Restatement of Previously Issued Financial Information

The consolidated financial statements for the three and nine months ended May 31, 2018, have been restated to reflect the correction of misstatements. We have also restated all amounts impacted within the notes to the consolidated financial statements. A description of the adjustments and their impact on the previously issued financial information are included below.

Descriptions of Restatement Adjustments

During the preparation of our Annual Report on Form 10-K for the year ended August 31, 2018, we noted potentially excessive valuations in the net derivative asset valuations relating to certain rail freight contracts purchased in connection with our North American grain marketing operations. An investigation concluded that the rail freight misstatements included in our consolidated financial statements were due to intentional misconduct by a former employee in our rail freight trading operations, as well as due to rail freight contracts and certain non-rail contracts not meeting the technical accounting requirements to qualify as derivative financial instruments. The misconduct consisted of the former employee manipulating the mark-to-market valuation of rail cars that were the subject of rail freight purchase contracts and manipulating the quantity of rail cars included in the monthly mark-to-market valuation. In addition, the investigation revealed intentional misstatements were made by the former employee to our independent registered public accounting firm in connection with its audit of our consolidated financial statements for the fiscal year ended August 31, 2017. During the course of, and as a result of, the investigation, we terminated the former employee and have taken additional personnel actions.

As described in additional detail in the Explanatory Note in our Annual Report on Form 10-K for the year ended August 31, 2018, the Company restated its audited consolidated financial statements for the fiscal years ended August 31, 2017 and 2016, and our unaudited consolidated financial statements for the quarterly periods ended November 30, 2017 and 2016, February 28, 2018 and 2017, and May 31, 2018 and 2017. As a result of the misstatements, we restated our interim consolidated financial statements for the three and nine months ended May 31, 2018. In addition to the adjustments related to freight derivatives and related misstatements, we also made adjustments related to certain intercompany balances and other historical misstatements unrelated to the freight derivatives and related misstatements.

Consolidated Financial Statement Adjustment Tables

The following tables present the impacts of the restatement adjustments to our unaudited Consolidated Statements of Operations and unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended May 31, 2018, and to our unaudited Consolidated Statement of Cash Flows for the nine months ended May 31, 2018. The restatement references identified in the following tables directly correlate to the restatement adjustments detailed below.

The categories of restatement adjustments and their impact on previously reported consolidated financial statements are described below.

(a) Freight derivatives and related misstatements - Corrections for freight derivatives and related misstatements were driven by the misstatement of amounts associated with both the value and quantity of rail freight contracts, as well as due to rail and certain non-rail freight contracts not meeting the technical accounting requirements to qualify as derivative financial instruments. In addition to the elimination of the underlying freight derivative assets and liabilities and related impacts on revenues and cost of goods sold, additional adjustments were recorded to account for prepaid freight capacity balances in relevant periods. Additional details related to the impact of the freight derivatives and related misstatements and their impact on each period are discussed in restatement reference (a).

(b) Intercompany misstatements - As a result of the work performed in relation to the freight misstatement, additional misstatements related to the incorrect elimination of intercompany balances were also identified and corrected within the consolidated financial statements. Certain of these intercompany misstatements resulted in a misstatement of various financial statement line items; however, the intercompany misstatements did not result in a material misstatement of income (loss) before income taxes or net income (loss). Additional details related to the impact of the intercompany misstatements and their impact on each period are discussed in restatement reference (b).

(c) Other misstatements - We made adjustments for other previously identified misstatements unrelated to the freight derivatives and related misstatements that were not material, individually or in the aggregate, to our consolidated financial statements. These other misstatements related primarily to certain misclassifications, adjustments to revenues and cost of goods sold, and adjustments to various income tax and indirect tax accrual accounts. Additional details related to the impact of the other misstatements and their impact on each period are discussed in restatement reference (c).

CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	For the Three Months Ended May 31, 2018
	As Previously Reported			Restatement Adjustments			As Restated			Accounting Changes*			As Presented			Restatement References
	(Dollars in thousands)
Revenues	$	9,027,525		$	59,803		$	9,087,328		$	—		$	9,087,328		b, c
Cost of goods sold	8,728,914			112,447			8,841,361			335			8,841,696			a, b, c
Gross profit	298,611			(52,644		)	245,967			(335		)	245,632
Marketing, general and administrative	161,578			1			161,579			845			162,424			c
Reserve and impairment charges (recoveries), net	(3,811		)	—			(3,811		)	—			(3,811		)
Operating earnings (loss)	140,844			(52,645		)	88,199			(1,180		)	87,019
(Gain) loss on disposal of business	(124,050		)	—			(124,050		)	—			(124,050		)
Interest expense	49,340			—			49,340			—			49,340
Other (income) loss	(14,622		)	—			(14,622		)	(1,180		)	(15,802		)
Equity (income) loss from investments	(59,308		)	—			(59,308		)	—			(59,308		)
Income (loss) before income taxes	289,484			(52,645		)	236,839			—			236,839
Income tax expense (benefit)	60,338			(5,119		)	55,219			—			55,219			a
Net income (loss)	229,146			(47,526		)	181,620			—			181,620
Net income (loss) attributable to noncontrolling interests	(187		)	—			(187		)	—			(187		)
Net income (loss) attributable to CHS Inc.	$	229,333		$	(47,526	)	$	181,807		$	—		$	181,807

* Previously reported amounts have been revised to reflect the impact of adopting ASU 2017-07 retrospectively during the first quarter of fiscal 2019. Refer to details related to the adoption of new ASUs within Note 1, Basis of Presentation and Significant Accounting Policies.

Freight derivatives and related misstatements

(a) The correction of freight derivatives and related misstatements resulted in a $29.8 million reduction of income before income taxes and a $24.7 million reduction of net income. These adjustments related to a $29.8 million increase of cost of goods sold and a $5.1 million decrease of income tax expense related to the tax effect of the freight derivatives and related misstatements.

Intercompany misstatements

(b) The correction of intercompany misstatements had no impact on income (loss) before income taxes or net income (loss); however, the correction resulted in a $38.8 million increase of both revenues and cost of goods sold due to different practices of eliminating intercompany sales between CHS's businesses which existed in previous periods.

Other misstatements

(c) The correction of other misstatements resulted in a $22.8 million decrease of income before income taxes and net income. The $22.8 million decrease of income before income taxes related primarily to an $18.8 million increase of cost of goods sold due to adjustments associated with the implementation of a new enterprise resource planning software during the third quarter of fiscal 2018. The remaining decrease relates to an $11.8 million increase of revenues and a $14.5 million increase of cost of goods sold related to the timing of revenue recognition, as well as a $1.3 million increase of cost of goods sold related to the valuation of crack spread derivatives.

Additionally, certain misclassification and offsetting adjustments were made between line items included in the Consolidated Statements of Operations, primarily due to the application of differing accounting policies between businesses. These misclassification adjustments resulted in a $9.2 million increase of revenues and cost of goods sold.



	For the Nine Months Ended May 31, 2018
	As Previously Reported			Restatement Adjustments			As Restated			Accounting Changes*			As Presented			Restatement References
	(Dollars in thousands)
Revenues	$	23,927,508		$	171,857		$	24,099,365		$	—		$	24,099,365		b, c
Cost of goods sold	23,173,151			224,116			23,397,267			1,005			23,398,272			a, b, c
Gross profit	754,357			(52,259		)	702,098			(1,005		)	701,093
Marketing, general and administrative	488,459			(667		)	487,792			2,537			490,329			c
Reserve and impairment charges (recoveries), net	(18,944		)	—			(18,944		)	—			(18,944		)
Operating earnings (loss)	284,842			(51,592		)	233,250			(3,542		)	229,708
(Gain) loss on disposal of business	(131,755		)	—			(131,755		)	—			(131,755		)
Interest expense	130,218			—			130,218			—			130,218
Other (income) loss	(51,000		)	—			(51,000		)	(3,542		)	(54,542		)
Equity (income) loss from investments	(137,111		)	—			(137,111		)	—			(137,111		)
Income (loss) before income taxes	474,490			(51,592		)	422,898			—			422,898
Income tax expense (benefit)	(100,901		)	(10,962		)	(111,863		)	—			(111,863		)	a, c
Net income (loss)	575,391			(40,630		)	534,761			—			534,761
Net income (loss) attributable to noncontrolling interests	(699		)	—			(699		)	—			(699		)
Net income (loss) attributable to CHS Inc.	$	576,090		$	(40,630	)	$	535,460		$	—		$	535,460

Freight derivatives and related misstatements

(a) The correction of freight derivatives and related misstatements resulted in a $52.9 million reduction of income before income taxes and a $48.5 million reduction of net income. These adjustments related to a $52.9 million increase of cost of goods sold and a $4.4 million increase of income tax benefit related to the tax effect of the freight derivatives and related misstatements.

Intercompany misstatements

(b) The correction of intercompany misstatements had no impact on income (loss) before income taxes or net income (loss); however, the correction resulted in a $189.0 million increase of both revenues and cost of goods sold due to different practices of eliminating intercompany sales between CHS's businesses which existed in previous periods.

Other misstatements

(c) The correction of other misstatements resulted in a $1.3 million increase of income before income taxes and a $7.9 million increase of net income. The $1.3 million increase of income before income taxes relates to a combination of offsetting misstatements, including a $13.7 million decrease of cost of goods sold that arose from a unit of measure assumption in the calculation of an excise tax credit that was changed during fiscal 2018, a $6.6 million decrease of cost of goods sold related to the valuation of crack spread derivatives, and a $2.6 million decrease in expense related to postretirement benefit plan activity that resulted from a timing difference associated with recording certain benefit plan expenses (included in cost of goods sold and marketing, general and administrative expenses). The overall increase was mostly offset by an $18.8 million increase of cost of goods sold due to a timing difference associated with the implementation of a new enterprise resource planning software during the third quarter of fiscal 2018. The increase in income before income taxes and net income was also impacted by a $7.0 million increase of revenue and a $9.9 million increase of cost of goods sold related to the timing of revenue recognition. In addition to the increase of income before income taxes, an income tax benefit of $6.6 million was recorded to adjust for the impact of other identified misstatements, as well as income tax items that had previously been identified and recorded as out of period adjustments in subsequent periods.

Additionally, certain misclassification and offsetting adjustments were made between line items included in the Consolidated Statements of Operations, primarily due to the application of differing accounting policies between businesses. These misclassification adjustments resulted in a $24.1 million decrease of revenues and cost of goods sold.

CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	For the Three Months Ended May 31, 2018									For the Nine Months Ended May 31, 2018
	As Previously Reported			Restatement Adjustments			As Restated			As Previously Reported			Restatement Adjustments			As Restated			Restatement References
	(Dollars in thousands)
Net income (loss)	$	229,146		$	(47,526	)	$	181,620		$	575,391		$	(40,630	)	$	534,761		a, c
Other comprehensive income (loss), net of tax:
Postretirement benefit plan activity	3,417			—			3,417			10,755			(2,602		)	8,153			c
Unrealized net gain (loss) on available for sale investments	6,286			—			6,286			13,480			—			13,480
Cash flow hedges	413			—			413			1,472			—			1,472
Foreign currency translation adjustment	(11,617		)	1,429			(10,188		)	(11,763		)	1,716			(10,047		)	a
Other comprehensive income (loss), net of tax	(1,501		)	1,429			(72		)	13,944			(886		)	13,058
Comprehensive income	227,645			(46,097		)	181,548			589,335			(41,516		)	547,819
Less: comprehensive income (loss) attributable to noncontrolling interests	(187		)	—			(187		)	(699		)	—			(699		)
Comprehensive income attributable to CHS Inc.	$	227,832		$	(46,097	)	$	181,735		$	590,034		$	(41,516	)	$	548,518

For the three months ended May 31, 2018

Freight derivatives and related misstatements

(a) The correction of freight derivatives and related misstatements resulted in a $24.7 million reduction of net income. Refer to descriptions of the adjustments and their impact on net income (loss) in the Consolidated Statements of Operations section for the three months ended May 31, 2018, above. The adjustment related to foreign currency translation is attributable to the foreign currency impact associated with goodwill that was impaired during fiscal 2015.

Intercompany misstatements

(b) None.

Other misstatements

(c) The correction of other misstatements resulted in a $22.8 million decrease of net income. Refer to descriptions of the adjustments and their impact on net income (loss) in the Consolidated Statements of Operations section for the three months ended May 31, 2018, above.

For the nine months ended May 31, 2018

Freight derivatives and related misstatements

(a) The correction of freight derivatives and related misstatements resulted in a $48.5 million reduction of net income. Refer to descriptions of the adjustments and their impact on net income (loss) in the Consolidated Statements of Operations section for the nine months ended May 31, 2018, above. The adjustment related to foreign currency translation is attributable to the foreign currency impact associated with goodwill that was impaired during fiscal 2015.

Intercompany misstatements

(b) None.

Other misstatements

(c) The correction of other misstatements resulted in a $7.9 million increase of net income. Refer to descriptions of the adjustments and their impact on net income (loss) in the Consolidated Statements of Operations section for the nine months ended May 31, 2018, above. The adjustment related to postretirement benefit plan activity is attributable to a timing difference associated with recording certain benefit plan expenses.

CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



	For the Nine Months Ended May 31, 2018
	As Previously Reported			Restatement Adjustments			As Restated			Accounting Changes*			As Presented			Restatement References
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	575,391		$	(40,630	)	$	534,761		$	—		$	534,761		a, c
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	358,134			—			358,134			—			358,134
Amortization of deferred major repair costs	43,908			—			43,908			—			43,908
Equity (income) loss from investments	(137,111		)	—			(137,111		)	—			(137,111		)
Distributions from equity investments	97,665			—			97,665			—			97,665
Provision for doubtful accounts	(4,145		)	—			(4,145		)	—			(4,145		)
Gain and recovery on disposal of business	(131,755		)	—			(131,755		)	—			(131,755		)
Deferred taxes	(135,560		)	(1,463		)	(137,023		)	—			(137,023		)	a, c
Other, net	18,272			(2,602		)	15,670			—			15,670			c
Changes in operating assets and liabilities, net of acquisitions:
Receivables	(216,501		)	21,955			(194,546		)	—			(194,546		)	c
Inventories	(366,858		)	52,419			(314,439		)	—			(314,439		)	b, c
Derivative assets	(86,910		)	64,456			(22,454		)	—			(22,454		)	a, c
Margin and related deposits	(47,079		)	—			(47,079		)	—			(47,079		)
Supplier advance payments	(177,373		)	—			(177,373		)	—			(177,373		)
Other current assets and other assets	75,191			(10,294		)	64,897			(43,823		)	21,074			a, c
Customer margin deposits and credit balances	(19,914		)	—			(19,914		)	—			(19,914		)
Customer advance payments	(40,547		)	(10,633		)	(51,180		)	—			(51,180		)	c
Accounts payable and accrued expenses	73,745			(64,128		)	9,617			—			9,617			a, b, c
Derivative liabilities	23,758			(12,144		)	11,614			—			11,614			a, c
Other liabilities	(49,842		)	—			(49,842		)	—			(49,842		)
Net cash provided by (used in) operating activities	(147,531		)	(3,064		)	(150,595		)	(43,823		)	(194,418		)
Cash flows from investing activities:
Acquisition of property, plant and equipment	(249,078		)	—			(249,078		)	—			(249,078		)
Proceeds from disposition of property, plant and equipment	80,045			—			80,045			—			80,045
Proceeds from sale of business	234,914			—			234,914			—			234,914
Expenditures for major repairs	(39,363		)	—			(39,363		)	—			(39,363		)
Investments redeemed	6,607			—			6,607			—			6,607
Changes in CHS Capital notes receivable, net	(83,908		)	—			(83,908		)	—			(83,908		)
Financing extended to customers	(72,106		)	—			(72,106		)	—			(72,106		)
Payments from customer financing	38,725			—			38,725			—			38,725
Other investing activities, net	12,377						12,377			—			12,377
Net cash provided by (used in) investing activities	(71,787		)	—			(71,787		)	—			(71,787		)
Cash flows from financing activities:
Proceeds from lines of credit and long-term borrowings	29,802,708			—			29,802,708			—			29,802,708
Payments on lines of credit, long-term borrowings and capital lease obligations	(29,028,104		)	3,052			(29,025,052		)	—			(29,025,052		)	c
Preferred stock dividends paid	(126,501		)	—			(126,501		)	—			(126,501		)
Redemptions of equities	(6,391		)	—			(6,391		)	—			(6,391		)
Other financing activities, net	(70,916		)	12			(70,904		)	—			(70,904		)	c
Net cash provided by (used in) financing activities	570,796			3,064			573,860			—			573,860
Effect of exchange rate changes on cash and cash equivalents	1,030			—			1,030			—			1,030
Net increase (decrease) in cash and cash equivalents and restricted cash	352,508			—			352,508			(43,823		)	308,685
Cash and cash equivalents and restricted cash at beginning of period	181,379			—			181,379			90,893			272,272
Cash and cash equivalents and restricted cash at end of period	$	533,887		$	—		$	533,887		$	47,070		$	580,957

* Previously reported amounts have been revised to reflect the impact of adopting ASU 2016-18 retrospectively during the first quarter of fiscal 2019. Refer to details related to the adoption of new ASUs within Note 1, Basis of Presentation and Significant Accounting Policies.

Freight derivatives and related misstatements

(a) The correction of freight derivatives and related misstatements resulted in a $48.5 million reduction of net income for the nine months ended May 31, 2018. Refer to descriptions of the adjustments and their impact on net income (loss) in the Consolidated Statements of Operations section for the three and nine months ended May 31, 2018, above. The impact of the adjustments to the Consolidated Balance Sheets as of August 31, 2017, and May 31, 2018, resulted in certain misclassifications between operating activity line items in the Consolidated Statement of Cash Flows; however, none of the freight derivatives and related misstatements impacted the classifications between operating, investing or financing activities.

Intercompany misstatements

(b) The correction of intercompany misstatements did not impact net income for the nine months ended May 31, 2018; however, the impact of adjustments to the Consolidated Balance Sheets as of August 31, 2017, and May 31, 2018, resulted in certain misclassification adjustments of less than $5.0 million between line items in the Consolidated Statement of Cash Flows. None of the intercompany misstatements impacted the classifications between operating, investing or financing activities within the Consolidated Statement of Cash Flows.

Other misstatements

(c) The correction of other misstatements resulted in a $7.9 million increase of net income for the nine months ended May 31, 2018. Refer to further details of the adjustments and their impact on net income (loss) in the Consolidated Statements of Operations section for the three and nine months ended May 31, 2018, above. The impact of the adjustments to the Consolidated Balance Sheets as of August 31, 2017, and May 31, 2018, resulted in certain misclassification adjustments between line items in the Consolidated Statement of Cash Flows. As a result, a misclassification adjustment was made between operating and financing activities related to a $3.1 million reduction of notes payable resulting from a duplicative entry. In addition, various misclassification adjustments were made between operating activity lines, the most significant of which related to (1) a $24.1 million decrease of inventory and increase in accounts receivable as of August 31, 2017, due to a timing difference related to the settlement of a single ocean vessel and (2) the $49.2 million net impact associated with the decrease of inventory and increase of accounts payable that resulted from the misclassification adjustment for certain items previously included within a contra-inventory account to accounts payable as of August 31, 2017, and May 31, 2018.