Accounting Policies

9 Months Ended

May 31, 2012

Accounting Policies [Abstract]

Accounting Policies

Note 1.    Accounting Policies

Basis of Presentation and Reclassifications

The unaudited Consolidated Balance Sheets as of May 31, 2012 and 2011, the Consolidated Statements of Operations for the three and nine months ended May 31, 2012 and 2011, and the Consolidated Statements of Cash Flows for the nine months ended May 31, 2012 and 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.

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 immaterial amounts of energy derivative instruments and interest rate swap contracts which were accounted for as cash flow hedges in fiscal 2011. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value as discussed in Note 11, 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 May 31, 2012, August 31, 2011 and May 31, 2011, we had the following outstanding purchase and sales contracts accounted for as derivatives:

	May 31, 2012				August 31, 2011				May 31, 2011
	Purchase Contracts		Sales Contracts		Purchase Contracts		Sales Contracts		Purchase Contracts		Sales Contracts
	(units in thousands)
Grain and oilseed — bushels		590,021		843,934		667,409		796,332		673,994		916,446
Energy products — barrels		9,271		14,012		9,915		14,020		12,729		12,997
Crop nutrients — tons		699		894		1,177		1,420		881		1,251
Ocean and barge freight — metric tons		1,215		234		983		93		1,613		266

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

	May 31, 2012		August 31, 2011		May 31, 2011
Derivative Assets:
Commodity and freight derivatives	$	686,042	$	882,445	$	1,112,946
Foreign exchange derivatives		3,843		1,508		1,798
	$	689,885	$	883,953	$	1,114,744
Derivative Liabilities:
Commodity and freight derivatives	$	623,911	$	730,170	$	838,274
Foreign exchange derivatives		3,379				769
Interest rate derivatives		535		750		641
Accrued liability for contingent crack spread payment related to purchase of noncontrolling interests		98,447
	$	726,272	$	730,920	$	839,684

As of May 31, 2011, the gross fair values of our derivative assets and liabilities designated as cash flow hedging instruments were as follows:

	May 31, 2011
Derivative Assets:
Commodity and freight derivatives	$	1,868

For the three and nine-month periods ended May 31, 2012 and 2011, the pre-tax gain (loss) recognized in our Consolidated Statements of Operations for derivatives not accounted for as hedging instruments were as follows:

	Location of Gain (Loss)	Amount of Gain (Loss)					Amount of Gain (Loss)
		For the Three Months Ended May 31,					For the Nine Months Ended May 31,
		2012		2011			2012			2011
Commodity and freight derivatives	Cost of goods sold	$	149,464	$	(3,142	)	$	(125,437	)	$	308,663
Foreign exchange derivatives	Cost of goods sold		950		4,039			(3,434	)		3,441
Interest rate derivatives	Interest, net		36		218			36			283
Accrued liability for contingent crack spread payment related to purchase of noncontrolling interests	Cost of goods sold		2,556					6,741
		$	153,006	$	1,115		$	(122,094	)	$	312,387

Losses of $1.4 million ($0.8 million, net of tax) and $3.6 million ($2.2 million, net of tax) were recorded in our Consolidated Statement of Operations for derivatives designated as cash flow hedging instruments during the three and nine months ended May 31, 2011, respectively, related to settlements. All contracts were entered into during our third quarter of fiscal 2010, and expired in fiscal 2011. As of May 31, 2011, the unrealized gains deferred to accumulated other comprehensive loss were as follows:

	May 31, 2011
Gains included in accumulated other comprehensive loss, net of tax expense of $0.7 million	$	1,141

Goodwill and Other Intangible Assets

Goodwill was $66.8 million, $26.4 million and $23.8 million on May 31, 2012, August 31, 2011 and May 31, 2011, respectively, and is included in other assets in our Consolidated Balance Sheets. Goodwill acquired during the first nine months of fiscal 2012 totaled $40.8 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 their respective useful lives (ranging from 2 to 30 years). Excluding goodwill, the gross carrying amount of our intangible assets was $99.5 million with total accumulated amortization of $51.6 million as of May 31, 2012. Intangible assets of $24.1 million were acquired during the nine-months ended May 31, 2012, primarily related to the acquisition of Solbar. See Note 13, Acquisitions for additional information. Intangible assets of $0.1 million were acquired during the nine-months ended May 31, 2011. Total amortization expense for intangible assets during the nine-month periods ended May 31, 2012 and 2011, was $9.2 million and $8.4 million, respectively. The estimated annual amortization expense related to intangible assets subject to amortization for the next five years is as follows:

Year 1	$	10,563
Year 2		8,384
Year 3		6,417
Year 4		6,182
Year 5		5,407
Thereafter		10,893
	$	47,846

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 nine months ended May 31, 2012 and 2011, major repairs turnaround expenditures were $20.9 million and $88.0 million, respectively. During the nine months ended May 31, 2012, our Laurel, Montana refinery completed a turnaround. During the nine months ended May 31, 2011, both our Laurel, Montana and NCRA’s McPherson, Kansas refineries completed turnarounds.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 key amendments to the fair value measurement guidance include the highest and best use and valuation premise for nonfinancial assets, application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, premiums or discounts in fair value measurement and fair value of an instrument classified in a reporting entity’s equity. Additional disclosures for fair value measurements categorized in Level 3 of the fair value hierarchy include a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation processes in place, a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs. ASU 2011-04 became effective for us during our third fiscal quarter, and the required disclosures are included in Note 11, Fair Value Measurements.

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. As ASU No. 2011-05 is only disclosure related, it will not have an impact on our financial position, results of operations, or cash flows.

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. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal 2014.