CHS 2014 Annual Report Download - page 63

5NOV201416070771
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Valuation processes for Level 3 measurements—Man- Sensitivity analysis of Level 3 measurements—The signifi-
agement is responsible for determining the fair value cant unobservable inputs that are susceptible to periodic fluc-
of our Level 3 financial instruments. Option pricing tuations used in the fair value measurement of the accrued
methods are utilized, as indicated above. Inputs used in liability for contingent crack spread payments related to the
the option pricing models are based on quotes obtained purchase of noncontrolling interests are the adjusted forward
from third party vendors as well as management esti- crack spread margin and the expected volatility. Significant
mates for periods in which quotes cannot be obtained. increases (decreases) in either of these inputs in isolation
Each reporting period, management reviews the unob- would result in a significantly higher (lower) fair value mea-
servable inputs provided by third-party vendors for rea- surement. Although changes in the expected volatility are
sonableness utilizing relevant information available to driven by fluctuations in the underlying crack spread margin,
us. Management also takes into consideration current changes in expected volatility are not necessarily accompa-
and expected market trends and compares the liability’s nied by a directionally similar change in the forward crack
fair value to hypothetical payments using known histor- spread margin. Directional changes in the expected volatility
ical market data to assess reasonableness of the can be affected by a multitude of factors including the magni-
resulting fair value. tude of daily fluctuations in the underlying market data,
market trends, timing of fluctuations, and other factors.
The following table represents a reconciliation of liabilities measured at fair value using significant unobservable
inputs (Level 3) for the years ended August 31, 2014 and 2013:
LEVEL 3 LIABILITIES
ACCRUED LIABILITY FOR CONTINGENT CRACK
SPREAD PAYMENTS RELATED TO PURCHASE OF
NONCONTROLLING INTERESTS
(DOLLARS IN THOUSANDS) 2014 2013
Balance—beginning of year $ 134,134 $ 127,516
Amounts currently payable — (16,491)
Total (gains) losses included in cost of goods sold (19,217) 23,109
Balance—end of year $ 114,917 $ 134,134
Commitments and Contingencies
effect on our consolidated financial position, results of
We are required to comply with various environmental operations or cash flows during any fiscal year.
laws and regulations incidental to our normal business
operations. In order to meet our compliance require-
ments, we establish reserves for the probable future In May 2013, we initiated a voluntary recall of certain soy
costs of remediation of identified issues, which are protein products produced at our Ashdod, Israel facility
included in cost of goods sold and marketing, general following one customer’s report to us of a positive test
and administrative in our Consolidated Statements of result for salmonella in product purchased from us. We
Operations. The resolution of any such matters may notified applicable food safety regulators, including the
affect consolidated net income for any fiscal period; Israel Ministry of Health and the U.S. Food and Drug
however, management believes any resulting liabilities, Administration, of both the positive test result and our
individually or in the aggregate, will not have a material determination to conduct a voluntary recall. We have
CHS 2014 61
Environmental
Contingencies