Fair Value of Financial Instruments

6 Months Ended

Feb. 28, 2013

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 February 28, 2013 was approximately $142.7 million in comparison to the carrying value of $128.6 million. The fair value of the long-term debt as of February 29, 2012 was approximately $143.3 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 February 28, 2013 was a liability of approximately $11,000. The fair value of the open contracts as of February 29, 2012 was an asset of approximately $15,000. 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 February 28, 2013 was a liability of approximately $2.5 million. The fair value of the interest rate contract as of February 29, 2012 was a liability of approximately $2.5 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 February 28, 2013 and February 29, 2012.

Fair Value of Assets as of February 29, 2012

(In Thousands)	Level 1		Level 2		Level 3		Total
Foreign Currency Forward Contracts	$	15	$	—	$	—	$	15
Total	$	15	$	—	$	—	$	15

Fair Value of Liabilities as of February 28, 2013

(In Thousands)	Level 1		Level 2		Level 3		Total
Foreign Currency Forward Contracts	$	11	$	—	$	—	$	11
Interest Rate Contracts	—		2,501		—		2,501
Total	$	11	$	2,501	$	—	$	2,512

Fair Value of Liabilities as of February 29, 2012

(In Thousands)	Level 1		Level 2		Level 3		Total
Interest Rate Contracts	$	—	$	2,489	$	—	$	2,489
Total	$	—	$	2,489	$	—	$	2,489

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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