CHS 2013 Annual Report Download - page 55

Readily marketable inventories—Our readily marketable classified within Level 1. Changes in the fair values of these
inventories primarily include grain, oilseed, and minimally other assets are primarily recognized in our Consolidated
processed soy-based inventories that are stated at fair Statements of Operations as a component of marketing,
values. These commodities are readily marketable, have general and administrative expenses.
quoted market prices and may be sold without significant
additional processing. We estimate the fair market values Interest rate swap derivatives—Fair values of our interest
of these inventories included in Level 2 primarily based on rate swap derivatives are determined utilizing valuation
exchange quoted prices, adjusted for differences in local models that are widely accepted in the market to value
markets. Changes in the fair market values of these inven- such OTC derivative contracts. The specific terms of the
tories are recognized in our Consolidated Statements of contracts, as well as market observable inputs, such as
Operations as a component of cost of goods sold. interest rates and credit risk assumptions, are factored
into the models. As all significant inputs are market
Commodity, freight and foreign currency derivatives— observable, all interest rate swaps are classified within
Exchange traded futures and options contracts are Level 2. Changes in the fair values of contracts not des-
valued based on unadjusted quoted prices in active ignated as hedging instruments for accounting pur-
markets and are classified within Level 1. Our forward poses are recognized in our Consolidated Statements of
commodity purchase and sales contracts, flat price or Operations as a component of interest, net. Changes in
basis fixed derivative contracts, ocean freight contracts the fair values of contracts designated as hedging
and other OTC derivatives are determined using inputs instruments are deferred to accumulated other compre-
that are generally based on exchange traded prices hensive loss in the equity section of our Consolidated
and/or recent market bids and offers, adjusted for loca- Balance Sheets and are amortized into earnings within
tion specific inputs, and are classified within Level 2. The interest, net over the term of the agreements.
location specific inputs are generally broker or dealer
quotations, or market transactions in either the listed or Accrued liability for contingent crack spread payments
OTC markets. Changes in the fair values of these con- related to purchase of noncontrolling interests—The fair
tracts are recognized in our Consolidated Statements of value of the accrued liability was calculated utilizing an
Operations as a component of cost of goods sold. average price option model, an adjusted Black-Scholes
pricing model commonly used in the energy industry to
Other assets—Our available-for-sale investments in value options. The model uses market observable inputs
common stock of other companies, deferred compensa- and unobservable inputs. Due to significant unobserv-
tion investments and Rabbi Trust assets are valued based able inputs used in the pricing model, the liability is clas-
on unadjusted quoted prices on active exchanges and are sified within Level 3.
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
ITEM FAIR VALUE AUGUST 31, 2013 VALUATION TECHNIQUE UNOBSERVABLE INPUT RANGE (WEIGHTED AVERAGE)
Accrued liability for contingent crack $ 134,134 Adjusted Black- Forward crack spread margin $20.46-$22.07 ($20.97)
spread payments related to purchase of Scholes option pricing on August 31 (a)
noncontrolling interests model
Contractual target crack spread $17.50
margin (b)
Expected volatility (c) 80.31%
Risk-free interest rate (d) 1.80-2.60% (2.23%)
Expected life—years (e) 1.00-4.00 (2.64)
(a) Represents forward crack spread margin quotes and management estimates based on future settlement dates
(b) Represents the minimum contractual threshold that would require settlement with the counterparties
(c) Represents quarterly adjusted volatility estimates derived from daily historical market data
(d) Represents yield curves for U.S. Treasury securities
(e) Represents the range in the number of years remaining related to each contingent payment
60 CHS 2013
TWELVE: Fair Value Measurements, continued