CHS 2014 Annual Report Download - page 62

Readily marketable inventories—Our readily marketable and are classified within Level 1. Changes in the fair
inventories primarily include grain, processed grain, oil- values of these other assets are primarily recognized in
seed, processed oilseed and other minimally processed our Consolidated Statements of Operations as a compo-
soy-based inventories that are stated at fair values. These nent of marketing, general and administrative expenses.
commodities are readily marketable, have quoted market
prices and may be sold without significant additional Interest rate swap derivatives—Fair values of our interest
processing. We estimate the fair market values of these rate swap derivatives are determined utilizing valuation
inventories included in Level 2 primarily based on models that are widely accepted in the market to value
exchange quoted prices, adjusted for differences in local such OTC derivative contracts. The specific terms of the
markets. Changes in the fair market values of these inven- contracts, as well as market observable inputs, such as
tories are recognized in our Consolidated Statements of interest rates and credit risk assumptions, are factored
Operations as a component of cost of goods sold. into the models. As all significant inputs are market
observable, all interest rate swaps are classified within
Commodity, freight and foreign currency derivatives— Level 2. Changes in the fair values of contracts not des-
Exchange traded futures and options contracts are ignated as hedging instruments for accounting pur-
valued based on unadjusted quoted prices in active poses are recognized in our Consolidated Statements of
markets and are classified within Level 1. Our forward Operations as a component of interest, net. Changes in
commodity purchase and sales contracts, flat price or the fair values of contracts designated as hedging
basis fixed derivative contracts, ocean freight contracts instruments are deferred to accumulated other compre-
and other OTC derivatives are determined using inputs hensive loss in the equity section of our Consolidated
that are generally based on exchange traded prices Balance Sheets and are amortized into earnings within
and/or recent market bids and offers, adjusted for loca- interest, net over the term of the agreements.
tion specific inputs, and are classified within Level 2. The
location specific inputs are generally broker or dealer Accrued liability for contingent crack spread payments
quotations, or market transactions in either the listed or related to purchase of noncontrolling interests—The fair
OTC markets. Changes in the fair values of these con- value of the contingent consideration liability was calcu-
tracts are recognized in our Consolidated Statements of lated utilizing an average price option model, an
Operations as a component of cost of goods sold. adjusted Black-Scholes pricing model commonly used
in the energy industry to value options. The model uses
Other assets—Our available-for-sale investments in market observable inputs and unobservable inputs. Due
common stock of other companies, deferred compensa- to significant unobservable inputs used in the pricing
tion investments and Rabbi Trust assets are valued model, the liability is classified within Level 3.
based on unadjusted quoted prices on active exchanges
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
ITEM FAIR VALUE AUGUST 31, 2014 VALUATION TECHNIQUE UNOBSERVABLE INPUT RANGE (WEIGHTED AVERAGE)
Accrued liability for contingent crack $ 114,917 Adjusted Black- Forward crack spread margin $13.58–$17.07 ($15.64)
spread payments related to purchase Scholes option pricing on August 31, 2014 (a)
of noncontrolling interests model
Contractual target crack $17.50
spread margin (b)
Expected volatility (c) 132.37%
Risk-free interest rate (d) 0.09–0.94% (0.53%)
Expected life—years (e) 1.00–3.00 (2.07)
(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 2014
THIRTEEN: Fair Value Measurements, continued