Accounting Policies

Basis of Presentation and Reclassifications

The unaudited Consolidated Balance Sheets as of February 28, 2013 and February 29, 2012, the Consolidated Statements of Operations for the three and six months ended February 28, 2013 and February 29, 2012, the Consolidated Statements of Comprehensive Income for the three and six months ended February 28, 2013 and February 29, 2012, and the Consolidated Statements of Cash Flows for the six months ended February 28, 2013 and February 29, 2012, reflect in the opinion of our management, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full fiscal year because of, among other things, the seasonal nature of our businesses. Our Consolidated Balance Sheet data as of August 31, 2012, has been derived from our audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The consolidated financial statements include our accounts and the accounts of all of our wholly-owned and majority-owned subsidiaries and limited liability companies, which is primarily National Cooperative Refinery Association (NCRA), included in our Energy segment. The effects of all significant intercompany accounts and transactions have been eliminated.

These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 2012, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission.

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. ASU 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 became effective for us during our fiscal 2013. The required disclosures of these updates are included in our Consolidated Statements of Comprehensive Income.

Derivative Financial Instruments and Hedging Activities

Our derivative instruments primarily consist of commodity and freight futures and forward contracts and, to a lesser degree, may include foreign currency and interest rate swap contracts. These contracts are economic hedges of price risk, but are not designated or accounted for as hedging instruments for accounting purposes, with the exception of certain interest rate swap contracts which are economic hedges of forecasted debt issuances and were accounted for as cash flow hedges. Derivative instruments are recorded on our Consolidated Balance Sheets at fair values as discussed in Note 9, Fair Value Measurements.

We have netting arrangements for our exchange-traded futures and options contracts and certain over-the-counter (OTC) contracts, which are recorded on a net basis in our Consolidated Balance Sheets. Although accounting standards permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or the obligation to return cash collateral under the same master netting arrangement, we have not elected to net our margin deposits.

As of February 28, 2013, August 31, 2012 and February 29, 2012, we had the following outstanding purchase and sales contracts:



	February 28, 2013		August 31, 2012		February 29, 2012
	Purchase Contracts	Sales Contracts	Purchase Contracts	Sales Contracts	Purchase Contracts	Sales Contracts
	(Units in thousands)
Grain and oilseed - bushels	605,309	906,758	722,895	1,074,535	550,564	803,266
Energy products - barrels	12,103	21,575	9,047	19,561	12,913	15,348
Soy products - tons	32	333	15	215	14	252
Crop nutrients - tons	1,553	2,128	600	725	1,461	1,703
Ocean and barge freight - metric tons	933	125	1,018	183	1,211	235

As of February 28, 2013, August 31, 2012 and February 29, 2012, the gross fair values of our derivative assets and liabilities not designated as hedging instruments were as follows:



	February 28, 2013		August 31, 2012		February 29, 2012
Derivative Assets:
Commodity and freight derivatives	$	485,219	$	1,070,800	$	456,153
Foreign exchange derivatives	15,500		978
	$	500,719	$	1,071,778	$	456,153
Derivative Liabilities:
Commodity and freight derivatives	$	428,866	$	727,946	$	543,470
Foreign exchange derivatives	691		2,388		72
Interest rate derivatives	418		544		586
	$	429,975	$	730,878	$	544,128

As of February 28, 2013, August 31, 2012 and February 29, 2012, the gross fair values of our derivative assets and liabilities designated as cash flow hedging instruments were as follows:



	February 28, 2013		August 31, 2012	February 29, 2012
Derivative Assets:
Interest rate swaps	$	459

During the second quarter of fiscal 2013, we entered into derivative contracts designated as cash flow hedging instruments that expire in fiscal 2014 with no amounts expected to be included in earnings during the next 12 months. As of February 28, 2013, August 31, 2012 and February 29, 2012, the unrealized gains deferred to accumulated other comprehensive loss were as follows:



	February 28, 2013		August 31, 2012	February 29, 2012
Gains included in accumulated other comprehensive loss, net of tax expense of $0.2 million, $0 million and $0 million, respectively	$	284

The following table sets forth the pretax gains (losses) on derivatives not accounted for as hedging instruments that have been included in our Consolidated Statements of Operations for the three and six months ended February 28, 2013 and February 29, 2012.



		For the Three Months Ended						For the Six Months Ended
	Location of Gain (Loss)	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Commodity and freight derivatives	Cost of goods sold	$	(102,006	)	$	(188,280	)	$	(430,290	)	$	(274,901	)
Foreign exchange derivatives	Cost of goods sold	17,903			1,060			16,218			(4,384		)
Interest rate derivatives	Interest, net	64						126
		$	(84,039	)	$	(187,220	)	$	(413,946	)	$	(279,285	)

Goodwill and Other Intangible Assets

Goodwill was $88.1 million, $81.7 million and $78.2 million on February 28, 2013, August 31, 2012 and February 29, 2012, respectively, and is included in other assets in our Consolidated Balance Sheets.

Intangible assets subject to amortization primarily include customer lists, trademarks and agreements not to compete, and are amortized over their respective useful lives (ranging from 2 to 30 years). Excluding goodwill, the gross carrying amount of our intangible assets was $81.8 million, $100.6 million and $95.6 million on February 28, 2013, August 31, 2012 and February 29, 2012, respectively. Accumulated amortization was $40.5 million, $55.7 million and $47.8 million as of February 28, 2013, August 31, 2012 and February 29, 2012, respectively. Intangible assets acquired were $1.4 million during the six months ended February 28, 2013. Intangible assets of $20.3 million were acquired during the six months ended February 29, 2012, related to the acquisition of Solbar Industries Ltd. (Solbar). Total amortization expense for intangible assets during the six months ended February 28, 2013 and February 29, 2012, was $5.0 million and $5.4 million, respectively. The estimated annual amortization expense related to intangible assets subject to amortization for the next five years is as follows:



Year 1	$	10,286
Year 2	6,658
Year 3	6,026
Year 4	5,517
Year 5	3,799
Thereafter	8,971
	$	41,257

In our Energy segment, major maintenance activities (turnarounds) at our two refineries are accounted for under the deferral method. Turnarounds are the scheduled and required shutdowns of refinery processing units. The costs related to the significant overhaul and refurbishment activities include materials and direct labor costs. The costs of turnarounds are deferred when incurred and amortized on a straight-line basis over the period of time estimated to lapse until the next turnaround occurs, which is generally 2 to 4 years. The amortization expense related to turnaround costs are included in cost of goods sold in our Consolidated Statements of Operations. The selection of the deferral method, as opposed to expensing the turnaround costs when incurred, results in deferring recognition of the turnaround expenditures. The deferral method also results in the classification of the related cash outflows as investing activities in our Consolidated Statements of Cash Flows, whereas expensing these costs as incurred, would result in classifying the cash outflows as operating activities.

For the six months ended February 28, 2013 and February 29, 2012, major repairs turnaround expenditures were $9.2 million and $19.8 million, respectively. During the first quarter of fiscal 2012 our Laurel, Montana refinery completed a turnaround.

Recent Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities." ASU No. 2011-11 creates new disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The disclosure requirements in this update are effective for annual reporting periods, and interim periods within those years, beginning on or after January 1, 2013. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal 2014.

In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income." ASU No. 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either in the consolidated statements of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. These amendments are only disclosure related and will not have an impact on our financial position, results of operations, comprehensive income or cash flows. ASU No. 2013-02 will become effective for us in fiscal 2014.

In February 2013, the FASB issued ASU No. 2013-04, "Liabilities." ASU No. 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal 2015.

In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters." The amendments in this ASU clarify the applicable guidance for the release of the cumulative translation adjustment under current accounting standards. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal 2015.