Page 56 - New8814 GP 2011_AR-fnl

Basic HTML Version

36
36
sales criteria are recorded at fair value with the unrealized gains and losses from the change in fair value recorded in
operating income unless the contracts qualify for hedge accounting treatment.
Certain qualifying derivatives within our ethanol production segment are designed as cash flow hedges. Prior to entering
into cash flow hedges, we evaluate the derivative instrument to ascertain its effectiveness. For cash flow hedges, any
ineffectiveness is recognized in current period results, while other unrealized gains and losses are reflected in accumulated
other comprehensive income until gains and losses from the underlying hedged transaction are realized. In the event that it
becomes probable that a forecasted transaction will not occur, we would discontinue cash flow hedge treatment, which would
affect earnings. These derivative financial instruments are recognized in other current assets or liabilities at fair value.
We use exchange-traded futures and options contracts to minimize the effects of changes in the prices of agricultural
commodities on our grain inventories and forward purchase and sales contracts within our agribusiness segment. Exchange-
traded futures and options contracts are valued at unadjusted prices in an active market. Grain inventories held for sale,
forward purchase contracts and forward sale contracts of this segment are valued at market prices, where available, or other
market quotes adjusted for differences, primarily transportation, between the exchange-traded market and the local markets
on which the terms of the contracts are based. Changes in the fair value of grain inventories held for sale, forward purchase
and sale contracts, and exchange-traded futures and options contracts, are recognized in earnings as a component of cost of
goods sold. We are exposed to loss in the event of non-performance by the counter-party to forward purchase and forward
sales contracts.
Accounting for Income Taxes
Income taxes are accounted for under the asset and liability method in accordance with GAAP. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amount of existing assets and liabilities and their respective tax basis and for net operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which
those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in operations in the period that includes the enactment date. The realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Management’s evaluation of the need for a valuation allowance must consider
positive and negative evidence, and the weight given to the potential effects of such positive and negative evidence is based
on the extent to which it can be objectively verified.
Related to accounting for uncertainty in income taxes, we follow a process by which the likelihood of a tax position is
gauged based upon the technical merits of the position, perform a subsequent measurement related to the maximum benefit
and the degree of likelihood, and determine the amount of benefit to be recognized in the financial statements, if any.
Recently Issued Accounting Pronouncements
Effective January 1, 2011, we adopted the amended guidance in ASC Topic 805,
Business Combinations
, which, if we
complete a business combination during the reporting period, requires us to disclose our pro forma revenue and earnings as
though the business combinations that occurred during the current period had occurred as of the beginning of the comparable
prior annual reporting period. The amended guidance also requires us to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro
forma revenue and earnings.
Effective January 1, 2011, we adopted the second phase of the amended guidance in ASC Topic 820,
Fair Value
Measurements and Disclosures
, which requires us to disclose information in the reconciliation of recurring Level 3
measurements regarding purchases, sales, issuances and settlements on a gross basis, with a separate reconciliation for assets
and liabilities. We did not experience an impact from the additional disclosure requirements as we do not have any recurring
Level 3 measurements.
Effective January 1, 2012, we will be required to adopt the third phase of amended guidance in ASC Topic 820,
Fair
Value Measurements and Disclosures.
The purpose of the amendment is to achieve common fair value measurement and
disclosure requirements by improving comparability of fair value measurements presented and disclosed in financial
statements prepared in accordance with GAAP and those prepared in conformity with International Financial Reporting
Standards, or IFRS. The amended guidance clarifies the application of existing fair value measurement requirements and