CHS 2013 Annual Report Download - page 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
component part of a refinery or related asset, we will
estimate the cost of performing the retirement activities We provide a wide variety of products and services,
and record a liability for the fair value of that cost using from production agricultural inputs such as fuels, farm
established present value techniques. supplies and crop nutrients, to agricultural outputs that
include grain and oilseed, processed grains and oilseeds
and food products. We recognize revenue when persua-
Goodwill and other intangible assets are reviewed for sive evidence of an arrangement exists, delivery has
impairment annually or more frequently if impairment occurred, the sales price is fixed or determinable, and
conditions arise, and those that are impaired are written collection is probable. Grain and oilseed sales are
down to fair value. For goodwill, annual impairment recorded after the commodity has been delivered to its
testing occurs in the third quarter. Other intangible destination and final weights, grades and settlement
assets consist primarily of customer lists, trademarks prices have been agreed upon. All other sales are recog-
and agreements not to compete. Intangible assets sub- nized upon transfer of title, which could occur either
ject to amortization are expensed over their respective upon shipment to or receipt by the customer,
useful lives (ranging from 2 to 30 years). We have no depending upon the terms of the transaction. Amounts
material intangible assets with indefinite useful lives. billed to a customer as part of a sales transaction related
to shipping and handling are included in revenues.
We made various acquisitions during the three years
ended August 31, 2013, which were accounted for using
the acquisition method of accounting. Operating results Liabilities, including legal costs, related to remediation of
of the acquisitions were included in our consolidated contaminated properties are recognized when the related
financial statements since the respective acquisition costs are considered probable and can be reasonably esti-
dates. The respective purchase prices were allocated to mated. Estimates of environmental costs are based on cur-
the assets, liabilities and identifiable intangible assets rent available facts, existing technology, undiscounted site-
acquired based upon the estimated fair values. The specific costs and currently enacted laws and regulations.
excess purchase prices over the estimated fair values of Recoveries, if any, are recorded in the period in which
the net assets acquired have been reported as goodwill. recovery is received. Liabilities are monitored and adjusted
as new facts or changes in law or technology occur. Envi-
In our Energy segment, major maintenance activities ronmental expenditures are capitalized when such costs
(turnarounds) at the two refineries are accounted for provide future economic benefits.
under the deferral method. Turnarounds are the sched-
uled and required shutdowns of refinery processing units.
The costs related to the significant overhaul and refur- CHS is a nonexempt agricultural cooperative and files a
bishment activities include materials and direct labor consolidated federal income tax return with our 80% or
costs. The costs of turnarounds are deferred when more owned subsidiaries. We are subject to tax on
incurred and amortized on a straight-line basis over the income from nonpatronage sources, non-qualified
period of time estimated to lapse until the next turn- patronage distributions and undistributed patronage-
around occurs, which is generally 2 to 4 years. Amortiza- sourced income. Income tax expense is primarily the cur-
tion expense related to turnaround costs is included in rent tax payable for the period and the change during the
cost of goods sold in our Consolidated Statements of period in certain deferred tax assets and liabilities.
Operations. The selection of the deferral method, as Deferred income taxes reflect the impact of temporary
opposed to expensing the turnaround costs when differences between the amounts of assets and liabilities
incurred, results in deferring recognition of the turn- recognized for financial reporting purposes and such
around expenditures. The deferral method also results in amounts recognized for federal and state income tax pur-
the classification of the related cash outflows as investing poses, based on enacted tax laws and statutory tax rates
activities in our Consolidated Statements of Cash Flows, applicable to the periods in which the differences are
whereas expensing these costs as incurred, would result expected to affect taxable income. Valuation allowances
in classifying the cash outflows as operating activities. are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
CHS 2013 39
Revenue Recognition
Goodwill and Other Intangible Assets
Environmental Expenditures
Income Taxes