CHS acquired United Central Industrial Supply Company (“United Central”) in August 1999. At the time, coal production in the Appalachian region had been flat for several years. Industry insights gained through Utiliserve, Inc., an investment in an earlier CHS fund, helped us develop our investment thesis at United Central. We forecast an increase in the amount of coal mined in the Appalachian region and identified an opportunity to increase equity value through the consolidation of the coal mining distribution industry.

CHS and United Central led the consolidation of coal mining distributors with the acquisition of National Mine Service, a distributor of specialty mining and industrial products, general mine supplies and safety products. The purchase of National Mine Service in August 2001 added distribution branches in the Western United States, Alabama and Canada and allowed United Central to become a national distribution platform. National Mine Service also provided United Central with exclusive distribution agreements for leading mine safety products. With the product line additions, United Central became the only full line supplier of consumable mine supplies, an attractive offering for mine operators looking to shed their internal supply operations.

CHS and the management team worked through financial difficulties at several customers and in 2003 negotiated supply agreements with two major underground coal producers to provide a majority of their consumable supplies. By 2004, CHS and the management team had positioned United Central for growth after three years of retrenching and strengthening its client base, expanding its geographic presence and acquiring several exclusive product distribution agreements.

Also by 2004, the coal industry experienced renewed activity. Pricing and coal production volume surged primarily to meet electricity generation demands and the outlook for Appalachian coal rebounded. Seeing strength in domestic coal markets, new mine openings and high demand for coal mining supplies, CHS retained an advisor in early 2004 to manage a broad sale process. The sale of United Central in August 2004 resulted in a return of 3.1 times CHS’ invested capital and an IRR of 28.3%.

The sale of United Central extends CHS’ successful track record with distribution companies. CHS has invested in eight distribution companies, all of which have or are positioned to generate attractive returns for our Limited Partners. CHS’ investment origination efforts will continue to target distribution companies like United Central, with consistent earnings growth, diversified supplier and customer bases and attractive cash flow characteristics.