CHS 2013 Annual Report Download - page 56

8NOV201319003378
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Valuation processes for Level 3 measurements—Man- the accrued liability for contingent crack spread pay-
agement is responsible for determining the fair value of ments related to the purchase of noncontrolling inter-
our Level 3 financial instruments. Option pricing ests are the adjusted forward crack spread margin and
methods are utilized, as indicated above. Inputs used in the expected volatility. Significant increases (decreases)
the option pricing models are based on quotes obtained in either of these inputs in isolation would result in a
from third-party vendors as well as management esti- significantly higher (lower) fair value measurement.
mates for periods in which quotes cannot be obtained. Although changes in the expected volatility are driven
Each reporting period, management reviews the unob- by fluctuations in the underlying crack spread margin,
servable inputs provided by third-party vendors for rea- changes in expected volatility are not necessarily
sonableness utilizing relevant information available to accompanied by a directionally similar change in the
us. Management also takes into consideration current forward crack spread margin. Directional changes in the
and expected market trends and compares the liability’s expected volatility can be affected by a multitude of
fair value to hypothetical payments using known histor- factors including the magnitude of daily fluctuations in
ical market data to assess reasonableness of the the underlying market data, market trends, timing of
resulting fair value. fluctuations, and other factors.
Sensitivity analysis of Level 3 measurements—The signif-
icant unobservable inputs that are susceptible to peri-
odic fluctuations used in the fair value measurement of
The following table represents a reconciliation of liabilities measured at fair value using significant unobservable
inputs (Level 3) for the years ended August 31, 2013 and 2012:
LEVEL 3 LIABILITIES
ACCRUED LIABILITY FOR CONTINGENT CRACK
SPREAD PAYMENTS RELATED TO PURCHASE OF
NONCONTROLLING INTERESTS
(DOLLARS IN THOUSANDS) 2013 2012
Balance—beginning of year $ 127,516
Purchases $ 105,188
Amounts currently payable (16,491)
Total losses included in cost of goods sold 23,109 22,328
Balance—end of year $ 134,134 $ 127,516
Commitments and Contingencies
and administrative in our Consolidated Statements of
Operations. The resolution of any such matters may
We are required to comply with various environmental
affect consolidated net income for any fiscal period;
laws and regulations incidental to our normal business
however, management believes any resulting liabilities,
operations. In order to meet our compliance require-
individually or in the aggregate, will not have a material
ments, we establish reserves for the probable future
effect on our consolidated financial position, results of
costs of remediation of identified issues, which are
operations or cash flows during any fiscal year.
included in cost of goods sold and marketing, general
CHS 2013 61
Environmental