Accounting Policies

6 Months Ended

Feb. 29, 2012

Accounting Policies [Abstract]

Accounting Policies

Note 1.    Accounting Policies

Basis of Presentation and Reclassifications

The unaudited Consolidated Balance Sheets as of February 29, 2012 and February 28, 2011, the Consolidated Statements of Operations for the three and six months ended February 29, 2012 and February 28, 2011, and the Consolidated Statements of Cash Flows for the six months ended February 29, 2012 and February 28, 2011, 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, 2011, 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, 2011, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission.

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” ASU No. 2011-02 clarifies the accounting principles applied to loan modifications and addresses the recording of an impairment loss. The adoption of ASU No. 2011-02 during the first quarter of fiscal 2012 did not have a material impact on our consolidated financial statements.

As of September 1, 2011, we changed the expected useful lives of certain fixed assets in our Energy segment. We increased the expected useful lives of refining and asphalt assets from 16 years to 20 years, which we estimate will reduce depreciation expense by approximately $27.0 million in fiscal 2012.

Derivative Instruments and Hedging Activities

Our derivative instruments primarily consist of commodity and freight futures and forward contracts and, to a minor 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 some derivative instruments that had been included in our Energy segment as well as some interest rate swap contracts which were accounted for as cash flow hedges. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value as discussed in Note 11, Fair Value Measurements.

Certain financial contracts within our Energy segment were entered into, and had been designated and accounted for as cash flow hedging instruments. The unrealized gains or losses of these contracts were previously deferred to accumulated other comprehensive loss in the equity section of our Consolidated Balance Sheet and all amounts were recognized in cost of goods sold as of August 31, 2011, with no amounts remaining in accumulated other comprehensive loss.

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 29, 2012, August 31, 2011 and February 28, 2011, we had the following outstanding purchase and sales contracts accounted for as derivatives:

	February 29, 2012				August 31, 2011				February 28, 2011
	Purchase Contracts		Sales Contracts		Purchase Contracts		Sales Contracts		Purchase Contracts		Sales Contracts
	(units in thousands)
Grain and oilseed — bushels		550,564		803,266		667,409		796,332		831,629		1,179,941
Energy products — barrels		12,913		15,348		9,915		14,020		11,423		10,099
Crop nutrients — tons		1,461		1,703		1,177		1,420		1,633		2,225
Ocean and barge freight — metric tons		1,211		235		983		93		1,941		281

As of February 29, 2012, August 31, 2011 and February 28, 2011, the gross fair values of our derivative assets and liabilities not designated as hedging instruments were as follows:

	February 29, 2012		August 31, 2011		February 28, 2011
Derivative Assets:
Commodity and freight derivatives	$	456,153	$	882,445	$	1,120,094
Foreign exchange derivatives				1,508
	$	456,153	$	883,953	$	1,120,094
Derivative Liabilities:
Commodity and freight derivatives	$	543,470	$	730,170	$	842,280
Foreign exchange derivatives		72				121
Interest rate derivatives		586		750		551
Accrued liability for contingent crack spread payment related to purchase of noncontrolling interests		101,003
	$	645,131	$	730,920	$	842,952

As of February 28, 2011, the gross fair values of our derivative assets and liabilities designated as cash flow hedging instruments were as follows:

	February 28, 2011
Derivative Assets:
Commodity and freight derivatives	$	1,123

For the three and six-month periods ended February 29, 2012 and February 28, 2011, the pre-tax gain (loss) recognized in our Consolidated Statements of Operations for derivatives not accounted for as hedging instruments were as follows:

		Amount of Gain (Loss)					Amount of Gain (Loss)
		For the Three Months					For the Six Months
	Location of Gain (Loss)	February 29, 2012			February 28, 2011		February 29, 2012			February 28, 2011
Commodity and freight derivatives	Cost of goods sold	$	(188,280	)	$	101,381	$	(274,901	)	$	311,805
Foreign exchange derivatives	Cost of goods sold		1,060			452		(4,384	)		(598	)
Interest rate derivatives	Interest, net					58					65
Accrued liability for contingent crack spread payment related to purchase of noncontrolling interests	Cost of goods sold		4,185					4,185
		$	(183,035	)	$	101,891	$	(275,100	)	$	311,272

Losses of $2.2 million ($1.3 million, net of taxes) were recorded in our Consolidated Statement of Operations for derivatives designated as cash flow hedging instruments during the six months ended February 28, 2011, related to settlements. All contracts were entered into during our third quarter of fiscal 2010, and expired in fiscal 2011. As of February 28, 2011, the unrealized losses deferred to accumulated other comprehensive loss were as follows:

	February 28, 2011
Losses included in accumulated other comprehensive loss, net of tax benefit of $0.4 million	$	(686	)

Goodwill and Other Intangible Assets

Goodwill was $78.2 million, $26.4 million and $23.8 million on February 29, 2012, August 31, 2011 and February 28, 2011, respectively, and is included in other assets in our Consolidated Balance Sheets. Goodwill acquired during the first six months of fiscal 2012 totaled $52.0 million, primarily related to our acquisition of Solbar Industries Ltd., an Israeli company (Solbar). See Note 13, Acquisitions for additional information.

Intangible assets subject to amortization primarily include customer lists, trademarks and agreements not to compete, and are amortized over the number of years that approximate their respective useful lives (ranging from 2 to 30 years). Excluding goodwill, the gross carrying amount of our intangible assets was $95.6 million with total accumulated amortization of $47.8 million as of February 29, 2012. Intangible assets of $20.3 million were acquired during the six-months ended February 29, 2012, related to the acquisition of Solbar. See Note 13, Acquisitions for additional information. No intangible assets were acquired during the six-months ended February 28, 2011. Total amortization expense for intangible assets during the six-month periods ended February 29, 2012 and February 28, 2011, was $5.4 million and $5.7 million, respectively. The estimated annual amortization expense related to intangible assets subject to amortization for the next five years is as follows:

Year 1	$	11,307
Year 2		8,568
Year 3		6,019
Year 4		5,662
Year 5		4,888
Thereafter		11,285
	$	47,729

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 2-4 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 flows 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 29, 2012 and February 28, 2011, major repairs turnaround expenditures were $19.8 million and $82.9 million, respectively. During the six months ended February 29, 2012, our Laurel, Montana refinery completed a turnaround. During the six months ended February 28, 2011, both our Laurel, Montana and NCRA’s McPherson, Kansas refineries completed turnarounds.

Recent Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” ASU No. 2011-03 removes the transferor’s ability criterion from the consideration of effective control for repurchase agreements and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity. It also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in our third quarter of fiscal 2012.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” ASU No. 2011-04 provides a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in our third quarter of fiscal 2012.

In June 2011, the FASB issued 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. It 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. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05”, to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal 2013.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment.” ASU No. 2011-08 allows entities to use a qualitative approach to test goodwill for impairment. It permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-09, “Compensation—Retirement Benefits— Multiemployer Plans (Subtopic 715-80).” ASU No. 2011-09 requires that employers provide additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. The additional quantitative and qualitative disclosures will provide users with more detailed information about an employer’s involvement in multiemployer pension plans. This guidance is effective for annual periods for fiscal years ending after December 15, 2011, and early adoption is permitted. As ASU No. 2011-09 is only disclosure related, it will not have an impact on our financial position, results of operations, or cash flows.

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. As ASU No. 2011-11 is only disclosure related, it will not have an impact on our financial position, results of operations, or cash flows.