CELEBRATING THE PAST. FOCUSING ON THE FUTURE ANNUAL REPORT

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Neal Nash
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1 CELEBRATING THE PAST. FOCUSING ON THE FUTURE ANNUAL REPORT

OUR MISSION To be our customers leading supplier of quality inputs and services and marketer of our customers products, thus enabling our current and emerging stakeholders to achieve their goals,

OUR CORE VALUES Building lasting relationships through shared success Environmental and community stewardship Integrity and honesty Safe practices Best management practices Achievement through

2 OUR MISSION To be our customers leading supplier of quality inputs and services and marketer of our customers products, thus enabling our current and emerging stakeholders to achieve their goals, while improving the profitability of all. OUR VISION MKC will be a highly-valued, customer-focused business, engaged in profitable relationships, with high business ethics and employee satisfaction. OUR CORE VALUES Building lasting relationships through shared success Environmental and community stewardship Integrity and honesty Safe practices Best management practices Achievement through initiative, knowledge and innovation OUR OBJECTIVES AND PERSPECTIVES EMPLOYEE CUSTOMER BUILD THE BRAND EMPLOY THE BEST PEOPLE MAINTAIN GROWTH IMPROVE PROFITABILITY ORGANIZATIONAL RENEWAL FINANCIAL AND GROWTH

3 OFFICERS AND DIRECTORS DISTRICT 1 DISTRICT 2 MYRON VOTH Vice Chairman CECIL WIEBE DUANE JOHNSON DAVID MILLS Secretary DISTRICT 3 CJ BLEW Chairman JASON GAEDDERT AT-LARGE KEITH BECKER NEAL BEAM RANDY ELLWOOD DAVE CHRISTIANSEN President and CEO DIRECTORS KENNY CARLTON Associate Director HAL MAYER Appointed Director ALLAN WEGNER Appointed Director Detailed biographical information on the MKC Board of Directors is available at mkcoop.com. MKC ANNUAL REPORT

LEADERSHIP LETTER There is no doubt as an organization we should take pride in the fact there are few businesses in the country who have been in business for 50 years.

4 LEADERSHIP LETTER There is no doubt as an organization we should take pride in the fact there are few businesses in the country who have been in business for 50 years. Over the past 50 years, the leadership of MKC created the expectation we would continue to grow and change to meet the constantly evolving demands of our industry and our member-owners. We have managed to continue to grow and change and for that reason, if no other, we should take pride and yes, even celebrate. However, any celebration should be tempered with the mindset we are still in the process of developing our plan rather than any sense of completion. The founding members laid forth a clear path we have simply continued to follow. That path, which rings true even more today, was to provide a business which would help our customers be more successful working together than they ever would independently. It has worked and will continue to work as long as we stay focused on the future. One thing that is certainly beneficial to our success is each year more and more people are discovering the advantages of MKC. Last year 282 new members joined your cooperative. This doesn t account for the 3,193 members who joined through the successful merger with Farmers Cooperative Association. Many of these producers are just like you and see the value in working with each other, the advantage of expertise paired with technology and gaining leverage through the cooperative. By doing so, they gain economy of scale and enhance their relevance in the market, something that is so vital today. There is no doubt scale can provide many things. However, there is more to it than buying power, expense reduction and market leverage. It is about the mindset that has to resonate throughout the company, beginning in the board room. The mindset being your co-op is willing to make investments in people, technology and infrastructure that will be beneficial to grower success. Scale does little for you if you continue to execute an antiquated business strategy and leadership that is steeped in the preservation in only what you do today. While MKC had a successful year financially, we take as much pride in the moves we made to continuously position this company for the next decade or more. We ve added exceptionally talented employees to our company in every area and at almost every location. We hosted our second Emerging Producer Program for growers under 40 years of age. Nearly 100 young, active farmers attended and encouraged us to hold it again. We had a great turnout at our first Congressional Staff Day. We shared how MKC can be a resource to the decision makers in Washington D.C. who impact your farm and MKC every day. This is another area where MKC can provide input and hopefully influence on your behalf. Our most recent merger partner, Farmers Cooperative Association, being in close proximity to Kansas State University, has provided us the platform for a year-long internship program unlike any other. This has allowed us to ramp up our relationship with students and faculty, putting us in an even better position to have access to talent required in the future. Our purchase of Rice County Aerial allowed us to better manage the custom- Over the past 50 years, the leadership of MKC created the expectation we would continue to grow and change to meet the constantly evolving demands of our industry and our member-owners. 4 MKC ANNUAL REPORT 2015

All of this, in addition to our infrastructure renewal, requires significant investments. Some are readily visible and have immediate impact.

immediate return on our investment. However, the result of some investments aren t so immediately visible except in the expense portion of the operating statement.

5 er experience. We could include many more items that took place this past year we believe will make a difference in our ability to provide you with the customer service, products and services you require today. All of this, in addition to our infrastructure renewal, requires significant investments. Some are readily visible and have immediate impact. Examples include the Canton Rail Terminal, new elevators, scales, seed sheds, fuel trucks, spray rigs, feed, hundreds of new fertilizer tanks, trucks and trailers and others that provide MKC with an immediate return on our investment. However, the result of some investments aren t so immediately visible except in the expense portion of the operating statement. Investments such as employee development, community support and technology are made with the knowledge and expectation they will pay you consistent dividends over the coming years. It is certain, should we choose not to make them, the result over time is we will become less relevant to our members/owners. Although MKC continues to create and offer ways to bring value to the farm, it will always be a moving target. Not only what value proposition needs to be delivered but also the size it will take to deliver it. Another solid year of financial performance and in fact, a series of good years, can be attributed to sound planning and rigorous execution on behalf of our entire team. These efforts In order to remain successful though, our focus has to remain on building a company positioned to provide help to those involved in production agriculture not just today but far into the future. allow us to continue our aggressive asset renewal strategy and return cash to our members. As you can clearly see, all of us associated with MKC take considerable pride in the success of our efforts over the past 50 years. It is important we always honor the past and all that has been achieved. However, in order to remain successful our focus has to remain on building a company positioned to provide help to those involved in production agriculture not just today but far into the future. We sincerely thank you for all you have done to help your cooperative grow, prosper and serve our members better than ever before. Dave Christiansen President and CEO CJ Blew Chairman, Board of Directors MKC ANNUAL REPORT

CELEBRATING Hired our first retail field man to represent the co-op in the country. The first annual meeting was held in the new Moundridge Rural High School in April 1966.

Purchased the county elevators from W-R Mill based in McPherson. The purchased included elevators in Conway, Elyria, Hilton McPherson and Windom.

1998 1965 MKC was formed in 1965 through a merger of the Buhler Cooperative Association in Buhler, the Moundridge Cooperative Elevator Association in Moundridge, and the

1995 MKC merged with Farmers Grain Cooperative adding locations in Haven and Castleton. 2000 TMA was created to jointly merchandise grain for MKC and four other cooperatives.

6 CELEBRATING Hired our first retail field man to represent the co-op in the country. The first annual meeting was held in the new Moundridge Rural High School in April A dinner was served to approximately 350 members and guests Farmers Union Equity headquartered in Lindsborg merged with MKC and included Bavaria, Falun and Bridgeport. Purchased the county elevators from W-R Mill based in McPherson. The purchased included elevators in Conway, Elyria, Hilton McPherson and Windom Lindsborg Started offering precision agricultural services MKC was formed in 1965 through a merger of the Buhler Cooperative Association in Buhler, the Moundridge Cooperative Elevator Association in Moundridge, and the Farmers Cooperative Association in Groveland Purchased the first floater fertilizer applicator. Minutes from the joint board of directors meeting on September MKC merged with Farmers Grain Cooperative adding locations in Haven and Castleton TMA was created to jointly merchandise grain for MKC and four other cooperatives. Bringing Producers and Industry Together Haven HISTORICAL DATA HISTORICAL NET EARNINGS $15,000,000 $12,000,000 $9,000,000 $6,000,000 $3,000,000 $4,324,814 $3,191,862 $3,674,858 $10,837,662 $8,219,209 $8,871,405 $13,342,854 $14,073,776 $9,111,101 $9,800,584 6 MKC ANNUAL REPORT

91710 THE PAST. Merger agreements with Farmers Grain Cooperative were signed in January. Locations included Peabody, Florence, Burns, Newton, Whitewater, Benton, Walton and Wichita.

, Cairo Co-op Equity Exchange and Farmers Co-op of Garden Plain to construct Hutchinson Fertilizer. The $4.8 million project holds 27,000 ton of product when filled to capacity.

In the examples above, a VRT seeding rate for a flex ear corn hybrid of 15,000 seeds/acre versus 20,000 seeds/acre in the higher yielding zone was implemented.

60/acre seed cost 20,000 drop ($300/bag corn 4.0 acres/bag) = $75.00/acre seed cost. Cost savings = $18.40/acre MKC added plant tissue sampling to their agronomy services.

7 91710 THE PAST. Merger agreements with Farmers Grain Cooperative were signed in January. Locations included Peabody, Florence, Burns, Newton, Whitewater, Benton, Walton and Wichita. MKC acquired 25% of Countryside Feed, LLC in Hillsboro. MKC s ownership increased to 41.5% in MKC entered into an agreement with Archer Daniels Midland Co., Cairo Co-op Equity Exchange and Farmers Co-op of Garden Plain to construct Hutchinson Fertilizer. The $4.8 million project holds 27,000 ton of product when filled to capacity VRT seeding rates can be determined by utilizing EC data with yield monitor data, aerial imagery and/or personal knowledge of a field. In the examples above, a VRT seeding rate for a flex ear corn hybrid of 15,000 seeds/acre versus 20,000 seeds/acre in the higher yielding zone was implemented. The result was lower input costs in the lower yielding zone and maximized inputs in the higher yielding zone. 15,000 drop ($300/bag corn 5.3 acres/bag) = $56.60/acre seed cost 20,000 drop ($300/bag corn 4.0 acres/bag) = $75.00/acre seed cost. Cost savings = $18.40/acre MKC added plant tissue sampling to their agronomy services When comparing the Veris ph sampling to a 2.5 acre grid sampling, more individual ph observations are picked up by the Veris. The above examples shows 267 ph observations by the Veris compared to only 31 observations with the 2.5 acre grids on a 64-acre field. By picking up more observations (in this case, over 7 times the amount of observations), true variability in a field is better determined 2004 Cooperative Finance Association s (CFA) Producer Input Financing Program was added to MKC s services A merger with Farmers Cooperative Association became effective September 1, and included facilities in Abilene, Bennington, Longford, Solomon and Talmage MKC entered into an agreement with CHS to form a limited liability company to build and operate the 3 million bushel high-speed shuttle loading facility in Canton. MKC formed a strategic alliance with Great Plains Precision Ag to expand its precision ag offerings Bennington $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $76,141,056 $115,285,794 $222,184,457 $125,441,587 $155,832,307 $301,951,776 $209,411,086 $227,504,568 $206,170,887 $346,645,094 HISTORICAL DATA HISTORICAL TOTAL ASSETS MKC ANNUAL REPORT

MARCH 1, 2014 The Domestic Production Activities Deduction was implemented allowing MKC to allocate to its members a tax deduction generated by

Both facilities feature dual scales and high-speed unloading processes adding 3.9 million bushels of storage combined.

Entitled Ag in Our Everyday Lives, the program teaches students about different types of grains, how they are grown and the many products developed from

Customer Notification System The first of its kind, the MKC Customer Notification System brings a new level of communication to MKC customers using an

MKC spray rig operators use technology to notify customers via email or text message notifying them their field has been sprayed.

The merger went into effect on June 1, 2014, and added locations in Alta Vista, Manhattan, Onaga and Westmoreland.

8 MARCH 1, 2014 The Domestic Production Activities Deduction was implemented allowing MKC to allocate to its members a tax deduction generated by qualified production activities. Rice County Construction was completed in June on the Rice County and Benton grain facilities. Both facilities feature dual scales and high-speed unloading processes adding 3.9 million bushels of storage combined. Employees continued to present educational programs to students throughout our trade territory. Entitled Ag in Our Everyday Lives, the program teaches students about different types of grains, how they are grown and the many products developed from the grains. Customer Notification System The first of its kind, the MKC Customer Notification System brings a new level of communication to MKC customers using an electronic tablet in spray rigs. MKC spray rig operators use technology to notify customers via or text message notifying them their field has been sprayed. The membership of Farmers Cooperative Association approved a merger with MKC on March 6. The merger went into effect on June 1, 2014, and added locations in Alta Vista, Manhattan, Onaga and Westmoreland. Hosted the inaugural MKC Emerging Producer Program in Manhattan with nearly 100 producers and guests in attendance on February 28-March 1, The second annual program was held on March 6-7, During the month of April, a total of 9,000 pounds of non-perishable food items were collected by MKC employees to help stock shelves of local food banks. MKC has a long history of supporting 4-H leadership development programs, contributing more than $17,000 to 15 area 4-H programs this past year, with the help of the Land O Lakes fund matching program. Emerging Producer Program 4-H Leadership Development Food Drive FOCUSING ON 8 MKC ANNUAL REPORT 2015

Hosted the first MKC Legislative Staff Day on August 15.

community stewardship and much more. The staff members also received a tour of our Canton and Groveland facilities.

Scholarship Program Expanded the scholarship program to college students and offered awards valued at $1,000 to 10 high school seniors and eight college students.

FEBRUARY 28, 2015 A total of 20 MKC fuel sites were upgraded by April 2015 to improve security and customer experience.

9 Hosted the first MKC Legislative Staff Day on August 15. MKC welcomed five staff members from Kansas House and Senate offices to MKC to discuss how the co-op can be a resource and to provide a better understanding of our profile, areas of business, community stewardship and much more. The staff members also received a tour of our Canton and Groveland facilities. Legislative Staff Day More than 200 new or gently used jackets and coats were donated to the communities we serve after a month long campaign in November. Scholarship Program Expanded the scholarship program to college students and offered awards valued at $1,000 to 10 high school seniors and eight college students. Welcomed 235 new members into MKC in addition to the 3,193 members who joined through the successful merger with Farmers Cooperative Association. FEBRUARY 28, 2015 A total of 20 MKC fuel sites were upgraded by April 2015 to improve security and customer experience. Launched a comprehensive internship program developed to accelerate the onboarding process of new employees for MKC and its industry partners. In its first year, the program included three interns working for MKC part-time who were students at Kansas State University. Ground was broke on a 425,000 bushel steel bin in Manhattan in May. The facility also received upgrades including speakers and an outbound printer scale. Construction of a 490,000 bushel bunker was completed in Alta Vista. Construction of the 3 million bushel grain terminal at Canton was completed. The first load of grain was loaded into 109 rail cars on December 28, 2014, totaling 400,000 bushels of milo shipped to the Texas gulf. Canton Terminal Manhattan THE FUTURE. MKC ANNUAL REPORT

10 CONSOLIDATED BALANCE SHEETS CURRENT ASSETS Cash and cash equivalents $ 2,355,298 $ 1,029,642 Marketable securities, available for sale 2,950,489 1,190,796 Accounts and notes receivable - trade Patrons and customers 10,125,809 7,075,330 Allowance for doubtful accounts (100,000) (100,000) Grain shipments 669,515 4,294,986 Grain storage receivable 3,664,956 2,446,466 Commodity margin accounts 9,025,004 3,635,236 Other 9,015,300 5,471,728 Prepaid inventories 12,771,071 13,501,428 Inventories on hand 184,040,691 90,011,355 Deferred income taxes 99, ,828 TOTAL CURRENT ASSETS 234,617, ,699,795 OTHER ASSETS Notes receivable, net of current portion 89, ,087 Equity in other cooperatives 27,949,211 23,052,165 Limited liability companies 17,483,787 11,792,641 Other 1,359,899 1,091,442 TOTAL OTHER ASSETS 46,882,098 36,359,335 PROPERTY, PLANT AND EQUIPMENT Cost 103,516,273 78,487,762 Accumulated depreciation (38,371,060) (37,376,005) NET PROPERTY, PLANT AND EQUIPMENT 65,145,213 41,111,757 TOTAL ASSETS $ 346,645,094 $ 206,170, MKC ANNUAL REPORT 2015

11 February 28, 2015 and 2014 CURRENT LIABILITIES Accounts payable and accrued expenses $ 39,262,476 $ 33,498,414 Customer prepaid sales contracts 12,245,016 10,534,608 Revolving bank notes 136,397,558 48,000,826 Patron demand certificates 3,858,032 1,811,771 Current maturities of long-term debt 4,461,756 5,887,449 Patronage dividends payable 2,371,493 2,566,204 Income taxes payable 919, ,308 TOTAL CURRENT LIABILITIES 199,515, ,269,580 LONG-TERM LIABILITIES, excluding current maturities Non-revolving bank notes 34,089,941 17,759,002 Patron certificates of indebtedness 4,828,025 3,935,329 Capital lease obligations 365, ,297 Deferred income taxes 2,230,313 1,200,769 Other 2,211,952 1,841,651 TOTAL LONG-TERM LIABILITIES 43,725,658 24,986,048 MEMBERS EQUITY Common stock 5,214,250 4,487,169 Participating stock 2,201, ,215 Qualified patronage allocations 32,626,430 27,497,170 Contributed capital 8,877,894 - Retained earnings 43,230,705 39,476,626 Non-controlling interests 11,538,269 5,749,976 Accumulated other comprehensive income (loss) (285,390) (229,897) TOTAL MEMBERS EQUITY 103,404,092 77,915,259 TOTAL LIABILITIES AND MEMBERS EQUITY $346,645,094 $ 206,170,887 Financial Statement Presentation The statements presented within do not contain all necessary disclosures to be considered in conformity with accounting principles generally accepted in the United States of America. A report containing the required disclosures is on file at the general office. MKC ANNUAL REPORT

12 CONSOLIDATED STATEMENTS OF OPERATIONS SALES Grain $ 266,423,608 $ 381,168,847 Farm supply 136,630, ,950,474 TOTAL SALES 403,054, ,119,321 COST OF SALES Grain 250,652, ,347,116 Farm supply 119,604, ,765,417 TOTAL COST OF SALES 370,257, ,112,533 GROSS MARGINS OF SALES 32,796,919 24,006,788 OTHER OPERATING INCOME Grain storage and handling services 11,472,795 10,700,684 Limited liability companies 1,582, ,931 Agronomy services 6,830,608 5,461,451 Interest income 314, ,129 Gain on disposal of property, plant and equipment 345, ,883 Miscellaneous 1,978,027 1,106,083 TOTAL OTHER OPERATING INCOME 22,523,917 18,359,161 GROSS INCOME FROM LOCAL OPERATIONS 55,320,836 42,365,949 OPERATING EXPENSES Personnel costs 20,596,569 16,207,802 Fixed expenses 9,612,949 7,152,631 Other operating expenses 17,018,297 13,435,642 TOTAL OPERATING EXPENSES 47,227,815 36,796,075 EARNINGS FROM LOCAL OPERATIONS 8,093,021 5,569, MKC ANNUAL REPORT 2015

13 For Years Ended February 28, 2015 and 2014 OTHER EARNINGS Patronage dividends 5,520,044 6,221,171 Investment income 901,775 2,174,980 Gain on business acquisitions 2,298,353 - TOTAL OTHER EARNINGS 8,720,172 8,396,151 NET EARNINGS BEFORE INCOME TAXES 16,813,193 13,966,025 PROVISION FOR INCOME TAXES Current income taxes (906,573) (990,641) Deferred income taxes (1,109,717) (102,525) TOTAL PROVISION FOR INCOME TAXES (2,016,290) (1,093,166) NET EARNINGS BEFORE NON-CONTROLLING INTERESTS 14,796,903 12,872,859 NON-CONTROLLING INTERESTS (4,941,965) (3,661,406) NET EARNINGS ATTRIBUTABLE TO PARENT BEFORE OTHER COMPREHENSIVE INCOME 9,854,938 9,211,453 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized holding gain (loss) of marketable securities 54,493 (80,457) Unrealized loss on fair value of interest rate swap (108,847) (19,895) TOTAL OTHER COMPREHENSIVE LOSS (54,354) (100,352) TOTAL COMPREHENSIVE INCOME $ 9,800,584 $ 9,111,101 DISTRIBUTION OF COMPREHENSIVE INCOME Patronage dividends $ 5,928,736 $ 6,415,511 Retained earnings 3,926,202 2,795,942 Other comprehensive loss (54,354) (100,352) TOTAL $ 9,800,584 $ 9,111,101 MKC ANNUAL REPORT

PATRONAGE DISTRIBUTION AND EQUITY REDEMPTIONS 2015 PATRONAGE ALLOCATION RATE AMOUNT Grain 10.00 cents/bushel $ 2,572,068 Agronomy - Seed - Crop Protection 4.

14 PATRONAGE DISTRIBUTION AND EQUITY REDEMPTIONS 2015 PATRONAGE ALLOCATION RATE AMOUNT Grain cents/bushel $ 2,572,068 Agronomy - Seed - Crop Protection 4.29% or $21/ton on fertilizer 2,795,957 Petroleum - Lubricants 1.40% or 4.5 cents/gallon on fuel 298,677 Feed - Merchandise 2.25% 262,034 TOTAL PATRONAGE ALLOCATION 5,928,736 EQUITY REDEMPTIONS 2,885,510 TOTAL DISTRIBUTIONS $ 8,814,246 PATRONAGE DISTRIBUTION AND EQUITY REDEMPTIONS - $8,814, % Patronage Distribution 32.74% Equity Redemptions CASH DISTRIBUTIONS TO MEMBERS - 10 YEAR HISTORY YEAR ENDED EQUITY REDEMPTIONS CASH PATRONAGE TOTAL 2015 $ 2,885,510 $ 2,371,493 $ 5,257, ,052,323 2,566,204 3,618, ,512 3,417,300 4,067, ,399 2,379,444 3,077, ,339 2,296,816 3,043, ,765 1,703,704 2,353, ,116 2,673,170 3,387, , ,434 1,369, , ,936 1,511, ,727 1,263,906 1,822,633 TOTALS $ 9,354,995 $ 20,153,407 $ 29,508, MKC ANNUAL REPORT 2015

BUSINESS UNIT REVENUE AND RURAL COMMUNITY SUPPORT GROSS REVENUE BY BUSINESS UNIT Grain $23,713,223 Agronomy $19,476,122 Grain Agronomy Energy Feed Feed $1,064,588 Energy $2,792,723 2015 RURAL

15 BUSINESS UNIT REVENUE AND RURAL COMMUNITY SUPPORT GROSS REVENUE BY BUSINESS UNIT Grain $23,713,223 Agronomy $19,476,122 Grain Agronomy Energy Feed Feed $1,064,588 Energy $2,792, RURAL COMMUNITY SUPPORT - $32,862,108 63% 3% 6% MKC provides benefits to more than 75 communities in the form of personnel costs, local taxes and other expenses. These payments have a significant impact on the communities and help support the businesses and services we utilize. Personnel Costs Other Expenses 28% Income Taxes Property Taxes MKC ANNUAL REPORT

16 MKC EST. 1965

Innovative Financial Strategies That Work: MKC

1 Innovative Financial Strategies That Work: MKC Financial Strategy Case Study of MKC Moundridge, Kansas Prepared for 2011 K State Symposium on Cooperative Issues K State Alumni Center Manhattan, Kansas