Commitments and Contingencies

Environmental

The Company is required to comply with various environmental laws and regulations incidental to its normal business operations. In order to meet its compliance requirements, the Company establishes 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 the 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 the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

The Environmental Protection Agency passed a regulation that required the reduction of the benzene level in gasoline by January 1, 2011. As a result of this regulation, the Company’s refineries incurred capital expenditures to reduce the current gasoline benzene levels to meet the new regulated levels. The combined capital expenditures for benzene removal for the Company’s Laurel, Montana refinery and the NCRA refinery in McPherson, Kansas were approximately $95.0 million for the projects. Approximately $19.0 million and $43.0 million of expenditures were incurred during the fiscal years ended August 31, 2011 and 2010, respectively. Both refineries were producing gasoline within the regulated benzene levels as of January 2011.

Other Litigation and Claims

The Company is involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of the Company’s 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 the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

Grain Storage

As of August 31, 2012 and 2011, the Company stored grain for third parties totaling $441.3 million and $408.8 million, respectively. Such stored commodities and products are not the property of the Company and therefore are not included in the Company’s inventories.

Guarantees

The Company is a guarantor for lines of credit and performance obligations of related companies. The Company’s bank covenants allow maximum guarantees of $500.0 million, of which $16.3 million was outstanding on August 31, 2012. The Company has collateral for a portion of these contingent obligations. The Company has not recorded a liability related to the contingent obligations as it does 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, 2012.

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, 2012, CHS Capital’s customers have additional available credit of $841.3 million.

Lease Commitments

The Company is committed under operating lease agreements for approximately 2,000 rail cars with remaining terms of one to ten years. In addition, the Company has 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, net of sublease income, was $74.6 million, $66.2 million and $64.3 million for the years ended August 31, 2012, 2011 and 2010, respectively. Sublease income totaled $1.6 million, $2.0 million and $1.4 million for the years ended August 31, 2012, 2011 and 2010, respectively.

Minimum future lease payments, required under noncancelable operating leases as of August 31, 2012 are as follows:



	Rail Cars		Vehicles		Equipment and Other		Total
	(Dollars in thousands)
2013	$	13,307	$	20,885	$	14,767	$	48,959
2014	10,452		16,425		12,368		39,245
2015	9,500		13,233		11,045		33,778
2016	8,401		12,894		9,783		31,078
2017	7,388		8,426		8,401		24,215
Thereafter	8,050		2,415		15,269		25,734
Total minimum future lease payments	$	57,098	$	74,278	$	71,633	$	203,009

Purchase Obligations

As of August 31, 2012 and 2011, the Company has purchase obligations of $6.3 billion and $5.0 billion, respectively, which are not recorded on the 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, 2012 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	$	568,522	$	63,778	$	132,222	$	117,311	$	255,211
Other contractual obligations	5,701,737		5,657,100		31,837		9,777		3,023
Total purchase obligations	$	6,270,259	$	5,720,878	$	164,059	$	127,088	$	258,234

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, 2012 is $479.5 million. Total payments under these arrangements were $47.8 million, $60.8 million and $16.9 million for the years ended August 31, 2012, 2011 and 2010, respectively.