CHS 2011 Annual Report Download - page 33

32 2011 CHS
NOTE 1
Summary of Significant
Accounting Policies, continued
or modified by the Company through a manufacturing
process include fixed and variable production and raw
material costs, and in-bound freight costs for raw mate-
rials. Costs for inventories purchased for resale include
the cost of products and freight incurred to place the
products at the Company’s points of sale. The costs of
certain energy inventories (wholesale refined products,
crude oil and asphalt) are determined on the last-in,
first-out (LIFO) method; all other inventories of non-
grain products purchased for resale are valued on the
first-in, first-out (FIFO) and average cost methods.
DERIVATIVE FINANCIAL INSTRUMENTS
AND HEDGING ACTIVITIES
The Company’s 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 eco-
nomic hedges of price risk, but are not designated or
accounted for as hedging instruments for accounting pur-
poses, with the exception of some derivative instruments
included in the Energy segment as well as some interest
rate swap contracts which were accounted for as cash flow
hedges. Derivative instruments are recorded on the Com-
pany’s Consolidated Balance Sheets at fair values as dis-
cussed in Note 12, Fair Value Measurements.
Beginning in the third quarter of fiscal 2010, certain
financial contracts within the Energy segment were
entered into, and had been designated and accounted
for as hedging instruments (cash flow hedges). The
unrealized gains or losses of these contracts were pre-
viously deferred to accumulated other comprehensive
loss in the equity section of the 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.
The Company has netting arrangements for its
exchange-traded futures and options contracts and cer-
tain over-the-counter (OTC) contracts, which are
recorded on a net basis in the Company’s 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 obli-
gation to return cash collateral under the same master
netting arrangement, the Company has not elected to
net its margin deposits.
As of August 31, 2011 and 2010, the Company had the
following outstanding purchase and sales contracts:
(UNITS IN
THOUSANDS)
PURCHASE
CONTRACTS
SALES
CONTRACTS
PURCHASE
CONTRACTS
SALES
CONTRACTS
2011 2010
Grain and oilseed -
bushels 667,409 796,332 747,334 1,039,363
Energy products -
barrels 9,915 14,020 8,633 10,156
Crop nutrients - tons 1,177 1,420 1,257 1,215
Ocean and barge
freight - metric tons 983 93 1,385 279
As of August 31, 2011 and 2010, the gross fair values of
the Company’s derivative assets and liabilities not des-
ignated as hedging instruments were as follows:
(DOLLARS IN THOUSANDS) 2011 2010
Derivative Assets:
Commodity and freight derivatives $882,445 $461,580
Foreign exchange derivatives 1,508
$883,953 $461,580
Derivative Liabilities:
Commodity and freight derivatives $730,170 $495,569
Foreign exchange derivatives 222
Interest rate derivatives 750 1,227
$730,920 $497,018
As of August 31, 2010, the gross fair values of the
Company’s derivative liabilities designated as cash flow
hedging instruments were as follows:
(DOLLARS IN THOUSANDS) 2010
Derivative Liabilities:
Commodity and freight derivatives $3,959
The following table sets forth the pretax gains (losses)
on derivatives not accounted for as hedging instruments
that have been included in the Company’s Consolidated
Statements of Operations during fiscal 2011 and 2010.
The amended disclosure requirements of Accounting
Standards Codification (ASC) Topic 815 were first
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS