v2.4.0.6
Fair Value Measurements
 6 Months Ended
Jun. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2012, December 31, 2011 and June 30, 2011:
 
(in thousands)
June 30, 2012
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
104

 
$
—

 
$
—

 
$
104

Restricted cash
5,644

 
—

 
—

 
5,644

Commodity derivatives, net
48,558

 
48,078

 
—

 
96,636

Convertible preferred securities (b)
—

 
—

 
17,350

 
17,350

Other assets and liabilities (a)
7,182

 
(2,022
)
 
—

 
5,160

Total
$
61,488

 
$
46,056

 
$
17,350

 
$
124,894

 
(in thousands)
December 31, 2011
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
183

 
$
—

 
$
—

 
$
183

Restricted cash
18,651

 
—

 
—

 
18,651

Commodity derivatives, net
43,503

 
22,876

 
2,467

 
68,846

Convertible preferred securities (b)
—

 
—

 
20,360

 
20,360

Other assets and liabilities (a)
6,224

 
—

 
(2,178
)
 
4,046

Total
$
68,561

 
$
22,876

 
$
20,649

 
$
112,086

 
(in thousands)
June 30, 2011
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
182

 
$
—

 
$
—

 
$
182

Restricted cash
12,572

 
—

 
—

 
12,572

Commodity derivatives, net
89,769

 
71,296

 
8,794

 
169,859

Convertible preferred securities (b)
—

 
—

 
15,790

 
15,790

Other assets and liabilities (a)
6,345

 
—

 
(1,883
)
 
4,462

Total
$
108,868

 
$
71,296

 
$
22,701

 
$
202,865

 
(a)
Included in other assets and liabilities is interest rate and foreign currency derivatives, swaptions and deferred compensation assets.
(b)
Recorded in “Other noncurrent assets” on the Company’s Consolidated Balance Sheets

The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices on the CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the Agribusiness industry, we have concluded that “basis” is a “Level 2” fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for the majority of these commodity contracts.
The Company’s convertible preferred securities are measured at fair value using a combination of the income approach on a quarterly basis and the market approach on an annual basis. Specifically, the income approach incorporates the use of the Discounted Cash Flow method, whereas the Market Approach incorporates the use of the Guideline Public Company method. Application of the Discounted Cash Flow method requires estimating the annual cash flows that the business enterprise is expected to generate in the future. The assumptions input into this method are estimated annual cash flows for a specified estimation period, the discount rate, and the terminal value at the end of the estimation period. In the Guideline Public Company method, valuation multiples, including total invested capital, are calculated based on financial statements and stock price data from selected guideline publicly traded companies. On an annual basis, a comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
 
 
2012

2011
(in thousands)
Interest
rate
derivatives
and
swaptions

Convertible
preferred
securities

Commodity
derivatives,
net

Interest
rate
derivatives
and
swaptions

Convertible
preferred
securities

Commodity
derivatives,
net
Asset (liability) at December 31,
$
(2,178
)
 
$
20,360

 
$
2,467

 
$
(2,156
)
 
$
15,790

 
$
12,406

Gains (losses) included in earnings:

 

 

 

 

 

New contracts
—

 
—

 
—

 
—

 
—

 
442

Change in market prices
—

 
—

 
—

 
(2
)
 
—

 
1,877

Settled contracts
—

 
—

 
—

 
—

 
—

 
(2,242
)
Unrealized gains (losses) included in other comprehensive income
—

 
—

 
—

 
149

 
—

 
—

New contracts entered into
—

 
—

 
—

 
507

 
—

 
—

Transfers to level 2
2,178

 
—

 
(2,467
)
 
—

 
—

 
—

Transfers from level 2
—

 
—

 
—

 
—

 
—

 
2,500

Asset (liability) at March 31,
$
—

 
$
20,360

 
$
—

 
$
(1,502
)
 
$
15,790

 
$
14,983

Gains (losses) included in earnings:


 


 


 


 


 


       New contracts
—

 
—

 
—

 


 
—

 
(290
)
       Change in market prices
—

 
—

 
—

 
(310
)
 
—

 
(5,179
)
       Settled contracts
—

 
—

 
—

 


 
—

 
(929
)
Unrealized gains (losses) included in other comprehensive income
—

 
(3,010
)
 
—

 
(120
)
 
—

 
—

New contracts entered into
—

 
—

 
—

 
49

 
—

 
—

Transfers to level 2
—

 
—

 
—

 
—

 
—

 
—

Transfers from level 2
—

 
—

 
—

 
—

 
—

 
209

Asset (liability) at June 30,
$
—

 
$
17,350

 
$
—

 
$
(1,883
)
 
$
15,790

 
$
8,794



Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered “Level 2” in the fair value hierarchy.
 
(in thousands)
June 30,
2012

December 31,
2011
Fair value of long-term debt
$
360,911

 
$
279,001

Fair value in excess of carrying value
13,615

 
7,908


The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.