CHS INC | 2013 | FY | 3


Segment Reporting

We have aligned our segments based on an assessment of how our businesses are operated and the products and services they sell.

Our Energy segment produces and provides primarily for the wholesale distribution of petroleum products and transportation of those products. Our Ag segment purchases and further processes or resells grains and oilseeds originated by our country operations business, by our member cooperatives and by third parties, and also serves as a wholesaler and retailer of crop inputs. Corporate and Other primarily represents our non-consolidated wheat milling and packaged food joint ventures, as well as our business solutions operations, which consists of commodities hedging, insurance and financial services related to crop production.

Corporate administrative expenses are allocated to each business segment, and Corporate and Other, based on direct usage for services that can be tracked, such as information technology and legal, and other factors or considerations relevant to the costs incurred.

Many of our business activities are highly seasonal and operating results will vary throughout the year. Historically, our income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter. For example, in our Ag segment, our agronomy and country operations businesses experience higher volumes and income during the spring planting season and in the fall, which corresponds to harvest. Also in our Ag segment, our grain marketing operations are subject to fluctuations in volumes and earnings based on producer harvests, world grain prices and demand. Our Energy segment generally experiences higher volumes and profitability in certain operating areas, such as refined products, in the summer and early fall when gasoline 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 and profitability during the winter heating and crop drying seasons.

Our revenues, assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products, natural gas, grains, oilseeds, crop nutrients and flour. Changes in market prices for commodities that we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Commodity prices are affected by a wide range of factors beyond our control, including the weather, crop damage due to disease or insects, drought, the availability and adequacy of supply, government regulations and policies, world events, and general political and economic conditions.

While our revenues and operating results are derived from businesses and operations which are wholly-owned and majority-owned, a portion of our business operations are conducted through companies in which we hold ownership interests of 50% or less and do not control the operations. We account for these investments primarily using the equity method of accounting, wherein we record our proportionate share of income or loss reported by the entity as equity income from investments, without consolidating the revenues and expenses of the entity in our Consolidated Statements of Operations. In our Ag segment, this principally includes our 50% ownership in TEMCO. In Corporate and Other, these investments principally include our 50% ownership in Ventura Foods and our 24% ownership in Horizon Milling and Horizon Milling, ULC.

Reconciling Amounts represent the elimination of revenues between segments. Such transactions are executed at market prices to more accurately evaluate the profitability of the individual business segments.

Segment information for the years ended August 31, 2013, 2012 and 2011 is as follows:
 
Energy
 
Ag
 
Corporate
and Other
 
Reconciling
Amounts
 
Total
 
(Dollars in thousands)
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
1,135,835

 
568,338

 
69,479

 

 
1,773,652

Marketing, general and administrative
172,136

 
312,616

 
68,871

 


 
553,623

Operating earnings
963,699

 
255,722

 
608

 

 
1,220,029

Gain on investments

 
(27
)
 
(155
)
 
 

 
(182
)
Interest, net
148,366

 
71,597

 
11,604

 
 

 
231,567

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
1,302,079

 
637,405

 
71,659

 

 
2,011,143

Marketing, general and administrative
155,786

 
273,757

 
68,690

 
 

 
498,233

Operating earnings
1,146,293

 
363,648

 
2,969

 

 
1,512,910

Loss on investments
4,008

 
1,049

 
408

 
 

 
5,465

Interest, net
122,302

 
57,915

 
13,046

 
 

 
193,263

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
772,694

 
562,732

 
67,420

 

 
1,402,846

Marketing, general and administrative
142,708

 
229,369

 
66,421

 
 

 
438,498

Operating earnings
629,986

 
333,363

 
999

 

 
964,348

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



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:

 
2013
 
2012
 
2011
 
(Dollars in millions)
North America
$
39,918

 
$
37,503

 
$
35,287

South America
2,511

 
1,444

 
1,066

EMEA
1,040

 
1,064

 
277

APAC
680

 
290

 
6

 
$
44,149

 
$
40,301

 
$
36,636


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