Fair Value of Financial Instruments

3 Months Ended

Nov. 30, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 14: Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Quoted market prices are generally not available for the Company’s financial instruments.  Fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates involve uncertainties and matters of judgment, and therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Long-Term Debt, Inclusive of Current Maturities - Based upon discounted cash flows and current borrowing rates with similar maturities, the fair value of the long-term debt as of November 30, 2012 was approximately $144.6 million in comparison to the carrying value of $128.6 million.  The fair value of the long-term debt as of November 30, 2011 was approximately $145.8 million in comparison to the carrying value of $134.4 million.

Investments in CoBank, ACB and Investments in Marketing Cooperatives - The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations.

Foreign Currency Forward Contracts —Based on a variety of pricing factors, which include the market price of the foreign currency forward contract available in the dealer-market, the fair value of the open contracts as of November 30, 2012 was a liability of approximately $2,000.  The fair value of the open contracts as of November 30, 2011 was a liability of approximately $3,000.  Inputs used to measure the fair value of the foreign currency forward contracts are quoted prices in active markets for identical assets or liabilities and therefore are contained within level 1 of the fair value hierarchy. See the tables below.

Interest Rate Contracts — Based on the zero coupon method in which the term, notional amount, and repricing date of the interest rate swap match the term, repricing date, and principal amount of the interest-bearing liability on which the hedging interest payments are due, the fair value of the interest rate contract as of November 30, 2012 was a liability of approximately $2.7 million. The fair value of the interest rate contract as of November 30, 2011 was a liability of approximately $2.2 million.  Inputs used to measure the fair value of the interest rate swap contracts are quoted prices in active markets for similar assets or liabilities and therefore are contained within level 2 of the fair value hierarchy. See the tables below.

The tables below reflect the assets and liabilities measured at fair value on a recurring basis as of November 30, 2012 and 2011.

Fair Value of Liabilities as of November 30, 2012

(In Thousands)	Level 1		Level 2		Level 3		Total
Foreign Currency Forward Contracts	$	2	$	—	$	—	$	2
Interest Rate Contracts	$	—	$	2,742	$	—	$	2,742
Total	$	2	$	2,742	$	—	$	2,744

Fair Value of Liabilities as of November 30, 2011

(In Thousands)	Level 1		Level 2		Level 3		Total
Foreign Currency Forward Contracts	$	3	$	—	$	—	$	3
Interest Rate Contracts	—		2,162		—		2,162
Total	$	3	$	2,162	$	—	$	2,165