CHS 2011 Annual Report Download - page 55

54 2011 CHS
NOTE 12
Fair Value Measurements, continued
Interest Rate Swap Derivatives: Fair values of the Com-
pany’s interest rate swap liabilities are determined uti-
lizing valuation models that are widely accepted in the
market to value such OTC derivative contracts. The
specific terms of the contracts, as well as market
observable inputs such as interest rates and credit risk
assumptions, are factored into the models. As all sig-
nificant inputs are market observable, all interest rate
swaps are classified within Level 2.
The table below represents reconciliations at August 31,
2010 for assets measured at fair value using significant
unobservable inputs (Level 3). This consists of certain
short-term investments of NCRA that were carried at fair
value and reflect assumptions a marketplace participant
would use. As of August 31, 2011 there were no amounts
included in Level 3.
(DOLLARS IN THOUSANDS) 2010
Balance, September 1 $ 1,932
Realized/unrealized losses included in marketing, general
and administrative 38
Settlements (1,970)
Balance, August 31 $ —
Business acquisitions during the year ended August 31,
2011 resulted in fair value measurements that are not on
a recurring basis. In January 2011, the Company’s
wholly-owned subsidiary, CHS Europe, S.A., purchased
all of the outstanding shares of stock of Agri Point Ltd.
(Agri Point), a Cyprus company, for $62.4 million, net of
cash acquired of $0.3 million. The fair market value of
net assets was determined by market valuation reports
using Level 3 inputs. The transaction was completed
with the purpose of expanding the Company’s global
grain origination and resulted in goodwill of $2.4 mil-
lion. Proforma results of operations are not presented
due to materiality. The acquisition is included in the Ag
Business segment. Agri Point and its subsidiaries oper-
ate in the countries of Romania, Hungary, Bulgaria and
Serbia, with a deep water port facility in Constanta,
Romania, a barge loading facility on the Danube River in
Romania and an inland grain terminal in Hungary.
During the fourth quarter, the Company completed
its purchase price allocation and recorded an additional
liability of $7.1 million. Fair values assigned to the net
assets acquired were as follows:
(DOLLARS IN THOUSANDS)
Receivables $ 7,118
Other current assets 142
Investments 261
Property, plant and equipment 62,509
Goodwill 2,420
Accounts payable (304)
Accrued expenses (157)
Other liabilities (7,113)
Noncontrolling interests (2,448)
Total net assets acquired $62,428
NOTE 13
COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is required to comply with various envi-
ronmental laws and regulations incidental to its normal
business operations. In order to meet its compliance
requirements, the Company establishes reserves for the
probable future costs of remediation of identified issues,
which are included in cost of goods sold and marketing,
general and administrative in the Consolidated State-
ments of Operations. The resolution of any such matters
may affect consolidated net income for any fiscal period;
however, management believes any resulting liabilities,
individually or in the aggregate, will not have a material
effect on the consolidated financial position, results of
operations or cash flows of the Company during any
fiscal year.
The Environmental Protection Agency passed a regu-
lation that required the reduction of the benzene level in
gasoline by January 1, 2011. As a result of this regu-
lation, the Company’s refineries incurred capital expen-
ditures to reduce the current gasoline benzene levels to
meet the new regulated levels. The combined capital
expenditures for benzene removal for the Company’s
Laurel, Montana refinery and the NCRA refinery in
McPherson, Kansas were approximately $95.0 million
for the project through August 31, 2011. Approximately
$19.0 million, $43.0 million and $33.0 million of expen-
ditures were incurred during the fiscal years ended
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS