CHS Grand Meadow in southern Minnesota, were completed in fiscal CHS formed an agronomy joint venture with Elburn Cooperative, Crescent City, Ill., strengthening the system s presence in the area. CHS YieldPoint, a proprietary precision agriculture service offered through Country Operations location experts, helped increase production on approximately 3 million acres in its first full year, even though many acres were not planted in 2013 due to cold, wet spring conditions in northern states. CHS retail locations entered the branded specialty fertilizer category with introduction of CHS Aventine Complete, a unique starter fertilizer featuring a low use rate that helps release nutrients bound in the soil for more reliable crop establishment. The business added an inside sales team to complement existing field teams and enhanced sales strength in Canada to capture new opportunities. Crop Nutrients Marking another year of strong performance, despite a wet and challenging 2013 spring season, CHS Crop Nutrients made significant strides in strengthening its role in connecting producers to dependable global and local fertilizer supplies. Preliminary due diligence continued into fall 2013 on a proposed nitrogen manufacturing plant at Spiritwood, N.D. The largest proposed project in CHS history, the plant would take advantage of abundant inexpensive natural gas stores in the robust energy production region to produce a reliable supply of crop nutrients to farmers in the Upper Midwest. Development has entered the FEED (Front-end Engineering and Design) study phase, including scope and engineering specifications. Upon completion of the $25 million study, expected at the close of calendar 2013, a final go-forward decision will be made. During fiscal 2013, CHS signed an agreement with Texas International, creating strong export and truck capabilities in the southern Texas marketplace, 18 CHS 2013

16 REVIEW OF OPERATIONS and opened an Overland Park, Kan., office to better serve that region s customers. Crop nutrients introduced CHS XLR-rate specialty fertilizer with an initial product line consisting of low-salt, high-orthophosphate starter and foliar fertilizers. These complementary, value-added products are used in conjunction with a traditional fertility program, resulting in incremental volume at higher margins. CHS now sources crop nutrients from 20 countries, manages 70 U.S. terminals and continues to identify ways to secure supply for U.S. customers. Projects completed in 2013 included acquiring sites or facilities in Kentucky, Montana, South Dakota, Tennessee and Texas, and expanding existing storage in Iowa and Minnesota. Several involved partnerships with member cooperatives, CHS grain marketing and/or Country Operations, leveraging the strength of the greater CHS system, including forming a limited liability company with a central Montana cooperative to construct a 35,000-ton fertilizer warehouse. Growing our global commodities footprint in 2013 Processing and Food Ingredients Global demand for high-quality differentiated soy ingredients fueled continued expansion of CHS processing and food ingredients operations in 2013 as CHS focused on growth in high-value soy-based products to benefit its owners and reach new consumer markets. With a commitment to growing additional value for producers, CHS offers products ranging from soy oil and soybean meal to soy flour and soy protein isolates, ingredients in great demand for high-protein drinks, energy bars and foods. CHS continues to invest in enhanced systems, elevate food safety processes to meet global industry standards and build distribution networks. During 2013, priorities included ongoing integration and investments at recently acquired value-added soy processing facilities in Iowa, Nebraska, Israel and China. Projects included adding 180,000 tons of soy flour production capacity at Creston, Iowa, and making upgrades at the South Sioux City, Neb., and Israel plants. CHS also expanded its staff expertise in the integrated soy foods supply chain through the addition of specialists ranging from engineering and operations to quality assurance and food safety. At the well-established CHS soybean processing facilities in Fairmont and Mankato, Minn., new storage and handling facilities increased capacity by 5.7 million bushels. CHS added processing of valueadded PlastiSoy epoxidized soybean oil, used as an additive in plastics manufacturing to make PVC materials more flexible and stable. PlastiSoy also is used to produce inks and pigments, ag chemicals, lubricating and cutting oils, industrial food packaging, medical devices, and vinyl. Partnering with our owners Country Operations growth Building our global platform CHS

17 THOUSAND direct producer-owners through CHS retail locations 100 TOP Minnesota workplace TOP U.S. property-casualty insurance agencies HUNDRED member cooperatives PARTNERING IN GROWTH When Andy Gehm envisions his farm s future, he sees growth and increased ownership of acres where he raises corn and soybeans near Granville, Ill. As a new director, he sees the same for Northern Partners Cooperative, the product of a four-way merger more than four years ago that strengthened the company and drove investments in services, equipment and infrastructure. I look forward to being around when decisions are made about growth and technology and bringing that business knowledge to my farm.

18 Andy Gehm, Granville, Ill.

19 CORPORATE AND OTHER Leveraging the capabilities of a global business to meet the needs of producerowners, member cooperatives and other rural businesses, CHS continued to support long-term growth and future success across the cooperative system. Combining grassroots knowledge with broad marketing insight and logistical expertise is a core CHS strength. +50% Producer financing increase Business Solutions A secure future depends on effectively managing risk and investing in human capital. The combined capabilities of the CHS Business Solutions suite of businesses CHS Capital, LLC; CHS Hedging Inc.; and CHS Insurance (formerly Ag States Group); along with CHS Aligned Solutions provide those services to member cooperatives, individual producers and other rural businesses. The CHS financial services business, CHS Capital, increased producer financing by 50 percent over fiscal 2012 and financed major projects for several cooperatives, underscoring its financial strength, flexible and attractive products, and knowledgeable customer service. Working in conjunction with member cooperatives, CHS Capital expanded its producer customer base in Illinois, Michigan and the Pacific Northwest, and created nearly two dozen new financing programs to assist farmers with cash flow needs and help cooperatives remain the suppliers of choice for their customers. CHS Hedging, the full-service commodity brokerage subsidiary of CHS, became a clearing member of the Chicago Mercantile Exchange (CME) in July This allows CHS Hedging to clear grain and oilseed contracts traded within CME, complementing similar relationships with the Minneapolis Grain Exchange and the Kansas City Board of Trade, recently acquired by CME. This position gives CHS a voice in margin policies and other decisions that affect cooperative and producer profitability. 24 CHS 2013

20 REVIEW OF OPERATIONS In addition, through CHS Hedging, Russell Consulting Group helped crop and livestock producers plan commodity sales and financing to increase returns and reduce price risk. An Insurance Journal Top 100 property-casualty agency, CHS Insurance continued to expand its insurance products to help clients manage risk to property and people. Controlling health care costs through proactive health management and regular safety assessment and training provides business stability and improves quality of life for employees. Coverage for losses due to natural disasters and accidents gives customers peace of mind and confidence to continue to invest in business growth. Combining years of experience with deep knowledge of both agribusiness and the cooperative system, the skilled CHS Aligned Solutions team helped dozens of cooperatives refine their business plans; develop strategies for CEO succession; and improve employee recruitment, retention and training. The CHS Center for Cooperative Growth, launched late in fiscal 2012, is an online forum that allows participants to explore topics important to member cooperatives and the entire system. CHS Future Forty, an advanced development program for emerging cooperative system leaders, graduated its first class in mid Together, the programs bring new thinking to the system, while current and future leaders acquire new skills and knowledge, sharing ideas with others and building a stronger personal and corporate network M M M Meals raised through Country Operations annual Harvest for Hunger drive CHS Your World Forum programs for managers, CEOs and directors drew record attendance in 2013, keeping participants up to date on industry and market trends, allowing them to interact with CHS business leaders and infusing strategic thinking into cooperative board management. Food Joint Ventures Record volumes and excellent earnings marked 2013 for Ventura Foods, LLC, a joint venture of CHS and Mitsui & Co., Ltd. The manufacturer of vegetableoil-based shortenings, dressings, sauces and other products for foodservice, retail and industrial foods customers continued to deliver strong results, despite continued lackluster performance in much of the U.S. foodservice sector. The year also marked the company s first global venture as it opened an Asian office to support domestic customers who are expanding their own businesses in the region. The ability to create and manufacture customized sauces for quick-service restaurants has been a significant factor in Ventura Foods success, including opening the door to opportunities to work with customers as they expand into markets outside the United States. Ventura Foods was named a Gold Supplier of the Year by Sysco and Vendor of the CHS

21 Year by Subway Restaurants, high praise from these quality-conscious companies. Creation of Ardent Mills, a premier flour-milling company and a joint venture between ConAgra Foods, Cargill and CHS, was announced in The new company will combine operations of ConAgra Mills and Horizon Milling, formed by Cargill and CHS in Pending satisfaction of all closing conditions, the new company will be based in the Denver, Colo., area. CHS will have a 12 percent interest in Ardent Mills. $327K In college scholarships awarded Putting People First Named a Top 100 Workplace for the second consecutive year in 2013 by the Minneapolis Star Tribune, CHS is addressing the need for skilled, knowledgeable, talented employees to lead the company and its member cooperatives to continued success. Using a multifaceted approach, CHS is working to ensure employees have the training, resources and encouragement they need to stay current with technology and industry changes. New programs are identifying and developing employees who understand and value agriculture, energy and other segments served by CHS around the world. In December, the CHS Foundation, the primary CHS giving entity, announced a $2 million investment in the CHS University Initiative on Cooperative Education to help build understanding of the cooperative business model by providing education, development opportunities and hands-on experience. The program will support integrating cooperative education into curricula covering ag business and farm business management at universities and organizations throughout the United States. Graduate-level cooperative education programs; soil, water and environmental studies; and technology-based learning programs will benefit from the initiative. In 2013, the CHS Foundation awarded $327,000 in college scholarships to 230 students studying agriculture at 70 universities to help educate the next generation of leaders in the science, technology and business of agriculture. CHS also contributed $300,000 to the National Teach Ag campaign. The CHS internship program provided opportunities for 125 interns in 2013 with placements at corporate headquarters, production facilities and retail service centers throughout the system. The interns gathered for sessions that provided broader information about the CHS system and to collaborate on community service projects for school-age children. In all, the CHS Foundation and CHS Corporate Citizenship contributed $8.4 million in fiscal 2013 to help develop future ag leaders, improve ag safety and build vibrant rural communities. The second annual CHS Day of Service volunteer program encouraged employee groups and individuals to identify and meet needs in their communities with time granted away from work. Activities ranged from beautification projects to stocking food banks. CHS government affairs staff helped shape the future in a different way as they represented the cooperative system in federal and state legislative conversations covering topics from the Farm Bill to conservation to renewable energy mandates. The Washington, D.C. based team advocates for agriculture, cooperatives and farmers side by side with CHS management teams and directors. This helps ensure their voices are heard during critical debates that will affect the future of U.S. agriculture. 26 CHS 2013

22 FUTURE FIRST Matt Krieser, Mendota, Ill. 02 Ed Kraft and Wes Burley, Laurel, Mont. 03 Jim, Margaret and Mark Jones, Mendota, Ill. 04 Brenda, Darren, Dale, Logan and Deanna Padget, Moro, Ore. 05 Dave, Jane, Rachael and Steve Wilson, Utica, Ill. 06 Matt and David Nielsen, Standard, Alberta, Canada 07 Cameron Schmaltz, Beiseker, Alberta, Canada 08 Stacy and Dennis Boersen, Zeeland, Mich. 09 Mike Warren and Tim Roan, Deer River, Minn. 10 Shawn, Brett and Chris Nedens, Hardin, Mont. 11 Eric Anderson, Mendota, Ill. 12 The Kenny and Dahm families, Standard, Alberta, Canada 13 Bill and Scott Schuster, Phillips, Neb. 14 Brian and Susie Harris, Lake Winnibigoshish, Minn. CHS

23 CASH RETURN dollars in millions* OWNER RETURN ON CHS EQUITY percent *Includes preferred stock and dividends , NET REVENUE dollars in billions NET INCOME dollars in millions* *Attributable to CHS 28 CHS 2013

24 FINANCIAL OVERVIEW FINANCIAL HIGHLIGHTS Strong energy earnings led CHS financial performance for fiscal 2013, offsetting a challenging year in global agriculture and contributing to the second-highest CHS net income in history. For fiscal 2013 (Sept. 1, 2012, through Aug. 31, 2013), CHS recorded net income of $992.4 million, a 21 percent decrease from record earnings of $1.26 billion for fiscal CHS set a new mark for revenues at $44.5 billion in fiscal 2013, an increase of 10 percent over the previous record of $40.6 billion set in fiscal Fiscal 2013 was the third consecutive year of record revenues for CHS. The increase was primarily attributed to higher sales volumes within the CHS Energy and Ag segments. Average selling prices increased for grain and oilseed products, but declined overall in the Energy segment. Year-over-year earnings for the CHS Energy segment declined 21 percent during fiscal 2013, primarily due to reduced margins resulting from a major maintenance turnaround at the CHS Laurel, Mont., refinery. Earnings also decreased for the CHS propane business, while its lubricants, renewable fuels marketing and transportation businesses reported increased income for fiscal The severe drought that affected the 2012 U.S. crop resulted in reduced export margins for CHS grain marketing and contributed to an earnings decline of 39 percent from fiscal 2012 for the CHS Ag segment. The CHS wholesale crop nutrients business also reported lower earnings compared to fiscal 2012, primarily due to lower product margins and costs associated with a feasibility study under way on a proposed nitrogen fertilizer manufacturing plant. CHS Country Operations business predominantly local retail operations also recorded decreased grain margins in fiscal 2013, but overall recorded one of its best years on record. CHS processing and food ingredients business reported lower earnings. CHS reports results for its business services operations and two food processing related joint ventures under the Corporate and Other heading. Earnings for those operations increased 14 percent in fiscal 2013 when compared to the previous year. Combined earnings for CHS insurance, risk management and financing businesses were flat in fiscal 2013 compared with fiscal CHS fiscal 2013 earnings increased from its 50 percent ownership of Ventura Foods, LLC, a vegetableoil-based food manufacturing business, and 24 percent share of Horizon Milling, LLC, the nation s leading wheat miller. Both joint ventures reported earnings increases in fiscal 2013 versus Strong fiscal 2013 earnings, which extend the strongest period in company history, allowed CHS to achieve its three annual financial goals on behalf of its owners: maintaining a strong balance sheet, continuing to invest in the future and returning direct economic value through ownership and cash returns. CHS once again ended its fiscal year with strong return on equity of 22.3 percent. In fiscal 2013, based on record fiscal 2012 earnings, CHS returned a landmark $598.9 million in cash patronage, equity redemptions and dividends on preferred stock to its owners. In fiscal 2014, based on 2013 earnings, CHS expects to return an estimated $433 million in cash to its owners, bringing cash returns generated by earnings in fiscal years 2009 through 2013 to an estimated $1.9 billion. CHS

25 8NOV AUGUST 31 (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 1,808,532 $ 314,029 Receivables 3,270,311 3,590,742 Inventories 2,664,735 3,203,972 Derivative assets 499,890 1,071,778 Margin deposits 340,905 1,138,535 Other current assets 326, ,970 Total current assets 8,910,760 9,667,026 Investments 765, ,388 Property, plant and equipment 3,171,404 2,786,324 Other assets 656, ,286 Total assets $ 13,504,270 $ 13,645,024 LIABILITIES AND EQUITIES Current liabilities: Notes payable $ 889,312 $ 803,622 Current portion of long-term debt 156, ,211 Current portion of mandatorily redeemable noncontrolling interests 65,981 65,981 Customer margin deposits and credit balances 299, ,047 Customer advance payments 432, ,520 Checks and drafts outstanding 185, ,060 Accounts payable 2,416,038 2,236,866 Derivative liabilities 465, ,859 Accrued expenses 485, ,589 Dividends and equities payable 390, ,809 Total current liabilities 5,785,353 6,818,564 Long-term debt 1,450,420 1,332,142 Mandatorily redeemable noncontrolling interests 209, ,726 Other liabilities 906, ,269 Commitments and contingencies Equities: Preferred stock 319, ,368 Equity certificates 3,588,346 3,109,616 Accumulated other comprehensive loss (156,867) (232,587) Capital reserves 1,380,361 1,258,944 Total CHS Inc. equities 5,131,208 4,455,341 Noncontrolling interests 21,539 17,982 Total equities 5,152,747 4,473,323 Total liabilities and equities $ 13,504,270 $ 13,645,024 The accompanying notes are an integral part of the consolidated financial statements. CHS Inc. and Subsidiaries 30 CHS 2013

26 CONSOLIDATED FINANCIAL STATEMENTS 8NOV FOR THE YEARS ENDED AUGUST 31 (DOLLARS IN THOUSANDS) Revenues $ 44,479,857 $ 40,599,286 $ 36,915,834 Cost of goods sold 42,706,205 38,588,143 35,512,988 Gross profit 1,773,652 2,011,143 1,402,846 Marketing, general and administrative 553, , ,498 Operating earnings 1,220,029 1,512, ,348 (Gain) loss on investments (182) 5,465 (126,729) Interest, net 231, ,263 74,835 Equity income from investments (97,350) (102,389) (131,414) Income before income taxes 1,085,994 1,416,571 1,147,656 Income taxes 89,666 80,852 86,628 Net income 996,328 1,335,719 1,061,028 Net income attributable to noncontrolling interests 3,942 75,091 99,673 Net income attributable to CHS Inc. $ 992,386 $ 1,260,628 $ 961,355 The accompanying notes are an integral part of the consolidated financial statements. CHS Inc. and Subsidiaries 8NOV FOR THE YEARS ENDED AUGUST 31 (DOLLARS IN THOUSANDS) Net income $ 996,328 $ 1,335,719 $ 1,061,028 Other comprehensive income (loss), net of tax: Postretirement benefit plan activity, net of tax expense (benefit) of $(21,710), $17,776 and $(30,847) in 2013, 2012 and 2011, respectively 63,116 (38,216) 28,001 Unrealized net gain on available for sale investments, net of tax expense of $603, $199 and $445 in 2013, 2012 and 2011, respectively Cash flow hedges, net of tax expense (benefit) of $9,551, $449 and $(640) in 2013, 2012 and 2011, respectively 15, (1,005) Foreign currency translation adjustment, net of tax (benefit) expense of $(2,383), $(3,699) and $2,842 in 2013, 2012 and 2011, respectively (3,866) (5,855) 4,464 Other comprehensive income (loss), net of tax 75,720 (43,130) 32,176 Comprehensive income 1,072,048 1,292,589 1,093,204 Less: comprehensive income attributable to noncontrolling interests 3,942 75, ,458 Comprehensive income attributable to CHS Inc. $ 1,068,106 $ 1,217,498 $ 991,746 The accompanying notes are an integral part of the consolidated financial statements. CHS Inc. and Subsidiaries CHS

27 8NOV EQUITY CERTIFICATES FOR THE YEARS ENDED AUGUST 31, 2013, 2012 AND 2011 CAPITAL EQUITY NONPATRONAGE PATRONAGE (DOLLARS IN THOUSANDS) CERTIFICATES EQUITY CERTIFICATES REFUNDS BALANCES, AUGUST 31, 2010 $ 2,119,216 $ 24,573 $ 257,725 Dividends and equity retirement determination 67, ,775 Patronage distribution 260,858 (396,500) Equities retired (60,956) (237) Equities issued 6,453 Preferred stock dividends Distributions to noncontrolling interests Changes in dividends and equities payable Other, net (391) (12) Comprehensive income: Net income 674,678 Other comprehensive income Total comprehensive income Dividends and equities payable (136,000) (260,125) BALANCES, AUGUST 31, ,256,749 24, ,553 Dividends and equity retirement determination 136, ,125 Patronage distribution 415,584 (674,678) Equities retired (145,500) (222) Equities issued 29,155 Preferred stock dividends Distributions to noncontrolling interests Changes in dividends and equities payable Purchase of noncontrolling interests Other, net (1,262) (356) Comprehensive income: Net income 969,862 Other comprehensive loss Total comprehensive income Dividends and equities payable (195,999) (378,719) BALANCES, AUGUST 31, ,494,727 23, ,143 Dividends and equity retirement determination 195, ,719 Patronage distribution 595,022 (969,862) Equities retired (193,181) (232) Equities issued 18,211 Preferred stock dividends Distributions to noncontrolling interests Other, net (1,241) (29) Comprehensive income: Net income 841,386 Other comprehensive income Total comprehensive income Dividends and equities payable (101,293) (284,769) BALANCES, AUGUST 31, 2013 $ 3,008,244 $ 23,485 $ 556,617 The accompanying notes are an integral part of the consolidated financial statements. CHS Inc. and Subsidiaries 32 CHS 2013

28 CONSOLIDATED FINANCIAL STATEMENTS ACCUMULATED OTHER NONCONTROLLING PREFERRED STOCK COMPREHENSIVE LOSS CAPITAL RESERVES INTERESTS TOTAL EQUITIES $ 319,368 $ (205,267) $ 820,049 $ 268,787 $ 3,604,451 4, ,435 (5,871) (141,513) (61,193) 6,453 (24,544) (24,544) (18,184) (18,184) (2,787) (2,787) (837) 454 (786) 286,677 99,673 1,061,028 30,391 1,785 32,176 1,093,204 (4,091) (400,216) 319,368 (174,876) 1,075, ,728 4,265,320 4, ,216 (1,572) (260,666) (145,722) 29,155 (24,544) (24,544) (78,602) (78,602) 5,544 5,544 (14,581) (82,138) (337,145) (433,864) 958 3,366 2, ,766 75,091 1,335,719 (43,130) (43,130) 1,292,589 (4,091) (578,809) 319,368 (232,587) 1,258,944 17,982 4,473,323 4, ,809 (6,107) (380,947) (193,413) 18,211 (24,544) (24,544) (1,442) (1,442) 1,068 1, ,000 3, ,328 75,720 75,720 1,072,048 (4,091) (390,153) $ 319,368 $ (156,867) $ 1,380,361 $ 21,539 $ 5,152,747 CHS

29 8NOV FOR THE YEARS ENDED AUGUST 31 (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income including noncontrolling interests $ 996,328 $ 1,335,719 $ 1,061,028 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 241, , ,694 Amortization of deferred major repair costs 34,847 33,641 30,474 Income from equity investments (97,350) (102,389) (131,414) Distributions from equity investments 62,761 75, ,766 Noncash patronage dividends received (16,644) (10,461) (9,697) Gain on sale of property, plant and equipment (6,234) (5,564) (5,200) (Gain) loss on investments (182) 5,465 (126,729) Loss on crack spread contingent liability 23,109 22,328 Deferred taxes 92,717 58,624 67,089 Other, net 5, Changes in operating assets and liabilities, net of acquisitions: Receivables 123,951 (512,034) (714,589) Inventories 557,331 (252,842) (796,596) Derivative assets 610,023 (185,930) (422,374) Margin deposits 812,616 (51,241) (462,857) Other current assets and other assets 19,780 (35,375) (137,749) Customer margin deposits and credit balances (509,548) 56, ,813 Customer advance payments (260,449) 61, ,640 Accounts payable and accrued expenses 171,878 (167,025) 870,314 Derivative liabilities (395,454) 111, ,225 Other liabilities 10,815 60,503 15,617 Net cash provided by operating activities 2,477, , ,323 Cash flows from investing activities: Acquisition of property, plant and equipment (659,373) (468,611) (310,670) Proceeds from disposition of property, plant and equipment 7,727 27,839 9,496 Expenditures for major repairs (73,701) (23,443) (92,129) Investments in joint ventures and other (21,364) (94,757) (6,090) Investments redeemed 13,021 12,112 39,681 Proceeds from sale of investments 1, ,000 Changes in notes receivable 211,935 19,040 (347,509) Business acquisitions, net of cash acquired (12,711) (166,033) (67,489) Other investing activities, net (1,742) (342) (1,259) Net cash used in investing activities (534,958) (694,195) (550,969) Cash flows from financing activities: Changes in notes payable 85,910 (27,561) 457,731 Long-term debt borrowings 280, ,882 Principal payments (113,583) (96,619) (114,929) Mandatorily redeemable noncontrolling interest payments (65,981) Payments for bank fees (9,593) (12,390) (5,348) Changes in checks and drafts outstanding (20,392) 6,353 63,033 Distributions to noncontrolling interests (1,442) (78,602) (18,184) Preferred stock dividends paid (24,544) (24,544) (24,544) Retirements of equities (193,413) (145,722) (61,193) Cash patronage dividends paid (380,947) (260,666) (141,513) Other financing activities, net (20) Net cash (used in) provided by financing activities (443,174) (638,873) 786,915 Effect of exchange rate changes on cash and cash equivalents (5,165) (9,224) 5,753 Net increase (decrease) in cash and cash equivalents 1,494,503 (623,656) 543,022 Cash and cash equivalents at beginning of period 314, , ,663 Cash and cash equivalents at end of period $ 1,808,532 $ 314,029 $ 937,685 The accompanying notes are an integral part of the consolidated financial statements. CHS Inc. and Subsidiaries 34 CHS 2013

30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8NOV Summary of Significant Accounting Policies Organization CHS Inc. (CHS, we, us, our) is one of the nation s leading integrated agricultural companies. As a cooperative, CHS is owned by farmers and ranchers and their member cooperatives (members) across the United States. We also have preferred stockholders that own shares of our 8% Cumulative Redeemable Preferred Stock (8% Pre- ferred Stock), which is listed on the NASDAQ Stock Market LLC (NASDAQ) under the symbol CHSCP. On August 31, 2013, we had 12,272,003 shares of our 8% Preferred Stock outstanding. During September 2013, we issued 11,319,175 shares of Class B Cumulative Redeemable Preferred Stock (Class B Preferred Stock), which is listed on the NASDAQ under the symbol CHSCO. We buy commodities from and provide products and services to patrons (including member and other non-member cus- tomers), both domestic and international. We provide a wide variety of products and services, from initial agricul- tural inputs such as fuels, farm supplies, crop nutrients and crop protection products, to agricultural outputs that include grains and oilseeds, grain and oilseed processing and food products. A portion of our operations are con- ducted through equity investments and joint ventures whose operating results are not fully consolidated with our results; rather, a proportionate share of the income or loss from those entities is included as a component in our net income under the equity method of accounting. Basis of Presentation and Revisions The consolidated financial statements include the accounts of CHS and all of our wholly-owned and majority-owned subsidiaries and limited liability companies, which is primarily National Cooperative Refinery Association (NCRA), included in our Energy segment. The effects of all significant intercompany transactions have been eliminated. We previously reported certain derivatives assets and liabilities on a net basis on our Consolidated Balance Sheets. We have determined that such derivatives should have been reported on a gross basis and have revised our fiscal 2012 Consolidated Balance Sheet, which resulted in an increase in derivative assets of $221.9 million, an increase in derivatives liabilities of $340.8 million and a decrease of Accounts Payable of $118.9 million. The fiscal 2012 and 2011 Consolidated Statements of Cash Flows have also been revised for these changes with no impact to net operating, investing or financing cash flows. We do not believe these revisions are material. The related amounts in our fiscal 2013 interim financial statements will be revised when our 2014 interim financial statements are issued. As of September 1, 2011, we changed the expected useful lives of certain fixed assets in our Energy segment. We increased the expected useful lives of refining and asphalt assets from 16 years to 20 years, which reduced depreciation expense by approximately $27.0 million in fiscal In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Comprehensive Income (Topic 220): Pres- entation of Comprehensive Income. ASU No eliminates the option to present the components of other comprehensive income as part of the statement of stockholders equity. ASU requires an entity to present the total of comprehensive income, the compo- nents of net income, and the components of other com- prehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU No became effective for us during fiscal The required disclo- sures of this update are included in our Consolidated Statements of Comprehensive Income. Cash Equivalents Cash equivalents includes short-term, highly liquid investments with original maturities of three months or less at the date of acquisition. Inventories Grain, processed grain, oilseed and processed oilseed are stated at net realizable values which approximate market values. All other inventories are stated at the lower of cost or market. Costs for inventories produced or modified by us through a manufacturing process include fixed and variable production and raw material costs, and in-bound freight costs for raw materials. Costs for inventories purchased for resale include the cost of products and freight incurred to place the prod- ucts at our points of sale. The costs of certain energy inventories (wholesale refined products, crude oil and asphalt) are determined on the last-in, first-out (LIFO) method; all other inventories of non-grain products purchased for resale are valued on the first-in, first-out (FIFO) and average cost methods. CHS

31 ONE: Summary of Significant Accounting Policies, continued Derivative Financial Instruments and Hedging Activities that have been included in our Consolidated Statements of Operations during fiscal 2013, 2012, and Our derivative instruments primarily consist of commodity and freight futures and forward contracts and, (DOLLARS IN LOCATION OF THOUSANDS) GAIN (LOSS) to a minor degree, may include foreign currency and Commodity and freight derivatives interest rate swap contracts. These contracts are eco- Cost of goods sold $ (482,352) $ 311,167 $ 186,265 nomic hedges of price risk, but are not designated or Foreign exchange derivatives accounted for as hedging instruments for accounting Cost of goods sold (452) (5,219) 3,363 purposes, with the exception of certain interest rate Interest rate derivatives swap contracts which are accounted for as cash flow Interest, net hedges. Derivative instruments are recorded on our $(482,504) $ 306,154 $ 190,150 Consolidated Balance Sheets at fair values as described in Note 12, Fair Value Measurements. As of August 31, 2013 and 2012, the gross fair values of Even though we have netting arrangements for our derivative assets and liabilities as cash flow hedging exchange-traded futures and options contracts and certain instruments were as follows: over-the-counter (OTC) contracts, we report our (DOLLARS IN THOUSANDS) derivative on a gross basis on our Consolidated Balance Sheets. Our associated margin deposits are also Derivative Assets: reported on a gross basis. Interest rate swaps $ 24,135 As of August 31, 2013 and 2012, we had the following During the year ended August 31, 2013, we entered into outstanding purchase and sale contracts: derivative contracts designated as cash flow hedging instruments which expire during fiscal 2014, with (UNITS IN THOUSANDS) $0.9 million expected to be included in earnings during PURCHASE SALE PURCHASE SALE CONTRACTS CONTRACTS CONTRACTS CONTRACTS the next 12 months. As of August 31, 2013 and 2012, the Grain and oilseed unrealized gains deferred to accumulated other com- bushels 521, , ,895 1,074,535 prehensive loss were as follows: Energy products (DOLLARS IN THOUSANDS) barrels 12,626 21,312 9,047 19,561 Gains included in accumulated other Soy products comprehensive loss, net of tax expense tons of $9.2 million in 2013 $ 14,930 Crop nutrients tons 968 1, Commodity and Freight Contracts: Ocean and barge freight When we enter into a commodity or freight purchase or metric tons 1, , sales contract, we incur risks related to price changes Rail freight and performance (including delivery, quality, quantity, rail cars and counterparty credit). We are exposed to risk of loss Livestock in the market value of positions held, consisting of pounds 17,280 2,560 3,440 inventory and purchase contracts at a fixed or partially fixed price in the event market prices decrease. We are As of August 31, 2013 and 2012, with the exception of our also exposed to risk of loss on fixed or partially fixed interest rate swaps described below, our derivative price sales contracts in the event market prices increase. assets and liabilities are not designated as hedging instruments. Our commodity contracts primarily relate to grain, oilseed, energy (crude, refined products and propane) and fertilizer The following table sets forth the pretax gains (losses) commodities. Our freight contracts primarily relate to rail, on derivatives not designated as hedging instruments barge and ocean freight transactions. Our use of com- modity and freight contracts reduces the effects of price volatility, thereby protecting us against adverse short-term 36 CHS 2013

32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS price movements, while limiting the benefits of short-term position limits. A similar process is used in energy and price movements. To reduce the price change risks associ- wholesale crop nutrients operations. Position limits are ated with holding fixed price commitments, we generally reviewed, at least annually, with management and the take opposite and offsetting positions by entering into Board of Directors. We monitor current market condicommodity futures contracts or options in order to arrive tions and may expand or reduce our net position limits at a net commodity position within the formal position or procedures in response to changes in conditions. In limits we have established and deemed prudent for each addition, all purchase and sales contracts are subject to commodity. These contracts are purchased and sold credit approvals and appropriate terms and conditions. through regulated commodity futures exchanges for grain, and regulated mercantile exchanges for refined products Hedging arrangements do not protect against nonperand crude oil. We also use OTC instruments to hedge our formance by counterparties to contracts. We primarily exposure to price fluctuations on commodities and fixed use exchange traded instruments which minimize expoprice arrangements. The price risk we encounter for crude sure to counterparties nonperformance. We evaluate oil and most of the grain and oilseed volumes we handle exposure by reviewing contracts and adjusting the values can be hedged. Price risk associated with fertilizer and to reflect potential nonperformance. Risk of nonperformcertain grains cannot be hedged with futures because ance by counterparties includes the inability to perform there are no futures for these commodities and, as a result, because of the counterparty s financial condition and risk is managed through the use of forward sales contracts also the risk that the counterparty will refuse to perform and other pricing arrangements and, to some extent, on a contract during periods of price fluctuations where cross-commodity futures hedging. Certain fertilizer and contract prices are significantly different than current propane contracts are accounted for as normal purchase market prices. We manage risks by entering into fixed and normal sales transactions. We expect all normal price purchase and sales contracts with preapproved purchase and normal sales transactions to result in phys- producers and by establishing appropriate limits for indiical settlement. vidual suppliers. Fixed price contracts are entered into with customers of acceptable creditworthiness, as inter- When a futures contract is entered into, an initial margin nally evaluated. Historically, we have not experienced sigdeposit must be sent to the applicable exchange or nificant events of nonperformance on open contracts. broker. The amount of the deposit is set by the exchange Accordingly, we only adjust the estimated fair values of and varies by commodity. If the market price of a short specifically identified contracts for nonperformance. futures contract increases, then an additional mainte- Although we have established policies and procedures, nance margin deposit would be required. Similarly, if the we make no assurances that historical nonperformance price of a long futures contract decreases, a mainte- experience will carry forward to future periods. nance margin deposit would be required and sent to the applicable exchange. Subsequent price changes could Interest Rate Contracts: require additional maintenance margins or could result Short-term debt used to finance inventories and receivin the return of maintenance margins. ables is represented by notes payable with maturities of 30 days or less, so that our blended interest rate for all such Our policy is to primarily maintain hedged positions in notes approximates current market rates. During our year grain and oilseed. Our profitability from operations is ended August 31, 2013, we entered into interest rate swaps primarily derived from margins on products sold and to secure the interest rates related to our private placegrain merchandised, not from hedging transactions. At ment debt anticipated to be issued in April 2014 with comany one time, inventory and purchase contracts for bined notional amounts of $300.0 million. These derivative delivery to us may be substantial. Our risk management instruments are designated as cash flow hedges for policies and procedures include net position limits. accounting purposes and, accordingly, the net gain associ- These limits are defined for each commodity and ated with these contracts of $24.1 million as of August 31, include both trader and management limits. The policy 2013 was recorded as a component of other comprehenand procedures in our grain marketing operations sive loss. CHS Capital, LLC (CHS Capital), our whollyrequire a review by operations management when any owned finance subsidiary, has interest rate swaps that lock trader is outside of position limits and also a review by the interest rates of the underlying loans with a combined senior management if operating areas are outside of notional amount of $8.6 million expiring at various times CHS

33 ONE: Summary of Significant Accounting Policies, continued through fiscal 2018, with $0.3 million of the notional with unrealized amounts included as a component of amount expiring during fiscal None of CHS Capital s accumulated other comprehensive loss. Investments in interest rate swaps qualify for hedge accounting and as a debt and equity instruments are carried at amounts that result, changes in fair value are recorded in earnings within approximate fair values. Investments in joint ventures interest, net in our Consolidated Statements of Operations. and cooperatives have no quoted market prices. Long-term debt used to finance non-current assets carries various fixed interest rates and is payable at various dates to minimize the effects of market interest rate changes. Property, Plant and Equipment Property, plant and equipment are stated at cost less The weighted-average interest rate on fixed rate debt out- accumulated depreciation and amortization. Depreciastanding on August 31, 2013 was approximately 5.0%. tion and amortization are provided on the straight-line method by charges to operations at rates based upon the Foreign Exchange Contracts: expected useful lives of individual or groups of assets (15 We conduct essentially all of our business in U.S. dollars, to 20 years for land and land improvements; 20 to except for grain marketing operations primarily in South 40 years for buildings; 5 to 20 years for machinery and America and Europe, and purchases of products from equipment; and 3 to 10 years for office and other). The Canada. We had minimal risk regarding foreign currency cost and related accumulated depreciation and amortizafluctuations during fiscal 2013 and in prior years, as substan- tion of assets sold or otherwise disposed of are removed tially all international sales were denominated in U.S. dollars. from the related accounts and resulting gains or losses From time to time, we enter into foreign currency futures are reflected in operations. Expenditures for maintenance contracts to mitigate currency fluctuations. Foreign cur- and minor repairs and renewals are expensed, while costs rency fluctuations do, however, impact the ability of foreign of major repairs and betterments are capitalized and buyers to purchase U.S. agricultural products and the com- amortized on a straight-line basis over the period of time petitiveness of U.S. agricultural products compared to the estimated to lapse until the next major repair occurs. same products offered by alternative sources of world supply. As of August 31, 2013, we had $7.1 million included in Property, plant and equipment and other long-lived derivative assets and $5.9 million included in derivative liabil- assets are reviewed in order to assess recoverability ities associated with foreign currency contracts. based on projected income and related cash flows on an undiscounted basis when triggering events occur. Margin Deposits Should the sum of the expected future net cash flows be Many of our derivative contracts with futures and less than the carrying value, an impairment loss would options brokers require us to make both initial margin be recognized. An impairment loss would be measured deposits of cash or other assets and subsequent by the amount by which the carrying value of the asset deposits, depending on changes in commodity prices, in exceeds the fair value of the asset. order to comply with applicable regulations. Our margin deposit assets are held by external brokers in segre- We have asset retirement obligations with respect to gated accounts and will be used to settle the associated certain of our refineries and related assets due to various derivative contracts on their specified settlement dates. legal obligations to clean and/or dispose of various component parts at the time they are retired. However, Investments these assets can be used for extended and indetermi- Joint ventures and other investments, in which we have nate periods of time, as long as they are properly mainsignificant ownership and influence, but not control, are tained and/or upgraded. It is our practice and current accounted for in our consolidated financial statements intent to maintain refineries and related assets and to using the equity method of accounting. Investments in continue making improvements to those assets based other cooperatives are stated at cost, plus patronage on technological advances. As a result, we believe our dividends received in the form of capital stock and other refineries and related assets have indeterminate lives for equities. Patronage dividends are recorded as a reduc- purposes of estimating asset retirement obligations tion to cost of goods sold at the time qualified written because dates or ranges of dates upon which we would notices of allocation are received. Investments in other retire a refinery and related assets cannot reasonably be debt and equity securities are considered available for estimated at this time. When a date or range of dates sale financial instruments and are stated at fair value, can reasonably be estimated for the retirement of any 38 CHS 2013

34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS component part of a refinery or related asset, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using established present value techniques. Goodwill and Other Intangible Assets Goodwill and other intangible assets are reviewed for impairment annually or more frequently if impairment conditions arise, and those that are impaired are written down to fair value. For goodwill, annual impairment testing occurs in the third quarter. Other intangible assets consist primarily of customer lists, trademarks and agreements not to compete. Intangible assets subject to amortization are expensed over their respective useful lives (ranging from 2 to 30 years). We have no material intangible assets with indefinite useful lives. Environmental Expenditures Liabilities, including legal costs, related to remediation of contaminated properties are recognized when the related costs are considered probable and can be reasonably esti- mated. Estimates of environmental costs are based on cur- rent available facts, existing technology, undiscounted site- specific costs and currently enacted laws and regulations. Recoveries, if any, are recorded in the period in which recovery is received. Liabilities are monitored and adjusted as new facts or changes in law or technology occur. Environmental expenditures are capitalized when such costs provide future economic benefits. We made various acquisitions during the three years ended August 31, 2013, which were accounted for using the acquisition method of accounting. Operating results of the acquisitions were included in our consolidated financial statements since the respective acquisition dates. The respective purchase prices were allocated to the assets, liabilities and identifiable intangible assets acquired based upon the estimated fair values. The excess purchase prices over the estimated fair values of the net assets acquired have been reported as goodwill. Income Taxes CHS is a nonexempt agricultural cooperative and files a consolidated federal income tax return with our 80% or more owned subsidiaries. We are subject to tax on income from nonpatronage sources, non-qualified patronage distributions and undistributed patronage- sourced income. Income tax expense is primarily the cur- rent tax payable for the period and the change during the period in certain deferred tax assets and liabilities. Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for federal and state income tax pur- poses, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. In our Energy segment, major maintenance activities (turnarounds) at the two refineries are accounted for under the deferral method. Turnarounds are the scheduled and required shutdowns of refinery processing units. The costs related to the significant overhaul and refurbishment activities include materials and direct labor costs. The costs of turnarounds are deferred when incurred and amortized on a straight-line basis over the period of time estimated to lapse until the next turnaround occurs, which is generally 2 to 4 years. Amortization expense related to turnaround costs is included in cost of goods sold in our Consolidated Statements of Operations. The selection of the deferral method, as opposed to expensing the turnaround costs when incurred, results in deferring recognition of the turnaround expenditures. The deferral method also results in the classification of the related cash outflows as investing activities in our Consolidated Statements of Cash Flows, whereas expensing these costs as incurred, would result in classifying the cash outflows as operating activities. Revenue Recognition We provide a wide variety of products and services, from production agricultural inputs such as fuels, farm supplies and crop nutrients, to agricultural outputs that include grain and oilseed, processed grains and oilseeds and food products. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Grain and oilseed sales are recorded after the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon. All other sales are recog- nized upon transfer of title, which could occur either upon shipment to or receipt by the customer, depending upon the terms of the transaction. Amounts billed to a customer as part of a sales transaction related to shipping and handling are included in revenues. CHS

35 ONE: Summary of Significant Accounting Policies, continued Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of reve- nues and expenses during the reporting period. Actual results could differ from those estimates. Recent Accounting Pronouncements In December 2011, the FASB issued Accounting Standards Update (ASU) No , Disclosures about Offsetting Assets and Liabilities. ASU No creates new disclosure requirements about the nature of an entity s rights of setoff and related arrangements asso- ciated with its financial instruments and derivative instruments. The disclosure requirements in this update are effective for annual reporting periods, and interim periods within those years, beginning on or after January 1, We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal income or cash flows. ASU No will become effective for us in fiscal In February 2013, the FASB issued ASU No , Liabilities. ASU No requires an entity to mea- sure obligations resulting from joint and several liability arrangements for which the total amount of the obliga- tion within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obliga- tions. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal In February 2013, the FASB issued ASU No , Comprehensive Income. ASU No requires an entity to provide information about the amounts reclassi- fied out of accumulated other comprehensive income by component. In addition, an entity is required to present, either in the consolidated statements of operations or in the notes, significant amounts reclassified out of accu- mulated other comprehensive income by the respective line items of net income, but only if the amount reclassi- fied is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. These amendments are only disclosure related and will not have an impact on our financial position, results of operations, comprehensive In July 2013, the FASB issued ASU No , Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU No provides guidance on the presentation of unrecognized tax benefits that will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryfor- wards exist. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and early adoption is permitted. This will be effective for us in fiscal 2015 and we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. 40 CHS 2013

36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8NOV Receivables Receivables as of August 31, 2013 and 2012 are as follows: (DOLLARS IN THOUSANDS) Trade accounts receivable $ 2,673,169 $ 2,817,817 CHS Capital notes receivable 437, ,514 Other 254, ,196 3,364,900 3,702,527 Less allowances and reserves 94, ,785 $ 3,270,311 $ 3,590,742 from producer borrowers which are collateralized by various combinations of growing crops, livestock, inventories, accounts receivable, personal property and supplemental mortgages. In addition to the short-term balances included in the table above, CHS Capital had long-term notes receivable, with durations of not more than 10 years, totaling $127.7 million and $164.8 million at August 31, 2013 and 2012, respectively. The long-term notes receivable are included in other assets on our Consolidated Balance Sheets. As of August 31, 2013 and 2012, the commercial notes represented 59% and 74%, respectively, and the producer notes represented 41.0% and 26.0%, respectively, of the total CHS Capital notes receivable. Trade accounts receivable are initially recorded at a selling price, which approximates fair value, upon the sale of goods or services to customers. Subsequently, trade accounts receivable are carried at net realizable CHS Capital evaluates the collectability of both comvalue, which includes an allowance for estimated uncol- mercial and producer notes on a specific identification lectible amounts. We calculate this allowance based on basis, based on the amount and quality of the collateral our history of write-offs, level of past due accounts, and obtained, and records specific loan loss reserves when our relationships with, and the economics status of, our appropriate. A general reserve is also maintained based customers. The carrying value of CHS Capital notes on historical loss experience and various qualitative facreceivable approximates fair value, given their short tors. In total, the specific and general loan loss reserves duration and the use of market pricing adjusted for risk. related to CHS Capital are not material to our consolidated financial statements, nor are the associated his- CHS Capital, our wholly-owned subsidiary, has notes torical write-offs. The accrual of interest income is receivable from commercial and producer borrowers. discontinued at the time the loan is 90 days past due The short-term notes receivable generally have maturity unless the credit is well-collateralized and in process of terms of months and are reported at their out- collection. The amount of CHS Capital notes that were standing principle balances, as CHS Capital holds these past due was not significant at any reporting date notes to maturity. The notes receivable from commercial presented. borrowers are collateralized by various combinations of mortgages, personal property, accounts and notes CHS Capital has commitments to extend credit to a cusreceivable, inventories and assignments of certain tomer as long as there is no violation of any condition regional cooperative s capital stock. These loans are pri- established in the contract. As of August 31, 2013, marily originated in the states of Minnesota, Wisconsin CHS Capital s customers have additional available credit and North Dakota. CHS Capital also has loans receivable of $1.0 billion. CHS

37 8NOV Inventories Inventories as of August 31, 2013 and 2012 are as follows: As of August 31, 2013, we valued approximately 16% of inventories, primarily crude oil and refined fuels within (DOLLARS IN THOUSANDS) our Energy segment, using the lower of cost, deter- Grain and oilseed $ 1,133,555 $ 1,625,865 mined on the LIFO method, or market (11% as of Energy 742, ,348 August 31, 2012). If the FIFO method of accounting had Crop nutrients 293, ,655 been used, inventories would have been higher than the Feed and farm supplies 407, ,178 reported amount by $652.6 million and $566.6 million at Processed grain and oilseed 79,706 76,892 August 31, 2013 and 2012, respectively. Other 8,887 14,034 $ 2,664,735 $ 3,203,972 8NOV Investments Investments as of August 31, 2013 and 2012 are as follows: (DOLLARS IN THOUSANDS) Joint ventures: Ventura Foods, LLC $ 309,480 $ 292,393 Horizon Milling, LLC 92,635 78,372 TEMCO, LLC 63,547 60,734 Horizon Milling, ULC 19,314 16,727 Cooperatives: Land O Lakes, Inc. 66,255 58,382 Ag Processing Inc. 19,970 19,577 Other 194, ,203 $ 765,946 $ 673,388 assets and the assets leased by CHS to Horizon Milling, with CHS holding a 12% interest. Upon closing, Ardent Mills is expected to be financed with funds from third-party borrowings, which would not require credit support from the owners. The borrowings are anticipated to be no less than $600 million with proceeds distributed to each owner in proportion to the ownership interests, adjusted for any deviations in specified working capital target amounts. The transaction is expected to close during fiscal 2014, subject to financing and certain other customary closing conditions. In connection with the closing, the parties will also enter into various ancillary and non-compete agreements, including, among other things, an agreement for CHS to supply Ardent Mills with certain wheat and durum products. CHS has a 50% interest in Ventura Foods, LLC (Ventura CHS has a 24% interest in Horizon Milling, LLC and Horizon Foods), a joint venture which produces and distributes Milling, ULC, flour milling joint ventures with Cargill, Incor- primarily vegetable oil-based products, and is included porated (Cargill), which are accounted for as equity in Corporate and Other. We account for Ventura Foods method investments and are included in Corporate and as an equity method investment, and as of August 31, Other. On March 4, 2013, CHS entered into a definitive 2013, our carrying value of Ventura Foods exceeded our agreement with Cargill and ConAgra Foods, Inc. to form share of their equity by $12.9 million, which represents Ardent Mills, a joint venture combining the North American equity method goodwill. The following provides sumflour milling operations of the three parent companies, marized unaudited financial information for Ventura including the Horizon Milling, LLC and Horizon Milling, ULC Foods balance sheets as of August 31, 2013 and 2012, 42 CHS 2013

38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and statements of operations for the twelve months ended August 31, 2013, 2012 and 2011: (DOLLARS IN THOUSANDS) We recorded the net $12.7 million pension plan asset as a non-cash dividend and recorded a $0.8 million pre-tax loss related to the distribution. Current assets $ 532,995 $ 574,925 TEMCO is owned and governed by Cargill (50%) and CHS Non-current assets 503, ,070 (50%). During the year ended August 31, 2012, we entered Current liabilities 216, ,251 into an amended and restated agreement to expand the Non-current liabilities 226, ,760 scope of the original agreement with Cargill. Pursuant to the terms of the agreement, CHS and Cargill each agreed (DOLLARS IN THOUSANDS) to commit to sell all of their feedgrains, wheat, oilseeds and by-product origination that are tributary to the Net sales $ 2,541,483 $ 2,550,018 $ 2,350,895 Pacific Northwest, United States (Pacific Northwest) to Gross profit 267, , ,748 TEMCO and to use TEMCO as their exclusive export-mar- Net earnings 106,405 94, ,754 keting vehicle for such grains exported through the Earnings attributable Pacific Northwest for a term of 25 years. Cargill s Tacoma, to CHS Inc. 53,203 47,293 52,877 Washington facility will continue to be subleased to TEMCO. We agreed to sublease our Kalama, Washington During the year ended August 31, 2011, we sold all of our facility to TEMCO, and Cargill agreed to lease their Irving 45% ownership interest in Multigrain, AG to one of our facility in Portland, Oregon to TEMCO to provide TEMCO joint venture partners, Mitsui & Co., Ltd., for $225.0 mil- with more capacity to conduct this business. lion and recognized a pre-tax gain of $119.7 million. The following provides combined financial information Agriliance LLC (Agriliance) is owned and governed by for our major equity investments, excluding Ventura CHS (50%) and Land O Lakes, Inc. (50%). We account Foods, for balance sheets as of August 31, 2013 and for our Agriliance investment using the equity method 2012, and statements of operations for the twelve of accounting within Corporate and Other. Agriliance months ended August 31, 2013, 2012 and 2011: has essentially ceased its business activities and primarily holds long-term liabilities. During the year ended (DOLLARS IN THOUSANDS) August 31, 2011, we received $28.0 million of cash distri- Current assets $ 513,327 $ 631,335 butions from Agriliance as returns of capital for proceeds Non-current assets 248, ,675 from the sale of many of the Agriliance retail Current liabilities 256, ,016 facilities, and the collection of receivables. We recorded Non-current liabilities 5,387 5,642 a pre-tax gain of $9.0 million during fiscal 2011 related to these cash distributions. During the year ended (DOLLARS IN THOUSANDS) August 31, 2012, we made cash contributions of Net sales $ 5,388,248 $ 5,402,241 $ 8,399,779 $45.4 million to Agriliance, which were primarily used to Gross profit 200, , ,338 fully fund the Agriliance Employee Retirement Plan (Agriliance Plan). The Agriliance Plan assets and liabili- Net earnings 43, , ,473 ties were transferred to CHS and Land O Lakes, Inc. Earnings attributable during fiscal CHS received pension plan assets and liabilities of $97.2 million and $84.5 million, respectively. to CHS Inc. 27,702 36,032 89,575 CHS

39 8NOV Property, Plant and Equipment A summary of property, plant and equipment as of Depreciation expense for the years ended August 31, August 31, 2013 and 2012 is as follows: 2013, 2012 and 2011, was $224.5 million, $199.8 million and $205.2 million, respectively. (DOLLARS IN THOUSANDS) Land and land improvements $ 169,022 $ 145,831 We are leasing certain of our wheat milling facilities and Buildings 574, ,269 related equipment to Horizon Milling under an operating Machinery and equipment 4,195,523 3,786,488 lease agreement. The net book value of the leased Office and other 118, ,136 milling assets at August 31, 2013 was $46.9 million. As a Construction in progress 480, ,755 result of the pending Ardent Mills transaction described in Note 4, Investments, these assets are classified as held 5,538,524 5,045,479 for sale in other current assets on our Consolidated Bal- Less accumulated depreciation and ance Sheet as of August 31, amortization 2,367,120 2,259,155 $ 3,171,404 $ 2,786,324 8NOV Other Assets Other assets as of August 31, 2013 and 2012 are as follows: (DOLLARS IN THOUSANDS) resulting in a decrease to goodwill during fiscal 2013 and Goodwill Customer lists, less accumulated $ 85,063 $ 81,693 During the years ended August 31, 2013 and 2012, intangible assets acquired totaled $1.5 million and $23.4 million, amortization of $20,063 and $32,883, respectively 16,352 20,694 respectively. Non-compete covenants, less Intangible assets amortization expense for the years accumulated amortization of $6,129 ended August 31, 2013, 2012 and 2011, was $10.0 million, and $6,896, respectively 812 1,987 $12.7 million and $11.0 million, respectively. The estimated Trademarks and other intangible assets, annual amortization expense related to intangible assets less accumulated amortization of $19,853 and $15,949, respectively 18,312 22,185 subject to amortization for the next five years is as follows: Notes receivable Long-term receivable 143,343 38, ,054 37,589 (DOLLARS IN THOUSANDS) Year 1 $ 7,997 Prepaid pension and other benefits 187,270 86,477 Year 2 6,479 Capitalized major maintenance 109,408 70,554 Year 3 5,927 Other 56,896 24,053 Year 4 4,545 $ 656,160 $ 518,286 Year 5 2,507 Thereafter 8,021 During the years ended August 31, 2013 and 2012, we had $ 35,476 acquisitions which resulted in $8.3 million and $55.5 million of goodwill, respectively. There were no dispositions 44 CHS 2013

40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The capitalized major maintenance activity is as follows: BALANCE AT BALANCE AT (DOLLARS IN THOUSANDS) BEGINNING OF YEAR COST DEFERRED AMORTIZATION WRITE-OFFS END OF YEAR 2013 $ 70,554 $ 73,701 $ (34,847) $ 109, ,752 23,443 (33,641) 70, ,097 92,129 (30,474) 80,752 8NOV Notes Payable and Long-Term Debt Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum We have two commercial paper programs totaling up to $125.0 million with two banks participating in the revolving credit facilities. consolidated net worth and other financial ratios. Terms of our credit facilities allow a maximum usage of $200.0 million to pay principal under any commercial paper facility. On We were in compliance with our debt covenants as of August 31, 2013 we had no commercial paper outstanding. August 31, Miscellaneous short-term notes payable totaled $2.5 million Notes Payable as of August 31, Notes payable as of August 31, 2013 and 2012, consisted (b) Cofina Funding, LLC (Cofina Funding), a wholly-owned subsidof the following: iary of CHS Capital, has available credit totaling $300.0 million as WEIGHTED- of August 31, 2013, under note purchase agreements with AVERAGE various purchasers, through the issuance of short-term notes INTEREST RATE payable. CHS Capital sells eligible commercial loans receivable it (DOLLARS IN THOUSANDS) has originated to Cofina Funding, which are then pledged as Notes payable (a) 2.00% 2.58% $ 521,864 $ 269,783 collateral under the note purchase agreements. The notes payable issued by Cofina Funding bear interest at variable rates CHS Capital notes based on commercial paper. There were no borrowings by payable (b) 1.23% 1.68% 367, ,839 Cofina Funding utilizing the issuance of commercial paper under Total notes payable $ 889,312 $ 803,622 the note purchase agreements as of August 31, CHS Capital has available credit under master participation (a) Our primary committed line of credit is a $2.5 billion five-year agreements with numerous counterparties. Borrowings revolving credit facility expiring in June 2018, with a syndica- under these agreements are accounted for as secured bortion of domestic and international banks, with no amounts rowings and bear interest at variable rates ranging from outstanding as of August 31, We have a committed 1.96% to 2.69% as of August 31, As of August 31, 2013, revolving credit facility dedicated to NCRA in the amount of the total funding commitment under these agreements $15.0 million that expires in December 2014, with no amounts was $223.8 million, of which $30.8 million was borrowed. outstanding as of August 31, We also have a committed revolving credit facility dedicated to CHS Europe S.A. in the CHS Capital sells loan commitments it has originated to ProPartners amount of $80.0 million that expires in September 2018, with Financial (ProPartners) on a recourse basis. The total capacity for no amounts outstanding as of August 31, commitments under the ProPartners program is $300.0 million. The total outstanding commitments under the program totaled Our wholly-owned subsidiaries, CHS Europe S.A. and CHS $68.1 million as of August 31, 2013, of which $45.7 million was bor- Agronegocio Industria e Comercio Ltda (CHS Agronegocio), rowed under these commitments with an interest rate of 1.60%. have uncommitted lines of credit to finance their normal trading activities with $420.1 million outstanding as of August 31, CHS Capital borrows funds under short-term notes issued as part of These lines are collateralized by certain inventories and receiv- a surplus funds program. Borrowings under this program are ables. In addition, other international subsidiaries had lines of unsecured and bear interest at variable rates ranging from 0.80% to credit totaling $99.3 million outstanding as of August 31, 2013, of 1.10% as of August 31, 2013, and are due upon demand. Borrowings which $60.8 million was collateralized. under these notes totaled $290.9 million as of August 31, CHS

41 SEVEN: Notes Payable and Long-Term Debt, continued In October 2013, we entered into a three-year $250.0 million committed revolving credit facility for CHS Agronegocio to provide financing for its working capital needs arising from its purchases and sales of grains, fertilizers and other agricultural products. Long-Term Debt Long-term debt as of August 31, 2013 and 2012 consisted of the following: (DOLLARS IN THOUSANDS) % unsecured revolving term loans from cooperative and other banks, due in equal installments beginning in 2013 through 2018 $ 135,000 $ 150, % unsecured notes $400 million face amount, due in equal installments beginning in 2014 through , , % unsecured notes $225 million face amount, due in equal installments beginning in 1998 through , % unsecured notes $60 million face amount, due in equal installments beginning in 2012 through ,539 59, % unsecured notes $125 million face amount, due in equal installments beginning in 2011 through ,000 75, % unsecured notes $50 million face amount, due in equal installments beginning in 2014 through ,000 50, % unsecured notes $100 million face amount, due in equal installments beginning in 2017 through , , % unsecured notes $130 million face amount, due in , , % unsecured notes $160 million face amount, due in , , % unsecured notes $130 million face amount, due in , , % unsecured notes $80 million face amount, due in , % unsecured notes $100 million face amount, due in , % unsecured notes $80 million face amount, due in ,000 80, % unsecured notes $100 million face amount, due in ,000 Other notes and contracts with interest rates from 2.25% to 15.75% (a) 50,493 68,238 Total long-term debt 1,607,032 1,440,353 Less current portion 156, ,211 Long-term portion $1,450,420 $ 1,332,142 (a) Other notes and contracts payable of $16.5 million were collateralized on August 31, CHS 2013

42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of August 31, 2013, the carrying value of our long- Interest, net for the years ended August 31, 2013, 2012 term debt approximated its fair value, based on quoted and 2011 was as follows: market prices of similar debt (a Level 2 classification in the fair value hierarchy). (DOLLARS IN THOUSANDS) Interest expense $ 99,271 $ 94,090 $ 83,044 Long-term debt outstanding as of August 31, 2013 has aggregate maturities as follows: (DOLLARS IN THOUSANDS) 2014 $ 156, , , , ,103 Thereafter 844,244 $ 1,607,032 Interest purchase of NCRA noncontrolling interests 149, ,184 Capitalized interest (10,579) (8,882) (5,487) Interest income (6,212) (5,129) (2,722) Interest, net $ 231,567 $ 193,263 $ 74,835 8NOV Income Taxes The provision for income taxes for the years ended August 31, 2013, 2012 and 2011 is as follows: Deferred tax assets and liabilities as of August 31, 2013 and 2012 were as follows: (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) Current Federal $ (18,018) $ 9,565 $ 10,564 Deferred tax assets: Accrued expenses $ 66,973 $ 89,844 State Foreign 11,805 3,162 7,851 4,812 8, Postretirement health care and deferred compensation 57, ,817 (3,051) 22,228 19,539 Tax credit carryforwards 97, ,752 Deferred Loss carryforwards 57,174 30,272 Federal 92,102 66,707 54,435 Other 40,868 57,429 State 1,685 1,617 9,454 Deferred tax assets valuation (79,623) (56,659) Foreign (1,070) (9,700) 3,200 Total deferred tax assets 239, ,455 92,717 58,624 67,089 Deferred tax liabilities: Total $ 89,666 $ 80,852 $ 86,628 Pension 6,752 35,516 Investments 91, ,879 Deferred taxes are comprised of basis differences Major maintenance 31,960 9,141 related to investments, accrued liabilities and certain Property, plant and equipment 529, ,863 federal and state tax credits. NCRA files separate tax Other 175 returns and, as such, these items must be assessed inde- Total deferred tax liabilities 659, ,574 pendent of our deferred tax assets when determining Net deferred tax liabilities $ 419,502 $ 272,119 recoverability. CHS

43 EIGHT: Income Taxes, continued We have total loss carry forwards of $146.8 million, of We file income tax returns in the U.S. federal jurisdiction, which $81.4 million will expire over periods ranging from and various state and foreign jurisdictions. Our uncerfiscal 2014 to fiscal NCRA s gross state tax credit tain tax positions are affected by the tax years that are carry forwards for income tax are approximately under audit or remain subject to examination by the $88.1 million and $99.5 million as of August 31, 2013, and relevant taxing authorities. In addition to the current 2012, respectively. During the year ended August 31, 2013, year, fiscal 2006 through 2012 remain subject to examithe valuation allowance for NCRA decreased by $4.0 mil- nation, at least for certain issues. lion due to a change in the amount of state tax credits that are estimated to be utilized. NCRA s valuation allow- We account for our income tax provisions in accordance ance is necessary due to the limited amount of taxable with ASC 740, Income Taxes, which prescribes a minincome it generates on an annual basis. Based on esti- imum threshold that a tax provision is required to meet mates of future taxable profits and losses in certain for- before being recognized in our consolidated financial eign tax jurisdictions, we determined that a valuation statements. This interpretation requires us to recognize allowance was required for specific foreign loss carry for- in our consolidated financial statements tax positions wards as of August 31, If these estimates prove inac- determined more likely than not to be sustained upon curate, a change in the valuation allowance, up or down, examination, based on the technical merits of the posicould be required in the future. During fiscal 2013, foreign tion. Reconciliation of the gross beginning and ending loss tax valuation allowances increased by $26.1 million. amounts of unrecognized tax benefits for the periods presented follows: Our foreign tax credit of $7.0 million will expire on August 31, Our general business credits of (DOLLARS IN THOUSANDS) $39.0 million, comprised primarily of low sulfur diesel Balance at beginning of period $ 67,271 $ 67,271 $ 69,357 credits, will begin to expire on August 31, Reductions attributable to statute expiration (2,086) As of August 31, 2013, net deferred taxes of $39.3 million and $458.8 million were included in other current assets Balance at end of period $ 67,271 $ 67,271 $ 67,271 and other liabilities, respectively. As of August 31, 2012, If we were to prevail on all tax positions taken relating to net deferred taxes of $37.6 million and $309.7 million uncertain tax positions, substantially all of the unrecogwere included in other current assets and other liabili- nized tax benefits would benefit the effective tax rate. ties, respectively. We do not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly The reconciliation of the statutory federal income tax increase or decrease during the next 12 months. rates to the effective tax rates for the years ended August 31, 2013, 2012 and 2011 is as follows: We recognize interest and penalties related to unrecognized tax benefits in our provision for income taxes. For the years ended August 31, 2013, 2012 and 2011, we rec- Statutory federal income tax rate 35.0% 35.0% 35.0% ognized in our Consolidated Statements of Operations State and local income taxes, net $0.2 million, $0.2 million and $0.1 million, respectively, of federal income tax benefit for interest related to unrecognized tax benefits. We Patronage earnings (22.9) (24.2) (20.5) recorded interest payable related to unrecognized tax Domestic production activities benefits on our Consolidated Balance Sheets of deduction (8.5) (3.5) (3.2) $0.6 million and $0.4 million, as of August 31, 2013 and Export activities at rates other than the U.S. statutory rate , respectively. Valuation allowance Tax credits (0.5) (1.3) (3.1) Non-controlling interests (0.1) (1.9) (3.0) Other (0.4) Effective tax rate 8.3% 5.7% 7.5% 48 CHS 2013

44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8NOV Equities In accordance with the bylaws and by action of the Our 8% Preferred Stock is listed on the NASDAQ under Board of Directors, annual net earnings from patronage the symbol CHSCP. On August 31, 2013, we had sources are distributed to consenting patrons following 12,272,003 shares of our 8% Preferred Stock outthe close of each fiscal year, and are based on amounts standing with a total redemption value of $306.8 million, using financial statement earnings. The cash portion of excluding accumulated dividends. Our 8% Preferred the qualified patronage distribution is determined annu- Stock accumulates dividends at a rate of 8% per year, ally by the Board of Directors, with the balance issued in which are payable quarterly. Dividends paid on our 8% the form of capital equity certificates. Total qualified Preferred Stock during the years ended August 31, 2013, patronage refunds for fiscal 2013 are estimated to be 2012 and 2011, were $24.5 million, $24.5 million, and $711.9 million, with the cash portion estimated to be $24.5 million, respectively. During the year ended $284.8 million. Beginning in fiscal 2014, a portion of August 31, 2013, we amended the terms of our 8% Prepatronage refunds will be in the form of non-qualified ferred Stock to provide that it may not be redeemed at capital equity certificates and is estimated to be our option until July 18, $129.5 million. The actual qualified patronage refunds and cash portion for fiscal years 2012, 2011, and 2010 During September 2013, we issued 11,319,175 shares of were $976.0 million ($380.9 million in cash), $676.3 mil- Class B Preferred Stock, with a total redemption value of lion ($260.7 million in cash), and $402.4 million $283.0 million, excluding accumulated dividends. The ($141.5 million in cash), respectively. Class B Preferred Stock is listed on the NASDAQ under the symbol CHSCO and accumulates dividends at a rate Annual net savings from patronage or other sources of 7.875% per year, which are payable quarterly. Our may be added to the unallocated capital reserve or, Class B Preferred Stock may not be redeemed at our upon action by the Board of Directors, may be allocated option until September 26, to members in the form of nonpatronage equity certificates. The Board of Directors authorized, in accordance As described in Note 17, Acquisitions, we have a firm with our bylaws, that 10% of the earnings from commitment to purchase the remaining NCRA nonconpatronage business for fiscal years 2013, 2012, and 2011 trolling interests. The following table presents the be added to our capital reserves. effects of changes in our NCRA ownership interest on CHS equities for the years ended August 31, 2013, 2012, Redemptions are at the discretion of the Board of Direc- and tors. Redemptions of capital equity certificates approved by the Board of Directors are divided into two (DOLLARS IN THOUSANDS) pools, one for non-individuals (primarily member coopto Net income attributable eratives) who may participate in an annual program for CHS Inc. $ 992,386 $ 1,260,628 $ 961,355 equities held by them and another for individual memnoncontrolling Transfers to bers who are eligible for equity redemptions at age 70 interests: or upon death. In accordance with authorization from Decrease in CHS Inc. the Board of Directors, we expect total redemptions capital reserves for related to the year ended August 31, 2013 that will be purchase of distributed in fiscal 2014, to be approximately $101.3 mil- noncontrolling lion. These expected distributions are classified as a current interests (82,138) liability on the August 31, 2013 Consolidated Changes from net Balance Sheet. For the years ended August 31, 2013, income attributable to CHS Inc. and transfers 2012 and 2011, we redeemed in cash, equities in accorto noncontrolling dance with authorization from the Board of Directors, in interests $ 992,386 $ 1,178,490 $ 961,355 the amounts of $193.4 million, $145.7 million and $61.2 million, respectively. CHS

45 8NOV Benefit Plans We have various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. We also have non-qualified supplemental executive and Board retirement plans. Financial information on changes in benefit obligation and plan assets funded and balance sheets status as of August 31, 2013 and 2012 is as follows: QUALIFIED NON-QUALIFIED PENSION BENEFITS PENSION BENEFITS OTHER BENEFITS (DOLLARS IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of period $ 671,066 $ 501,053 $ 34,470 $ 29,728 $ 64,189 $ 56,864 Service cost 31,387 26, ,936 2,556 Interest cost 25,445 24,119 1,316 1,343 2,275 2,638 Transfers in from Agriliance Employee Retirement Plan 84,498 Actuarial loss (gain) 12, ,455 2,498 (5,243) (1,997) Assumption change (64,483) 62,755 (1,952) 1,956 (16,693) 6,437 Plan amendments (899) Medicare D Benefits paid (34,950) (28,351) (1,785) (1,334) (2,014) (2,035) Benefit obligation at end of period $ 641,284 $ 671,066 $ 36,225 $ 34,470 $ 45,542 $ 64,189 Change in plan assets: Fair value of plan assets at beginning of period $ 688,196 $ 540,822 Actual gain on plan assets 53,582 50,515 Company contributions 23,800 28,000 $ 1,785 $ 1,334 $ 2,014 $ 2,035 Transfers in from Agriliance Employee Retirement Plan 97,210 Benefits paid (34,950) (28,351) (1,785) (1,334) (2,014) (2,035) Fair value of plan assets at end of period $ 730,628 $ 688,196 $ $ $ $ Funded status at end of period $ 89,344 $ 17,130 $ (36,225) $ (34,470) $ (45,542) $ (64,189) Amounts recognized on balance sheet: Non-current assets $ 89,930 $ 17,695 Accrued benefit cost: Current liabilities $ (3,051) $ (3,325) $ (2,919) $ (3,297) Non-current liabilities (586) (565) (33,174) (31,145) (42,623) (60,892) Ending balance $ 89,344 $ 17,130 $ (36,225) $ (34,470) $ (45,542) $ (64,189) Amounts recognized in accumulated other comprehensive loss (pretax): Net transition obligation $ 563 Prior service cost (credit) $ 7,794 $ 9,392 $ 1,088 $ 1,316 $ (712) (17) Net loss (gain) 253, ,420 10,685 10,104 (5,415) 683 Ending balance $ 261,082 $ 340,812 $ 11,773 $ 11,420 $ (6,127) $ 1,229 The accumulated benefit obligation of the qualified pension plans was $605.6 million and $628.5 million at August 31, 2013 and 2012, respectively. The accumulated benefit obligation of the non-qualified pension plans was $20.1 million and $19.7 million at August 31, 2013 and 2012, respectively. 50 CHS 2013

46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As described in Note 4, Investments, during the year ended August 31, 2012, the Agriliance Plan assets and liabilities were proportionally transferred to CHS and Land O Lakes. CHS received pension plan assets and liabilities of $97.2 million and $84.5 million, respectively, and recorded the net $12.7 million pension plan asset as a non-cash dividend. Our share of the Agriliance Plan s accumulated other comprehensive loss, or $44.8 million, was reflected in our pre-tax balance for accumulated other comprehensive loss as of August 31, The assumption changes for the fiscal years ended August 31, 2013 and 2012 were related to increases in and reductions to the discount rates for both CHS and NCRA qualified pension plans, respectively. The changes in the discount rates were due to changes in the yield curves for investment grade corporate bonds that CHS and NCRA have historically used. Components of net periodic benefit costs for the years ended August 31, 2013, 2012 and 2011 are as follows: NON-QUALIFIED QUALIFIED PENSION BENEFITS PENSION BENEFITS OTHER BENEFITS (DOLLARS IN THOUSANDS) Components of net periodic benefit costs: Service cost $ 31,387 $ 26,010 $ 25,232 $ 721 $ 279 $ 1,246 $ 2,936 $ 2,556 $ 1,771 Interest cost 25,445 24,119 22,257 1,316 1,343 1,933 2,275 2,638 2,194 Expected return on assets (49,728) (40,904) (41,770) Settlement of retiree obligations 4,735 Prior service cost (credit) amortization 1,597 1,831 2, (120) (104) (122) Actuarial loss amortization 22,615 15,131 16, , Transition amount amortization Net periodic benefit cost $ 31,316 $ 26,187 $ 24,136 $ 3,186 $ 2,278 $ 9,022 $ 6,757 $ 6,917 $ 5,291 Weighted-average assumptions to determine the net periodic benefit cost: Discount rate 3.80% 5.00% 4.75% 4.25% 5.00% 4.75% 3.75% 4.75% 4.75% Expected return on plan assets 7.25% 7.25% 7.75% N/A N/A N/A N/A N/A N/A Rate of compensation increase 4.50% 4.50% 4.50% 4.75% 4.75% 4.75% 4.50% 4.50% 4.50% Weighted-average assumptions to determine the benefit obligations: Discount rate 4.80% 3.80% 5.00% 4.50% 4.00% 5.00% 3.75% 3.75% 4.75% Rate of compensation increase 4.85% 4.50% 4.50% 4.75% 4.75% 4.50% 4.50% 4.50% 4.50% The estimated amortization in fiscal 2014 from accumu The rate was assumed to decrease gradually to lated other comprehensive loss into net periodic benefit 5.0% by 2022 and remain at that level thereafter. cost is as follows: NON- Assumed health care cost trend rates have a significant QUALIFIED QUALIFIED PENSION PENSION OTHER effect on the amounts reported for the health care (DOLLARS IN THOUSANDS) BENEFITS BENEFITS BENEFITS plans. A one-percentage point change in the assumed Amortization of prior service cost health care cost trend rates would have the following (benefit) $ 1,597 $ 229 $ (120) effects: Amortization of net actuarial loss (gain) 18, (374) (DOLLARS IN THOUSANDS) 1% INCREASE 1% DECREASE Effect on total of service and interest cost components $ 700 $ (580) For measurement purposes, a 7.5% annual rate of Effect on postretirement benefit increase in the per capita cost of covered health care obligation 5,300 (4,700) benefits was assumed for the year ended August 31, CHS

47 TEN: Benefit Plans, continued We provide defined life insurance and health care bene- maintenance of a broad diversification across asset fits for certain retired employees and Board of Directors classes and among investment managers participants. The plan is contributory based on years of focus on long-term return objectives service and family status, with retiree contributions adjusted annually. Asset allocation targets promote optimal expected return and volatility characteristics given the long-term We have other contributory defined contribution plans time horizon for fulfilling the obligations of the pension covering substantially all employees. Total contributions plans. During fiscal year 2013, the CHS pension plans by us to these plans were $22.9 million, $20.6 million and investment policy strategy was adjusted so that liabili- $18.6 million, for the years ended August 31, 2013, 2012 ties match assets, which was accomplished through and 2011, respectively. changes to the asset portfolio mix to reduce volatility and de-risk the plan. Thus, the plans target allocation We voluntarily contributed $23.8 million to qualified pen- percentages were changed from 65% in fiscal 2012 to sion plans in fiscal Based on the funded status of the 50% in fiscal 2013 for fixed income securities, and from qualified pension plans as of August 31, 2013, we do not 35% in fiscal 2012 to 50% in fiscal 2013 for equity securianticipate having to contribute to these plans in fiscal ties. An annual analysis of the risk versus the return of 2014, although we may voluntarily elect to do so. We the investment portfolio is conducted to justify the expect to pay $6.0 million to participants of the non- expected long-term rate of return assumption. We genqualified pension and postretirement benefit plans during erally use long-term historical return information for the fiscal targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long- Our retiree benefit payments which reflect expected term rate of return assumption, when deemed necesfuture service are anticipated to be paid as follows: sary, based upon revised expectations of future investment performance of the overall investment markets. NON- QUALIFIED QUALIFIED OTHER BENEFITS PENSION PENSION (DOLLARS IN THOUSANDS) BENEFITS BENEFITS GROSS MEDICARE D The discount rate reflects the rate at which the associated benefits could be effectively settled as of the mea $33,704 $ 3,051 $ 2,919 $200 surement date. In estimating this rate, we look at rates of , , return on fixed-income investments of similar duration , , to the liabilities in the plans that receive high, invest ,406 4,609 3, ment-grade ratings by recognized ratings agencies ,812 2,628 3, ,842 18,637 19, We have trusts that hold the assets for the defined benefit plans. CHS and NCRA have qualified plan committees that set investment guidelines with the assistance of external consultants. Investment objectives for the plans assets are as follows: optimization of the long-term returns on plan assets at an acceptable level of risk The investment portfolio contains a diversified portfolio of investment categories, including domestic and international equities, fixed-income securities and real estate. Securities are also diversified in terms of domestic and international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles. The committees believe that with prudent risk tolerance and asset diversification, the plans should be able to meet pension obligations in the future. 52 CHS 2013

48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our pension plans fair value measurements at August 31, 2013 and 2012 are as follows: 2013 (DOLLARS IN THOUSANDS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Cash and cash equivalents $ 667 $ 667 Equities: Mutual funds 113,982 $ 80, ,601 Fixed income securities: Mutual funds 75, ,996 $ 1, ,665 Partnership and joint venture interests 26,014 3,403 29,417 Real estate funds 18,156 18,156 Hedge funds Total $ 190,378 $ 516,629 $ 23,621 $ 730, (DOLLARS IN THOUSANDS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Cash and cash equivalents $ 2,588 $ 21,380 $ 23,968 Equities: Mutual funds 115, , ,801 Fixed income securities: Mutual funds 76, ,380 $ 1, ,043 Real estate funds 16,257 16,257 Hedge funds Total $ 194,898 $ 475,046 $ 18,252 $ 688,196 Definitions for valuation levels are found in Note 12, Fair classified accordingly within Level 2 of the fair value Value Measurements. We use the following valuation hierarchy. Other investments in this category are valued methodologies for assets measured at fair value. using significant unobservable inputs and are classified within Level 3 of the fair value hierarchy. Mutual funds: Valued at quoted market prices, which are based on the net asset value of shares held by the Real Estate funds: Valued quarterly at estimated fair plan at year end. Mutual funds traded in active markets value based on the underlying investee funds in which are classified within Level 1 of the fair value hierarchy. the real estate fund invests. This information is compiled, Certain of the mutual fund investments held by the plan in addition to any other assets and liabilities (accrued have observable inputs other than Level 1 and are classi- expenses and unit-holder transactions), to determine fied within Level 2 of the fair value hierarchy. the fund s unit value. The real estate fund is not traded on an active market and is classified within Level 3 of the Partnership and joint venture interests: Valued at the fair value hierarchy. net asset value of shares held by the plan at year end as a practical expedient for fair value. The net asset value is Hedge funds: Valued at estimated fair value based on based on the fair value of the underlying assets owned prices quoted by various national markets and publicaby the trust, minus its liabilities then divided by the tions and/or independent financial analysts. These investnumber of units outstanding. Certain of these invest- ments are classified within Level 3 of the fair value ments have observable inputs other than Level 1 and are hierarchy. CHS

49 TEN: Benefit Plans, continued The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth a summary of changes in the fair value of the plan s Level 3 assets for the years ended August 31, 2013 and 2012: 2013 PARTNERSHIP AND JOINT REAL (DOLLARS IN THOUSANDS) MUTUAL FUNDS VENTURE INTERESTS ESTATE FUNDS HEDGE FUNDS TOTAL Balances at beginning of period $ 1,868 $ 16,257 $ 127 $ 18,252 Unrealized gains (losses) (4) 1, ,897 Realized gains (losses) 82 (10) 72 Sales (12) (12) (24) Purchases $ 3, ,418 Transfers into level Total $ 1,940 $ 3,403 $ 18,156 $ 122 $ 23, REAL (DOLLARS IN THOUSANDS) MUTUAL FUNDS ESTATE FUNDS HEDGE FUNDS TOTAL Balances at beginning of period $ 14,522 $ 191 $ 14,713 Unrealized gains (losses) $ 48 1,763 (68) 1,743 Realized gains (losses) 90 (48) 42 Sales (8) (2) (10) Purchases Transfers into level 3 1,738 1,738 Total $ 1,868 $ 16,257 $ 127 $ 18,252 We are one of approximately 400 employers that con- If a participating employer stops contributing to the tribute to the Co-op Retirement Plan (Co-op Plan), plan, the unfunded obligations of the plan may be which is a defined benefit plan constituting a multiple borne by the remaining participating employers; and employer plan under the Internal Revenue Code of If we choose to stop participating in the multiem- 1986, as amended, and a multiemployer plan under the ployer plan, we may be required to pay the plan an accounting standards. The risks of participating in these amount based on the underfunded status of the plan, multiemployer plans are different from single-employer referred to as a withdrawal liability. plans in the following aspects: Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; 54 CHS 2013

50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our participation in the Co-op Plan for the years ended August 31, 2013, 2012, and 2011 is outlined in the table below: (DOLLARS IN THOUSANDS) CONTRIBUTIONS OF CHS SURCHARGE EXPIRATION DATE OF COLLECTIVE PLAN NAME EIN/PLAN NUMBER IMPOSED BARGAINING AGREEMENT Co-op Retirement Plan /001 $ 2,095 $ 1,885 $ 1,279 N/A N/A Our contributions for the years stated above did not accumulated benefit obligations and plan assets are not represent more than 5% of total contributions to the determined or allocated separately by individual Co-op Plan as indicated in the Co-op Plan s most employer. The most recent financial statements availrecently available annual report (Form 5500). Acquisi- able in 2013 and 2012 are for the Co-op Plan s year-end tions during the years ended August 31, 2012 and 2011 at March 31, 2012 and 2011, respectively. In total, the increased the number of CHS covered participants in Co-op Plan was at least 80% funded on those dates the Co-op Plan by approximately 70%, affecting the based on the total plan assets and accumulated benefit period-to-period comparability of the contributions for obligations. the years ending August 31, 2012 and Because the provisions of the PPA do not apply to the The Pension Protection Act (PPA) of 2006 does not Co-op Plan, funding improvement plans and surcharges apply to the Co-op Plan because it is covered and are not applicable. Future contribution requirements are defined as a single-employer plan. There is a special determined each year as part of the actuarial valuation exemption for cooperative plans defining them under of the plan and may change as a result of plan the single-employer plan as long as the plan is main- experience. tained by more than one employer and at least 85% of the employers are rural cooperatives or cooperative In addition to the contributions to the Co-op Plan listed organizations owned by agricultural producers. In the above, total contributions to individually insignificant Co-op Plan, a zone status determination is not multi-employer pension plans were immaterial in fiscal required, and therefore not determined. In addition, the years 2013, 2012 and CHS

51 8NOV Segment Reporting We have aligned our segments based on an assessment and profitability during the winter heating and crop of how our businesses are operated and the products drying seasons. and services they sell. Our revenues, assets and cash flows can be significantly Our Energy segment produces and provides primarily affected by global market prices for commodities such for the wholesale distribution of petroleum products as petroleum products, natural gas, grains, oilseeds, and transportation of those products. Our Ag segment crop nutrients and flour. Changes in market prices for purchases and further processes or resells grains and commodities that we purchase without a corresponding oilseeds originated by our country operations business, change in the selling prices of those products can affect by our member cooperatives and by third parties, and revenues and operating earnings. Commodity prices are also serves as a wholesaler and retailer of crop inputs. affected by a wide range of factors beyond our control, Corporate and Other primarily represents our non-con- including the weather, crop damage due to disease or solidated wheat milling and packaged food joint ven- insects, drought, the availability and adequacy of tures, as well as our business solutions operations, which supply, government regulations and policies, world consists of commodities hedging, insurance and finan- events, and general political and economic conditions. cial services related to crop production. While our revenues and operating results are derived Corporate administrative expenses are allocated to each from businesses and operations which are whollybusiness segment, and Corporate and Other, based on owned and majority-owned, a portion of our business direct usage for services that can be tracked, such as operations are conducted through companies in which information technology and legal, and other factors or we hold ownership interests of 50% or less and do not considerations relevant to the costs incurred. control the operations. We account for these investments primarily using the equity method of accounting, Many of our business activities are highly seasonal and wherein we record our proportionate share of income or operating results will vary throughout the year. Histori- loss reported by the entity as equity income from investcally, our income is generally lowest during the second ments, without consolidating the revenues and fiscal quarter and highest during the third fiscal quarter. expenses of the entity in our Consolidated Statements For example, in our Ag segment, our agronomy and of Operations. In our Ag segment, this principally country operations businesses experience higher includes our 50% ownership in TEMCO. In Corporate volumes and income during the spring planting season and Other, these investments principally include our and in the fall, which corresponds to harvest. Also in our 50% ownership in Ventura Foods and our 24% owner- Ag segment, our grain marketing operations are subject ship in Horizon Milling and Horizon Milling, ULC. to fluctuations in volumes and earnings based on producer harvests, world grain prices and demand. Our Reconciling Amounts represent the elimination of reve- Energy segment generally experiences higher volumes nues between segments. Such transactions are exeand profitability in certain operating areas, such as cuted at market prices to more accurately evaluate the refined products, in the summer and early fall when gaso- profitability of the individual business segments. line and diesel fuel usage is highest and is subject to global supply and demand forces. Other energy products, such as propane, may experience higher volumes 56 CHS 2013

52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Segment information for the years ended August 31, 2013, 2012 and 2011 is as follows: CORPORATE RECONCILING (DOLLARS IN THOUSANDS) ENERGY AG AND OTHER AMOUNTS TOTAL For the year ended August 31, 2013: Revenues $ 12,982,293 $ 31,909,791 $ 69,238 $ (481,465) $ 44,479,857 Cost of goods sold 11,846,458 31,341,453 (241) (481,465) 42,706,205 Gross profit 1,135, ,338 69,479 1,773,652 Marketing, general and administrative 172, ,616 68, ,623 Operating earnings 963, , ,220,029 Gain on investments (27) (155) (182) Interest, net 148,366 71,597 11, ,567 Equity income from investments (1,357) (15,194) (80,799) (97,350) Income before income taxes $ 816,690 $ 199,346 $ 69,958 $ $ 1,085,994 Intersegment revenues $ (481,465) $ 481,465 $ Goodwill $ 1,165 $ 77,000 $ 6,898 $ 85,063 Capital expenditures $ 452,859 $ 198,892 $ 7,622 $ 659,373 Depreciation and amortization $ 120,447 $ 105,654 $ 15,690 $ 241,791 Total identifiable assets $ 4,409,594 $ 6,146,547 $ 2,948,129 $ 13,504,270 For the year ended August 31, 2012: Revenues $ 12,816,542 $ 28,181,445 $ 68,882 $ (467,583) $ 40,599,286 Cost of goods sold 11,514,463 27,544,040 (2,777) (467,583) 38,588,143 Gross profit 1,302, ,405 71,659 2,011,143 Marketing, general and administrative 155, ,757 68, ,233 Operating earnings 1,146, ,648 2,969 1,512,910 Loss on investments 4,008 1, ,465 Interest, net 122,302 57,915 13, ,263 Equity income from investments (7,537) (22,737) (72,115) (102,389) Income before income taxes $ 1,027,520 $ 327,421 $ 61,630 $ $ 1,416,571 Intersegment revenues $ (467,583) $ 467,583 $ Goodwill $ 1,165 $ 73,630 $ 6,898 $ 81,693 Capital expenditures $ 294,560 $ 168,825 $ 5,226 $ 468,611 Depreciation and amortization $ 109,496 $ 92,538 $ 17,598 $ 219,632 Total identifiable assets $ 3,704,796 $ 7,316,410 $ 2,623,818 $ 13,645,024 For the year ended August 31, 2011: Revenues $ 11,467,381 $ 25,767,033 $ 64,809 $ (383,389) $ 36,915,834 Cost of goods sold 10,694,687 25,204,301 (2,611) (383,389) 35,512,988 Gross profit 772, ,732 67,420 1,402,846 Marketing, general and administrative 142, ,369 66, ,498 Operating earnings 629, , ,348 Loss (gain) on investments 1,027 (118,344) (9,412) (126,729) Interest, net 5,829 57,438 11,568 74,835 Equity income from investments (6,802) (40,482) (84,130) (131,414) Income before income taxes $ 629,932 $ 434,751 $ 82,973 $ $ 1,147,656 Intersegment revenues $ (383,389) $ 383,389 $ Goodwill $ 1,165 $ 18,346 $ 6,898 $ 26,409 Capital expenditures $ 198,692 $ 107,866 $ 4,112 $ 310,670 Depreciation and amortization $ 126,018 $ 79,231 $ 15,445 $ 220,694 CHS

53 ELEVEN: Segment Reporting, continued We have international sales, which are predominantly in our Ag segment. The following table represents our sales, based on the geographic locations in which the sales originated, for the years ended August 31, 2013, 2012 and 2011: (DOLLARS IN MILLIONS) North America $ 39,918 $37,503 $35,287 South America 2,511 1,444 1,066 EMEA 1,040 1, APAC $44,149 $40,301 $36,636 8NOV Fair Value Measurements Accounting Standards Codification Topic (ASC) 820, the full term of the assets or liabilities. These assets and Fair Value Measures and Disclosures (ASC 820) defines liabilities include marketable inventories, interest rate fair value as the price that would be received for an asset swaps, forward commodity and freight purchase and or paid to transfer a liability (an exit price) in a principal sales contracts, flat price or basis fixed derivative conor most advantageous market for the asset or liability in tracts and other OTC derivatives whose value is deteran orderly transaction between market participants on mined with inputs that are based on exchange traded the measurement date. prices, adjusted for location specific inputs that are primarily observable in the market or can be derived princi- We determine fair market values of readily marketable pally from, or corroborated by, observable market data. inventories, derivative contracts and certain other assets, based on the fair value hierarchy established in ASC 820, Level 3: Values are generated from unobservable inputs which requires an entity to maximize the use of observ- that are supported by little or no market activity and that able inputs and minimize the use of unobservable inputs are a significant component of the fair value of the assets when measuring fair value. Observable inputs are inputs or liabilities. These unobservable inputs would reflect our that reflect the assumptions market participants would own estimates of assumptions that market participants use in pricing the asset or liability based on the best infor- would use in pricing related assets or liabilities. Valuation mation available in the circumstances. ASC 820 describes techniques might include the use of pricing models, disthree levels within its hierarchy that may be used to mea- counted cash flow models or similar techniques. sure fair value, which are as follows: The following table presents assets and liabilities, Level 1: Values are based on unadjusted quoted prices included on our Consolidated Balance Sheets, that are in active markets for identical assets or liabilities. These recognized at fair value on a recurring basis, and indiassets and liabilities include exchange traded derivative cates the fair value hierarchy utilized to determine such contracts, Rabbi Trust investments, deferred compensa- fair value. Assets and liabilities are classified, in their tion investments and available-for-sale investments. entirety, based on the lowest level of input that is a significant component of the fair value measurement. The Level 2: Values are based on quoted prices for similar lowest level of input is considered Level 3. Our assessassets or liabilities in active markets, quoted prices for ment of the significance of a particular input to the fair identical or similar assets or liabilities in markets that are value measurement requires judgment, and may affect not active, or other inputs that are observable or can be the classification of fair value assets and liabilities within corroborated by observable market data for substantially the fair value hierarchy levels. 58 CHS 2013

54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value measurements at August 31, 2013 and 2012 are as follows: QUOTED PRICES IN SIGNIFICANT ACTIVE MARKETS FOR SIGNIFICANT OTHER UNOBSERVABLE IDENTICAL ASSETS OBSERVABLE INPUTS INPUTS (DOLLARS IN THOUSANDS) (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL Assets: Readily marketable inventories $ 1,203,383 $ 1,203,383 Commodity and freight derivatives $ 58, , ,674 Interest rate swap derivatives 24,139 24,139 Foreign currency derivatives 6, ,079 Other assets 114, ,084 $ 179,419 $ 1,637,940 $ 1,817,359 Liabilities: Commodity and freight derivatives $ 59,184 $ 399,710 $ 458,894 Interest rate swap derivatives Foreign currency derivatives 5,925 5,925 Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests $ 134, ,134 $ 65,109 $ 399,958 $ 134,134 $ 599, QUOTED PRICES IN SIGNIFICANT ACTIVE MARKETS FOR SIGNIFICANT OTHER UNOBSERVABLE IDENTICAL ASSETS OBSERVABLE INPUTS INPUTS (DOLLARS IN THOUSANDS) (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL Assets: Readily marketable inventories $ 1,702,757 $ 1,702,757 Commodity and freight derivatives $ 122, ,787 1,070,800 Foreign currency derivatives Other assets 75,000 75,000 $ 197,991 $ 2,651,544 $ 2,849,535 Liabilities: Commodity and freight derivatives $ 201,475 $ 645,452 $ 846,927 Interest rate swap derivatives Foreign currency derivatives 2,388 2,388 Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests $ 127, ,516 $ 203,863 $ 645,996 $ 127,516 $ 977,375 CHS

55 TWELVE: Fair Value Measurements, continued Readily marketable inventories Our readily marketable classified within Level 1. Changes in the fair values of these inventories primarily include grain, oilseed, and minimally other assets are primarily recognized in our Consolidated processed soy-based inventories that are stated at fair Statements of Operations as a component of marketing, values. These commodities are readily marketable, have general and administrative expenses. quoted market prices and may be sold without significant additional processing. We estimate the fair market values Interest rate swap derivatives Fair values of our interest of these inventories included in Level 2 primarily based on rate swap derivatives are determined utilizing valuation exchange quoted prices, adjusted for differences in local models that are widely accepted in the market to value markets. Changes in the fair market values of these inven- such OTC derivative contracts. The specific terms of the tories are recognized in our Consolidated Statements of contracts, as well as market observable inputs, such as Operations as a component of cost of goods sold. interest rates and credit risk assumptions, are factored into the models. As all significant inputs are market Commodity, freight and foreign currency derivatives observable, all interest rate swaps are classified within Exchange traded futures and options contracts are Level 2. Changes in the fair values of contracts not desvalued based on unadjusted quoted prices in active ignated as hedging instruments for accounting purmarkets and are classified within Level 1. Our forward poses are recognized in our Consolidated Statements of commodity purchase and sales contracts, flat price or Operations as a component of interest, net. Changes in basis fixed derivative contracts, ocean freight contracts the fair values of contracts designated as hedging and other OTC derivatives are determined using inputs instruments are deferred to accumulated other comprethat are generally based on exchange traded prices hensive loss in the equity section of our Consolidated and/or recent market bids and offers, adjusted for loca- Balance Sheets and are amortized into earnings within tion specific inputs, and are classified within Level 2. The interest, net over the term of the agreements. location specific inputs are generally broker or dealer quotations, or market transactions in either the listed or Accrued liability for contingent crack spread payments OTC markets. Changes in the fair values of these con- related to purchase of noncontrolling interests The fair tracts are recognized in our Consolidated Statements of value of the accrued liability was calculated utilizing an Operations as a component of cost of goods sold. average price option model, an adjusted Black-Scholes pricing model commonly used in the energy industry to Other assets Our available-for-sale investments in value options. The model uses market observable inputs common stock of other companies, deferred compensa- and unobservable inputs. Due to significant unobservtion investments and Rabbi Trust assets are valued based able inputs used in the pricing model, the liability is clason unadjusted quoted prices on active exchanges and are sified within Level 3. QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS ITEM FAIR VALUE AUGUST 31, 2013 VALUATION TECHNIQUE UNOBSERVABLE INPUT RANGE (WEIGHTED AVERAGE) Accrued liability for contingent crack $ 134,134 Adjusted Black- Forward crack spread margin $20.46-$22.07 ($20.97) spread payments related to purchase of Scholes option pricing on August 31 (a) noncontrolling interests model Contractual target crack spread $17.50 margin (b) Expected volatility (c) 80.31% Risk-free interest rate (d) % (2.23%) Expected life years (e) (2.64) (a) (b) (c) (d) (e) Represents forward crack spread margin quotes and management estimates based on future settlement dates Represents the minimum contractual threshold that would require settlement with the counterparties Represents quarterly adjusted volatility estimates derived from daily historical market data Represents yield curves for U.S. Treasury securities Represents the range in the number of years remaining related to each contingent payment 60 CHS 2013

56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the accrued liability for contingent crack spread pay- ments related to the purchase of noncontrolling inter- ests are the adjusted forward crack spread margin and the expected volatility. Significant increases (decreases) in either of these inputs in isolation would result in a significantly higher (lower) fair value measurement. Although changes in the expected volatility are driven by fluctuations in the underlying crack spread margin, changes in expected volatility are not necessarily accompanied by a directionally similar change in the forward crack spread margin. Directional changes in the expected volatility can be affected by a multitude of factors including the magnitude of daily fluctuations in the underlying market data, market trends, timing of fluctuations, and other factors. Valuation processes for Level 3 measurements Management is responsible for determining the fair value of our Level 3 financial instruments. Option pricing methods are utilized, as indicated above. Inputs used in the option pricing models are based on quotes obtained from third-party vendors as well as management estimates for periods in which quotes cannot be obtained. Each reporting period, management reviews the unobservable inputs provided by third-party vendors for reasonableness utilizing relevant information available to us. Management also takes into consideration current and expected market trends and compares the liability s fair value to hypothetical payments using known historical market data to assess reasonableness of the resulting fair value. Sensitivity analysis of Level 3 measurements The significant unobservable inputs that are susceptible to periodic fluctuations used in the fair value measurement of The following table represents a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended August 31, 2013 and 2012: LEVEL 3 LIABILITIES ACCRUED LIABILITY FOR CONTINGENT CRACK SPREAD PAYMENTS RELATED TO PURCHASE OF NONCONTROLLING INTERESTS (DOLLARS IN THOUSANDS) Balance beginning of year $ 127,516 Purchases $ 105,188 Amounts currently payable (16,491) Total losses included in cost of goods sold 23,109 22,328 Balance end of year $ 134,134 $ 127,516 8NOV Commitments and Contingencies Environmental We are required to comply with various environmental laws and regulations incidental to our normal business operations. In order to meet our compliance require- ments, we establish reserves for the probable future costs of remediation of identified issues, which are included in cost of goods sold and marketing, general and administrative in our Consolidated Statements of Operations. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year. CHS

57 THIRTEEN: Commitments and Contingencies, continued Contingencies In May 2013, we initiated a voluntary recall of certain soy protein products produced at our Ashdod, Israel facility following one customer s report to us of a positive test result for salmonella in product purchased from us. We notified applicable food safety regulators, including the Israel Ministry of Health and the U.S. Food and Drug Administration, of both the positive test result and our determination to conduct a voluntary recall. We have received no reports of salmonella-related illness in rela- tion to the recalled products. We estimate our range of loss associated with this recall to be between $14.4 mil- lion and $39.7 million. During the year ended August 31, 2013, we recorded a reserve of $25.0 million, which is the amount within the range that we believe is the best estimate given the claims experience so far. We maintain product liability and general liability insurance (which includes product liability coverage), which we believe will offset some related product liability expenses. How- ever, as of August 31, 2013, no insurance recoveries have been recorded related to this incident. Minimum future lease payments required under noncan- celable operating leases as of August 31, 2013 were as follows: Other Litigation and Claims We are involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of our business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year. collateral for a portion of these contingent obligations. We have not recorded a liability related to the contingent obligations as we do not expect to pay out any cash related to them, and the fair values are considered immaterial. The underlying loans to the counterparties for which we pro- vide guarantees are current as of August 31, Credit Commitments CHS Capital has commitments to extend credit to cus- tomers as long as there is no violation of any condition established in the contracts. As of August 31, 2013, CHS Capital s customers have additional available credit of $1.0 billion. Lease Commitments We are committed under operating lease agreements for approximately 2,600 rail cars with remaining terms of one to 13 years. In addition, we have commitments under other operating leases for various refinery, manufacturing and transportation equipment, vehicles and office space. Some leases include purchase options at not less than fair market value at the end of the lease terms. Total rental expense for all operating leases was $81.5 million, $74.6 million and $66.2 million for the years ended August 31, 2013, 2012 and 2011, respectively. EQUIPMENT RAIL AND (DOLLARS IN THOUSANDS) CARS VEHICLES OTHER TOTAL Grain Storage As of August 31, 2013 and 2012, we stored grain for third 2014 $ 18,875 $ 13,006 $ 45,965 $ 77,846 parties totaling $454.9 million and $441.3 million, ,331 9,803 35,934 64,068 respectively. Such stored commodities and products are ,310 6,959 29,699 53,968 not our property and, therefore, are not included in our ,203 4,451 21,906 42,560 inventories on our Consolidated Balance Sheets ,608 2,480 13,527 27,615 Guarantees Thereafter 10, ,210 43,725 We are a guarantor for lines of credit and performance Total minimum obligations of related companies. Our bank covenants future lease payments allow maximum guarantees of $1.0 billion, of which $ 93,157 $ 37,384 $ 179,241 $ 309,782 $39.8 million was outstanding on August 31, We have 62 CHS 2013

58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Purchase Obligations As of August 31, 2013 and 2012, we had purchase obligations of $5.4 billion and $6.3 billion, respectively, which were not recorded on our Consolidated Balance Sheets. Such purchase obligations are legally binding and enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and time of the transactions. Minimum future payments required under noncancelable purchase obligations as of August 31, 2013 are as follows: PAYMENTS DUE BY PERIOD LESS THAN MORE THAN (DOLLARS IN THOUSANDS) TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS Long-term unconditional purchase obligations $ 510,705 $ 63,387 $ 137,237 $ 89,700 $ 220,381 Other contractual obligations 4,871,767 4,713,927 80,454 10,459 66,927 Total purchase obligations $ 5,382,472 $ 4,777,314 $ 217,691 $ 100,159 $ 287,308 Long-term unconditional purchase obligations primarily relate to pipeline and grain handling take-or-pay and through-put agreements. The discounted, aggregate amount of the minimum required payments under long-term unconditional purchase obligations, based on current exchange rates at August 31, 2013 was $423.9 million. Total payments under these arrangements were $62.4 million, $47.8 million and $60.8 million for the years ended August 31, 2013, 2012 and 2011, respectively. 8NOV Supplemental Cash Flow and Other Information Additional information concerning supplemental disclosures of cash flow activities for the years ended August 31, 2013, 2012 and 2011 is as follows: (DOLLARS IN THOUSANDS) Net cash paid during the period for: Interest $ 256,538 $ 155,888 $ 73,557 Income taxes 23,228 27,671 1,046 Other significant noncash investing and financing transactions: Capital equity certificates issued in exchange for Ag acquisitions 18,211 29,155 6,453 Accrual of dividends and equities payable 390, , ,216 CHS

59 8NOV Related Party Transactions Related party transactions with equity investees for the years ended August 31, 2013, 2012 and 2011, respectively and balances as of August 31, 2013 and 2012, respectively are as follows: (DOLLARS IN THOUSANDS) Sales $ 2,963,468 $ 2,185,348 $ 3,004,303 Purchases 1,535,176 1,143,285 1,461,391 (DOLLARS IN THOUSANDS) Receivables $ 25,159 $ 51,716 Payables 31,485 60,659 The related party transactions were primarily with TEMCO, Horizon Milling, United Harvest and Ventura Foods. 8NOV Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, net of taxes, as of August 31, 2013 and 2012 are as follows: (DOLLARS IN THOUSANDS) Pension and other postretirement, net of tax benefit of $(104,024) and $(145,031) in 2013 and 2012, respectively $ (165,611) $ (228,727) Unrealized net gain on available for sale investments, net of tax expense of $1,461 and $858 in 2013 and 2012, respectively 2,370 1,391 Cash flow hedges, net of tax expense (benefit) of $7,204 and $(2,347) in 2013 and 2012, respectively 11,685 (3,806) Foreign currency translation adjustment, net of tax benefit of $(3,274) and $(891) in 2013 and 2012, respectively (5,311) (1,445) Accumulated other comprehensive loss, including noncontrolling interests (156,867) (232,587) Accumulated other comprehensive loss attributable to noncontrolling interests Accumulated other comprehensive loss attributable to CHS Inc. $ (156,867) $ (232,587) 64 CHS 2013

60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8NOV Acquisitions NCRA: On November 29, 2011, our Board of Directors approved a stock transfer agreement, dated as of November 29, 2011, between us and GROWMARK, Inc. (Growmark), and a stock transfer agreement, dated as of November 29, 2011, between us and MFA Oil Company (MFA). Pursuant to these agreements, we have begun to acquire from Growmark and MFA shares of Class A common stock and Class B common stock of NCRA representing approximately % of NCRA s outstanding capital stock. Prior to the first closing, we owned the remaining approximately % of NCRA s outstanding capital stock as of August 31, 2012 and accordingly, upon completion of the acquisitions contemplated by these agreements, NCRA will be a wholly- owned subsidiary. As of August 31, 2013, our ownership was 79.2% and with the closing in September 2013, our ownership increased to 84.0%. Pursuant to the agreement with Growmark, we will acquire stock representing approximately % of NCRA s outstanding capital stock in four separate clos- ings held or to be held on September 1, 2012, Sep- tember 1, 2013, September 1, 2014 and September 1, 2015, for an aggregate base purchase price of $255.5 million (approximately $48.0 million of which has or will be paid at each of the first three closings, and $111.4 million of which will be paid at the final closing). In addition, Growmark is entitled to receive up to two contingent purchase price payments following each indi- vidual closing, calculated as set forth in the agreement with Growmark, if the average crack spread margin referred to therein over the fiscal year ending on August 31 of the calendar year in which the contingent payment date falls exceeds a specified target. Pursuant to the agreement with MFA, we will acquire stock representing approximately 6.955% of NCRA s outstanding capital stock in four separate closings held or to be held on September 1, 2012, September 1, 2013, September 1, 2014 and September 1, 2015, for an aggre- gate base purchase price of $95.5 million (approxi- mately $18.0 million of which has or will be paid at each of the first three closings, and $41.6 million of which will be paid at the final closing). In addition, MFA is entitled to receive up to two contingent purchase price payments following each individual closing, calculated as set forth in the agreement with MFA, if the average crack spread margin referred to therein over the fiscal year ending on August 31 of the calendar year in which the contingent payment date falls exceeds a specified target. As all conditions associated with the purchase have been met, we have accounted for this transaction as a forward purchase contract which required recognition in the first quarter of fiscal 2012 in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480). As a result, we are no longer including the noncontrolling interests related to NCRA as a compo- nent of equity. Instead, we recorded the present value of the future payments to be made to Growmark and MFA as a liability on our Consolidated Balance Sheets as of November 30, The liability as of August 31, 2013 and 2012 was $275.4 million and $334.7 million, including interest accretion of $6.7 million and $6.0 mil- lion, respectively. Noncontrolling interests in the amount of $337.1 million was reclassified and an additional adjustment to equity in the amount of $96.7 million was recorded as a result of the transaction. The equity adjustment included the initial fair value of the crack spread contingent payments of $105.2 million. The fair value of the liability associated with the crack spread contingent payments was calculated utilizing an average price option model, an adjusted Black-Scholes pricing model commonly used in the energy industry to value options. As of August 31, 2013 and 2012, the fair value of the crack spread contingent payments was $150.6 million and $127.5 million, respectively, and is included on our Consolidated Balance Sheets in other liabilities with an increase of $23.1 million and $22.3 mil- lion included in cost of goods sold in our Consolidated Statements of Operations during the years ended August 31, 2013 and 2012, respectively. The first crack spread contingent payment in the amount of $16.5 million was made in October The portion of NCRA earnings attributable to Growmark and MFA for the first quarter of fiscal 2012, prior to the transaction date, were included in net income attributable to noncontrolling interests. Beginning in the second quarter of fiscal 2012, in accordance with ASC 480, earnings are no longer attributable to the noncontrolling interests, and patronage earned by Growmark and MFA is included as interest, net in our Consolidated Statements of Opera- tions. During the years ended August 31, 2013 and 2012, $142.4 million and $107.2 million, respectively, was included in interest for the patronage earned by Growmark and MFA. CHS

61 SEVENTEEN: Acquisitions, continued Solbar: On February 9, 2012, we completed the acquisition of Israel, China and the U.S. The acquisition resulted in fair value measurements that are not on a recurring basis Solbar Industries Ltd., an Israeli company (Solbar), and did not have a material impact on our consolidated included in our Ag segment. Effective upon the closing results of operations. Purchase accounting has been of the merger, each outstanding share of Solbar was finalized and fair values assigned to the net assets converted into the right to receive $4.00 in cash, acquired were as follows: without interest, and each outstanding Solbar stock option was terminated in exchange for a cash payment (DOLLARS IN THOUSANDS) in an amount per share equal to the difference between Current assets $74,240 the applicable exercise price per share and $4.00, for Investments 961 total consideration paid of $128.7 million, net of cash Property, plant and equipment 71,324 acquired of $6.6 million. Solbar provides soy protein Goodwill 39,794 ingredients to manufacturers in the meat, vegetarian, beverage, bars and crisps, confectionary, bakery, and Definite-lived intangible assets 23,306 pharmaceutical manufacturing markets. This acquisition Current liabilities (63,417) deepens our presence in the value-added soy protein Long-term debt (15,849) market. The fair market value of net assets was determined Other liabilities (1,694) by market valuation reports using Level 3 inputs. Total net assets acquired $128,665 Allocation of purchase price for this transaction resulted in goodwill of $39.8 million, which is nondeductible for tax purposes, and definite-lived intangible assets of $23.3 million. As this acquisition is not material, Creston: proforma results of operations are not presented. Solbar In November 2011, we acquired an oilseed crushing and its subsidiaries operate primarily in the countries of facility in Creston, Iowa for $32.3 million. 66 CHS 2013

62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Report of independent registered public accounting firm To the Board of Directors and Members and Patrons of CHS Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income, of changes in equities, and of cash flows present fairly, in all material respects, the financial position of CHS Inc. and its subsidiaries at August 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2013, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 2OCT PricewaterhouseCoopers LLP Minneapolis, Minnesota November 7, 2013 CHS

63 BOARD OF DIRECTORS David Bielenberg, chairman (2009, previously served ): Previously served as assistant secretarytreasurer, as chairman of the board s Audit Committee and served as a member of the Government Relations and Executive committees. Formerly served as director and president of the board for Wilco Farmers Cooperative, Mt. Angel, Ore. Chair of East Valley Water District and active in a broad range of agricultural and cooperative organizations. Operates a diverse agricultural business near Silverton, Ore., which includes seed crops, vegetables, soft white wheat, greenhouse production and timberland. Earned a bachelor of science degree in agricultural engineering from Oregon State University and is a graduate of the Texas A&M University executive program for agricultural producers. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education. Dennis Carlson, first vice chairman (2001): Chairman of Capital Committee and serves as the first vice chair on the Executive Committee. Previously served as second vice chairman of the board, as chairman of the Foundation Finance and Investment Committee and as a member of the Executive Committee. Formerly chairman of the Farmers Union Oil Company of Bismarck/Mandan, N.D., and served on that board for 18 years. A fourth-generation farmer, with his wife Kristi raises wheat, sunflowers and soybeans near Bismarck, N.D. Has completed the National Association of Corporate Directors comprehensive Director Professionalism course and was awarded its Certificate of Director Education and Board Leadership Fellow status. Dan Schurr, secretary-treasurer (2006): Chairman, Audit Committee and serves on the Executive Committee. Previously served as first vice chairman and has served on Government Relations and Corporate Responsibility committees. Director, Blackhawk Bank and Trust, serving on its Audit and Loan committees. Formerly the director for the River Valley Cooperative of Mt. Joy, Iowa. Served as a director and Loan Committee member for Great River Bank and as a member of his local school board. Member of board of trustees for the Silos & Smokestacks National Heritage Area. Active in numerous agriculture and community organizations and named the Iowa Jaycees Outstanding Young Farmer in Raises corn and soybeans near LeClaire, Iowa. Owns a heavy equipment repair business in Bettendorf, Iowa. Earned a bachelor s degree in agricultural business with a minor in economics from Iowa State University. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and earned Certificate of Director Education and Board Leadership fellow status. Steve Fritel, second vice chairman (2003): Chairman, Governance Committee and second vice chair, Executive Committee. Previously served as secretarytreasurer and as a member on the Executive, Capital, Governance, Corporate Responsibility and Government Relations committees. Served on the board of Rugby Farmers Union Elevator and four years on the former Harvest States Wheat Milling Defined Member Board. Currently a director of Envision. Past board member of North Central Experiment Station Board of Visitors and North Dakota Farm and Ranch Business Management Advisory Board. Member of Envision and Rugby Farmers Union Elevator, and represents CHS on the Quentin Burdick Center for Cooperatives. Involved in wide range of agricultural and co-op organizations. Raises cash grain, including spring wheat, barley, soybeans, edible beans, corn and confection sunflower on a family farm near Rugby, N.D. Earned an associate s degree from North Dakota State College of Science, Wahpeton. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and earned its Certificate of Director Education. Curt Eischens, assistant-secretary treasurer (1990): Chairman, Corporate Responsibility Committee and is assistant-secretary of the Executive Committee. Previously served as second vice chairman and was a member of the CHS Foundation Finance and Investment committee. Director for Farmers Co-op Association in Canby, Minn., for nine years, including eight years as board chairman. Currently vice chairman of the Cooperative Network and a member of the Minnesota Soybean Association, Minnesota Corn Growers Association, Minnesota Farmers Union, Minnesota FFA Alumni Association (life member) and the National FFA Alumni Association. Inducted into the Minnesota FFA Hall of Fame in April Operates a family corn and soybean farm near Minneota, Minn. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and earned its Certificate of Director Education. Don Anthony (2006): Chairman of CHS Foundation Finance and Investment Committee and member of Audit Committee. Chaired the Nebraska Beginning

64 LEADERSHIP TEAM Back row, from left: Erickson, Johnsrud, Blew, Hasnedl, Anthony, Eischens, Kruger, Riegel, Bass, Knecht, Kayser, Malesich Front row, from left: Schurr, Bielenberg, Carlson, Fritel Farmer Board for the last five years and has been the 3rd District producer representative for 10 years. Served as director and chairman for All Points Cooperative of Gothenburg, Neb., Lexington Co-op Oil, and director for former Farmland Industries. Active in several state and local cooperative and agricultural organizations. Raises corn, soybeans and alfalfa near Lexington, Neb. Earned a bachelor s degree in agricultural economics from the University of Nebraska. Elected to the Nebraska Hall of Agricultural Achievement in Completed National Association of Corporate Directors (NACD) comprehensive Director Professionalism course and received its Certificate of Director Education and was among the first corporate directors in the U.S. to earn NACD distinction as a Board Leadership Fellow. Bob Bass (1994): Served as first vice chairman for nine years. Member of CHS Foundation Finance and Investment and Audit committees, also served nine years as chairman. Served on the board of the Cooperative Network and the board of Co-op Country Partners in Baraboo, Wis., for 15 years, including seven as its president. Partner in a family farm operation, which includes a 500-acre dairy and feed grain enterprise. Earned a bachelor s degree in agricultural education from the University of Wisconsin and is a former agricultural educator. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education. C.J. Blew (2010): Serves as a member of the Governance and CHS Foundation Finance and Investment committees. Serving his third term as a director and now as chairman of MKC (Mid Kansas Coop), Moundridge, Kan.; previously served as vice chairman and secretary. Served on the 2010 CHS Resolutions Committee and attended the CHS New Leader Institute. Holds a position on the Hutchinson Community College Ag Advisory Board. Past director of Reno County Cattlemen s Board. Member of the Kansas Livestock Association, Texas Cattle Feeder s Association and the Red Angus Association of America. Farms in a family partnership that includes irrigated corn and soybeans, dryland wheat, milo and soybeans, along with a commercial cow-calf business. Earned an applied science degree in farm and ranch management from Hutchinson Community College. Achieved Board Governance Fellowship status from the National Association of Corporate Directors. Jon Erickson (2011): Serves as a member of Capital and Government Relations committees. Previously served as a member of the Governance Committee, and as director and chairman for Enerbase of Minot, N.D., an energy and agricultural supply cooperative. Past director on the North Dakota Farmers Union (NDFU) board, the NDFU Mutual Insurance board and served on the CHS Resolutions Committee. Third generation of his family to serve in a cooperative leadership role. Also served on National Cattlemen s Beef Promotion and Research Board, South Prairie School Board, Ward County School Reorganization Board, Freedom Township Board, North Dakota Farmers Union Board and North Dakota Farmers Union Mutual Insurance Board. Member of NDFU and the North Dakota Stockman s Association. Operates third-generation Diamond T Ranch near Minot, where his family raises small grains and oilseeds and has a Hereford-Angus cow-calf operation. Earned a bachelor s degree in agricultural economics from North Dakota State University. Jerry Hasnedl (1995): Previously served as the chairman of CHS from Serves on Government Relations and Governance committees, Cooperative Network Board of Directors, representing farm supply co-ops. Former secretary-treasurer and chair of the Executive and Capital committees, as well as the CHS Foundation. CHS

65 Member and past director of Northwest Grain, a locally governed CHS retail business, and active in a wide range of agricultural and co-op organizations. Raises wheat, barley, corn, soybeans, sunflowers, canola and alfalfa near St. Hilaire, Minn. Earned an associate s degree in agricultural economics and received certification in advanced farm business management from Northland College, Thief River Falls, Minn. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education and Board Leadership Fellow status. David Johnsrud (2012): Member of the Government Relations and Corporate Responsibility committees. Director for AgCountry Farm Credit Services since 2001 and currently serves as chairman. Previously served on the Minnesota Farm Credit Legislative Committee with three years as chairman, was chairman of the Minnesota Farm Credit nominating committee for the AgriBank election in 2012 and served on the Farmers Union Oil and Prairie Lake Co-op boards of directors from 1987 through 2007 with 15 years as board secretary. Also served on the Mid-Minnesota Association Board with terms as secretary and chairman, and served on the Minnesota Directors Association with terms as treasurer. Farms in partnership with his brother and nephew. Completed the Farm Credit Services Premier Governance Series and became a Certified Director in 2010, and is a 2010 graduate of Minnesota Agricultural Rural Leadership Class V. David Kayser (2006): Serves as a member of the Corporate Responsibility and CHS Foundation Finance and Investment committees. Was director and chairman for Farmer s Alliance, Mitchell, S.D. Past chairman of South Dakota Association of Cooperatives and previously served on CHS Resolutions Committee. Raises corn, soybeans and hay near Alexandria, S.D., and operates a cow-calf and feeder-calf business. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education. Randy Knecht (2001): Serves as a member of the Government Relations and Capital committees. Previously served as assistant secretary-treasurer and as chairman of Governance and Government Relations committees. Is a past board member of the American Coalition for Ethanol and past board member and chairman of Full Circle Ag and Northern Electric Cooperative. Partner in family farm operation near Houghton, S.D., that raises corn, soybeans, alfalfa and beef cattle. Earned a bachelor s degree in agriculture from South Dakota State University. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education. Greg Kruger (2008): Serves as a member of the Audit and Government Relations committees. Previously served on the Capital Committee. Member and cooperative director for more than 15 years, including serving as chairman, of Countryside Cooperative, Durand, Wis., since its creation in Involved in a wide range of agricultural and local government activities, including serving as Trempealeau County Farm Bureau president and as chairman of his community s Land Use Planning Committee. Operates a family dairy and crop farm near Eleva, Wis. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education. Edward Malesich (2011): Serves on the Government Relations and Corporate Responsibility committees. Served 12 years on the board of Rocky Mountain Supply, Inc., Belgrade, Mont., and 18 years on one of its predecessor cooperatives. Also served 13 years on the board of Northwest Farm Credit Services, Spokane, Wash., an $8 billion association serving four states, including two years as board chairman and terms on its audit, governance, compensation and risk committees. Served 16 years as a director for the East Bench Irrigation District. Member of the Montana Stock Growers Association, Montana Grain Growers Association and Farm Bureau. President of Malesich Ranch Co., a diversified operation managing 1,300 head of commercial Angus cattle on 14,000 acres including federal, state and private land leases; wheat, malt barley and hay on 2,000 irrigated acres; and a custom haying business. Earned a bachelor s degree in agricultural production from Montana State University and is a member of Alpha Gamma Rho Fraternity. Steve Riegel (2006): Chairman, Government Relations committee and serves as a member of the Governance Committee. Formerly served as a member of Corporate Responsibility and Capital committees. Former chairman of Pride Ag Resources, Dodge City, Kan., and previously served as a director and officer for Ford-Kingsdown Cooperative and Co-op Service, Inc. Advisory director for Bucklin (Kan.) National Bank and has served on his local school board. Raises irrigated corn, soybeans, alfalfa, dryland wheat and milo near Ford, Kan. Attended Fort Hays State University, majoring in agriculture business and animal science. Completed the National Association of Corporate Directors comprehensive Director Professionalism course and received its Certificate of Director Education and Board Leadership fellow status. Michael Toelle resigned from the CHS Board of Directors in April 2013 to assume a position on the Nationwide Mutual Insurance Company board. We thank him for his 13 years of service to the CHS Board of Directors, including nine years as chairman.

66 LEADERSHIP TEAM EXECUTIVE TEAM From left: Debertin, Johnson, Zell, McEnroe, Casale, Cunningham, Palmquist, Skidmore Carl Casale, president and chief executive officer. Joined CHS in January 2011 after a 26-year career with Monsanto Company, most recently as executive vice president and chief financial officer. Serves on the boards of the National Cooperative Refinery Association; Ventura Foods, LLC; Ecolab Inc.; the National Council of Farmer Cooperatives; the Greater Twin Cities United Way; and the Minnesota Business Partnership. Previously served on the board of the National 4-H Council. Operates a family-owned blueberry farm with his wife, Kim, near Aurora, Ore., which has done business with area supply and marketing cooperatives for generations. Earned a bachelor s degree in agricultural economics from Oregon State University and an executive master s degree in business administration from Washington University, St. Louis, Mo. Named 2009 alumni fellow of Oregon State University College of Agriculture. Shirley Cunningham, executive vice president, Enterprise Strategy. Joined CHS in April Leads enterprise strategy functions, including information technology, human resources, planning and strategy, and marketing and communications. Previously chief information officer for Monsanto Company and has more than 25 years of experience in information technology and business management, which includes leading global IT operations, acquisitions, IT research and development, strategic planning, and enterprise initiatives. Has extensive global experience leading Monsanto Europe, Middle East and Africa IT operations and was responsible for developing and executing the Monsanto quality oils strategy. Previously held leadership positions with several companies in the United Kingdom. Serves on the boards of the Washington University School of Engineering, AT&T advisory panel and The Magic House, St. Louis Children s Museum. Earned a master s degree in business administration from Washington University, St. Louis, Mo. Jay Debertin, executive vice president and chief operating officer, Energy and Foods. Named in 2011 to his current position leading CHS energy operations, which includes refineries, pipelines and terminals; refined fuels, propane, lubricants; and renewable fuels distribution, and marketing businesses. Responsible for vegetable-oil-based foods through Ventura Foods, LLC, and serves on that company s board of directors. Joined CHS in 1984 and has held a variety of positions in its energy business. Served as executive vice president and chief operating officer, Processing, from 2005 through 2010, and was responsible for the company s soybean crushing, refining and related operations, along with its food processing joint venture relationships. Serves as chairman of the National Cooperative Refinery Association board. Earned a bachelor s degree in economics from the University of North Dakota and master s degree in business administration from the University of Wisconsin Madison. Lynden Johnson, executive vice president, Business Solutions. Responsible for CHS Board planning and administration, Corporate Citizenship and the CHS Foundation, and CHS Aligned Solutions and subsidiaries CHS Insurance, CHS Hedging and CHS CHS

67 Capital. Named to current position in January Previously served as senior vice president of CHS Business Solutions through 2011 after being named vice president of Business Solutions Consulting in 2008 and vice president of Member Services in Managed cooperatives in North Dakota and Minnesota for 23 years. Trustee of the Member Cooperatives Pension Plan, a board member for CHS Pension Plan, and fiduciary board member for the Co-op 401(k) Committee. Serves as director for CHS Insurance, CHS Capital and CHS Hedging. Has served as the leader of numerous cooperative system organizations, including North Dakota and Minnesota Managers Association, Triangle Agronomy LLC, CHS and Land O Lakes Managers Council, and business unit advisory committees. Earned a bachelor s degree in agricultural economics from North Dakota State University. John McEnroe, executive vice president, Country Operations. Responsible for delivering agricultural inputs, energy products, grain marketing, animal nutrition, sunflower processing and other farm supplies to more than 75,000 producers through 72 retail businesses in 16 states and Alberta, Canada. Named to current position in January Joined the cooperative system in 1979 as a manager trainee in Crookston, Minn., progressing through a variety of grain marketing and retail management positions, including being named regional director in 1984, vice president in 2000 and senior vice president of Country Operations in Represents CHS on the boards of the National Cooperative Refinery Association, CHS Capital, and numerous Country Operations partnerships and joint ventures. Serves as executive committee member of the Grain Elevator and Processing Society. Pursued a bachelor s degree in political science from the University of North Dakota. Mark Palmquist, executive vice president and chief operating officer, Ag Business. Responsible for all global ag-related business units, including crop nutrients, grain marketing, terminal operations, exports, logistics and transportation, along with oilseed processing and food ingredients business. Joined CHS in 1979 as a grain buyer, later moved to grain merchandising, where he traded commodities, including corn, soybeans and spring wheat. Named vice president and director of the grain marketing division, senior vice president of the grain marketing division in 1990 and senior vice president in Since 2001, has held a variety of leadership roles for a range of CHS agricultural inputs and marketing areas, retail businesses, and grain-based food and food ingredients operations. Named executive vice president and chief operating officer for Ag Business in Serves as director for Horizon Milling, LLC. Is a longstanding member of the Minneapolis Grain Exchange and the Chicago Mercantile Exchange. Earned a bachelor s degree in business from Gustavus Adolphus College and attended the University of Minnesota master s of business administration program. Timothy Skidmore, executive vice president and chief financial officer. Responsible for finance, accounting, business assessments, insurance risk management and the company s indirect spend program. Joined CHS in August Previously served as vice president of finance and strategy for Campbell North America. Formerly an assistant treasurer at Campbell. Also held numerous leadership positions in finance, including cash management, corporate finance and international treasury functions. Served in various business unit CFO roles where he was responsible for financial strategy, planning, reporting and balance sheet management. Formerly held various financial leadership positions at DuPont, including leading finance across the Asia- Pacific region. Began his career at Conoco Phillips. Earned a bachelor s degree in risk management from the University of Georgia and a master s of business administration degree in finance from Widener University, Chester, Pa. Lisa Zell, executive vice president and general counsel. Responsible for legal and compliance functions and government affairs. Named senior vice president and general counsel in January 2011 and assumed current position in January Joined CHS in 1999 as senior attorney after several years in private practice and a federal clerkship with the U.S. Court of Appeals Seventh Circuit. Serves on the board of Ventura Foods, LLC, and chairs its corporate responsibility committee. Earned a bachelor s degree from St. Cloud (Minn.) State University and a law degree from Drake University, graduating with honors. CHS thanks David Kastelic, executive vice president and chief financial officer, and Patrick Kluempke, executive vice president, Corporate Administration, for their years of dedication to the company s future success. Kastelic retired in September 2013 and Kluempke retired in March CHS 2013

68 ACKNOWLEDGEMENTS For more than 80 years, CHS has worked with its producer- and cooperative-owners, customers and other stakeholders to put the future first. We thank the following people and organizations for helping tell the story of what we ve accomplished together today and, more important, what we will achieve together tomorrow. CHS DynAgra, Beiseker, Alberta, Canada: Cameron Schmaltz, Beiseker, Alberta; the Kenny and Dahm families, and Matt and David Nielsen, Standard, Alberta; Tasha Schmaltz, Steve Wilson and the staff of CHS DynAgra. Northern Partners Cooperative, Mendota, Ill.: Andy Gehm, Granville, Ill.; Matt Krieser, Mendota, Ill; David and Steve Wilson, Utica, Ill; Jim and Mark Jones, Mendota, Ill., Eric Anderson and the staff of Northern Partners Cooperative. CHS, Hamilton, Mich.: Dennis and Stacy Boersen and the staff of Boersen Farms, Zeeland, Mich.; Bryan and Jessica Kleinheksel and family; Holland, Mich.; Bob Fenton, Kevin Kobbins and the staff of CHS Hamilton. Northern Star Cooperative, Deer River, Minn.: Susie and Bryan Harris, Eagle Nest Lodge, Lake Winnibigoshish, Minn.; Mike Warren, M&R Chips, Grand Rapids, Minn.; Ray Higgins, Minnesota Timber Producers Association; Dave DeLawyer, Tim Roan and the staff of Northern Star Cooperative. Town & Country Supply, Laurel, Mont.: Ed, Rick and Jake Kraft, Laurel, Mont.; Shawn, Brett and Chris Nedens, Hardin, Mont.; Wes Burley, Tyler Benninghoven and the staff of Town & Country Supply. Aurora Cooperative, Aurora, Neb.: Bill and Scott Schuster, Phillips, Neb.; Tobe and Trey Duensing, Byron, Neb.; George Hohweiler, Dawn Caldwell, Chad Carlson and the staff of Aurora Cooperative. Mid Columbia Producers, Moro, Ore.: Dale, Deanna, Darren, Brenda and Logan Padget, Moro, Ore.; Jeff Kaser, Greg Hohensee and the staff of Mid Columbia Producers. Design Colle+McVoy, Minneapolis, Minn. Printing GLS Companies, Brooklyn Park, Minn. Photography David Lundquist The financial section of this annual report was printed on paper certified by the Forest Stewardship Council (FSC), Sustainable Forestry Initiative (SFI) and Rainforest Alliance. Producers Bryan and Jessica Kleinheksel, Holland, Mich., count on CHS, Hamilton, Mich., for crop and energy inputs, feed, and other products essential to the success of their grain and pork production operation.