Commitments and Contingencies
Environmental
We are required to comply with various environmental laws and regulations incidental to our normal business operations. In order to meet our compliance requirements, we establish reserves for the probable future costs of remediation of identified issues, which are included in cost of goods sold and marketing, general and administrative in our Consolidated Statements of Operations. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year.
Contingencies
In May 2013, we initiated a voluntary recall of certain soy protein products produced at our Ashdod, Israel facility following one customer's report to us of a positive test result for salmonella in product purchased from us. We notified applicable food safety regulators, including the Israel Ministry of Health and the U.S. Food and Drug Administration, of both the positive test result and our determination to conduct a voluntary recall. We have received no reports of salmonella-related illness in relation to the recalled products. We estimate our range of loss associated with this recall to be between $14.4 million and $39.7 million. During the year ended August 31, 2013, we recorded a reserve of $25.0 million, which is the amount within the range that we believe is the best estimate given the claims experience so far. We maintain product liability and general liability insurance (which includes product liability coverage), which we believe will offset some related product liability expenses. However, as of August 31, 2013, no insurance recoveries have been recorded related to this incident.
Other Litigation and Claims
We are involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of our business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year.
Grain Storage
As of August 31, 2013 and 2012, we stored grain for third parties totaling $454.9 million and $441.3 million, respectively. Such stored commodities and products are not our property and, therefore, are not included in our inventories on our Consolidated Balance Sheets.
Guarantees
We are a guarantor for lines of credit and performance obligations of related companies. Our bank covenants allow maximum guarantees of $1.0 billion, of which $39.8 million was outstanding on August 31, 2013. We have collateral for a portion of these contingent obligations. We have not recorded a liability related to the contingent obligations as we do not expect to pay out any cash related to them, and the fair values are considered immaterial. The underlying loans to the counterparties for which we provide guarantees are current as of August 31, 2013.
Credit Commitments
CHS Capital has commitments to extend credit to customers as long as there is no violation of any condition established in the contracts. As of August 31, 2013, CHS Capital’s customers have additional available credit of $1.0 billion.
Lease Commitments
We are committed under operating lease agreements for approximately 2,600 rail cars with remaining terms of one to 13 years. In addition, we have commitments under other operating leases for various refinery, manufacturing and transportation equipment, vehicles and office space. Some leases include purchase options at not less than fair market value at the end of the lease terms.
Total rental expense for all operating leases was $81.5 million, $74.6 million and $66.2 million for the years ended August 31, 2013, 2012 and 2011, respectively.
Minimum future lease payments required under noncancelable operating leases as of August 31, 2013 were as follows:
|
| | | | | | | | | | | | | | | |
| Rail Cars | | Vehicles | | Equipment
and Other | | Total |
| (Dollars in thousands) |
2014 | $ | 18,875 |
| | $ | 13,006 |
| | $ | 45,965 |
| | $ | 77,846 |
|
2015 | 18,331 |
| | 9,803 |
| | 35,934 |
| | 64,068 |
|
2016 | 17,310 |
| | 6,959 |
| | 29,699 |
| | 53,968 |
|
2017 | 16,203 |
| | 4,451 |
| | 21,906 |
| | 42,560 |
|
2018 | 11,608 |
| | 2,480 |
| | 13,527 |
| | 27,615 |
|
Thereafter | 10,830 |
| | 685 |
| | 32,210 |
| | 43,725 |
|
Total minimum future lease payments | $ | 93,157 |
| | $ | 37,384 |
| | $ | 179,241 |
| | $ | 309,782 |
|
Purchase Obligations
As of August 31, 2013 and 2012, we had purchase obligations of $5.4 billion and $6.3 billion, respectively, which were not recorded on our Consolidated Balance Sheets. Such purchase obligations are legally binding and enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and time of the transactions. Minimum future payments required under noncancelable purchase obligations as of August 31, 2013 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
| Total | | Less than
1 Year | | 1 - 3
Years | | 3 - 5
Years | | More than
5 Years |
| (Dollars in thousands) |
Long-term unconditional purchase obligations | $ | 510,705 |
| | $ | 63,387 |
| | $ | 137,237 |
| | $ | 89,700 |
| | $ | 220,381 |
|
Other contractual obligations | 4,871,767 |
| | 4,713,927 |
| | 80,454 |
| | 10,459 |
| | 66,927 |
|
Total purchase obligations | $ | 5,382,472 |
| | $ | 4,777,314 |
| | $ | 217,691 |
| | $ | 100,159 |
| | $ | 287,308 |
|
Long-term unconditional purchase obligations primarily relate to pipeline and grain handling take-or-pay and through-put agreements. The discounted, aggregate amount of the minimum required payments under long-term unconditional purchase obligations, based on current exchange rates at August 31, 2013 was $423.9 million. Total payments under these arrangements were $62.4 million, $47.8 million and $60.8 million for the years ended August 31, 2013, 2012 and 2011, respectively.
