December 3, 2018
Dear Cooperative Leader:
The last 12 months brought us challenges and opportunities: challenges to how and where we market your crops as a result of trade policy uncertainty, and opportunities to strengthen and grow CHS as we focus on earning your business every day.
As we look back on fiscal 2018, we made solid progress on our priorities to strengthen relationships, enhance operational excellence and restore financial flexibility. Through the hard work of many, we’ve met and, in many ways, exceeded the goals we set 12 months ago.
Fiscal 2018 Financial Results
Our year-over-year financial performance shows good improvement. Our balance sheet is solid, and our diverse business platform allowed us to deliver improved earnings even as we navigated challenging market conditions.
Key financial results for fiscal 2018 include:
- Net income of $775.9 million, an increase of $704 million from the previous fiscal year.
- Consolidated revenues of $32.7 billion, a $646 million increase from the previous fiscal year.
- Pretax income of $671.2 million, an increase of $781 million from fiscal 2017.
- Energy gains, driven by higher refinery margins and favorable crude oil discounts.
- Disposal of assets resulted in cash proceeds of approximately $234.9 million and a pretax gain of approximately $131.8 million. The cash proceeds were used to optimize debt levels.
- Tax benefit through revaluation of the company’s U.S. net deferred tax liability, resulting from enactment of the Tax Cuts and Jobs Act in 2017.
More details on our 2018 results can be found on the CHS website.
Fiscal 2018 Patronage
Earlier this fall, we communicated the CHS Board’s decision to return $150 million in cash patronage and equity redemptions to owners, with the dollars being equally divided between the two forms. Of the $75 million in equity redemptions, $40 million will be returned to member cooperatives and $35 million to individual members, including redemption in the first quarter of fiscal 2019 of all individual age 70 retirements that were requested in fiscal 2018.
Fiscal 2018 patronage totals $420 million and will be distributed as $75 million in cash and $345 million in non-qualified equity certificates. These certificates will be included in the equity revolvement program and redeemed at the CHS Board’s discretion.
We plan to distribute cash patronage and non-qualified equity certificates in March 2019. CHS will also pass through $150 million of Section 199A DPAD deduction to eligible member-owners before Dec. 31, 2018.
As you know, in October, we filed an 8-K with the Securities and Exchange Commission announcing that we would restate audited consolidated financial results for fiscal years 2015, 2016, 2017 and unaudited consolidated financial results for the first three quarters of 2017 and 2018. The restatement was necessary to correct material misstatements related to valuation and accounting for certain rail freight contracts.
The misstatements were discovered as a result of an investigation the company conducted through external counsel and under the oversight of the CHS Board of Directors Audit Committee. We took appropriate personnel action based on the findings of the investigation. All overstated non-cash values have been written off and appropriately reflected in the company’s restated financial results.
I’m disappointed in this situation, and I know our Board and leadership team are, too. This situation shows we must make prompt and sustained improvements in our internal controls. We own this issue and we will take the actions needed to make those improvements.
Fiscal 2019 Priorities
Our top priority in fiscal 2019 is you. We need to earn your business every day. In Fiscal 2019, we will:
- Enhance your experience with CHS through deeper relationships, seamless interactions and more effective technology solutions.
- Equip our employees by preparing them to better serve you amid inevitable change, bringing new and unique perspectives to teams throughout the organization.
- Drive enterprise business growth by focusing on our core businesses, continuing to improve efficiency and increasing market share.
2018 CHS Annual Meeting
Please join us this week in Minneapolis for the 2018 CHS Annual Meeting. We’re looking forward to two days of learning and conversations with you. For more information, please visit chsannualmeeting.com.
Thank you for your business this past year. I hope to see you next week in Minneapolis.
Jay D. Debertin
President and CEO