Fair Value Measurements

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2014, December 31, 2013 and September 30, 2013:



(in thousands)	September 30, 2014
Assets (liabilities)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	85,663	$	—		$	—	$	85,663
Restricted cash	173		—			—		173
Commodity derivatives, net (a)	32,606		(159,295		)	—		(126,689		)
Convertible preferred securities (b)	—		—			15,000		15,000
Other assets and liabilities (c)	10,671		(1,636		)	—		9,035
Total	$	129,113	$	(160,931	)	$	15,000	$	(16,818	)



(in thousands)	December 31, 2013
Assets (liabilities)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	97,751	$	—		$	—	$	97,751
Restricted cash	408		—			—		408
Commodity derivatives, net (a)	50,777		(49,810		)	—		967
Convertible preferred securities (b)	—		—			25,720		25,720
Other assets and liabilities (c)	10,143		(159		)	—		9,984
Total	$	159,079	$	(49,969	)	$	25,720	$	134,830



(in thousands)	September 30, 2013
Assets (liabilities)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	90,093	$	—		$	—	$	90,093
Restricted cash	164		—			—		164
Commodity derivatives, net (a)	62,560		(55,035		)	—		7,525
Convertible preferred securities (b)	—		—			17,710		17,710
Other assets and liabilities (c)	9,539		(1,045		)	—		8,494
Total	$	162,356	$	(56,080	)	$	17,710	$	123,986


(a)	Includes associated cash posted/received as collateral


(b)	Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets


(c)	Included in other assets and liabilities are interest rate and foreign currency derivatives and swaptions (Level 2) and deferred compensation assets (Level 1)

Level 1 commodity derivatives reflect the fair value of the exchanged-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.

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, the Company has concluded that “basis” is a Level 2 fair value input for purposes of the fair value disclosure requirements related to the 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 its business, the Company does not view nonperformance risk to be a material input to fair value for these commodity contracts.

The Company’s convertible preferred securities are measured at fair value using a combination of the income and market approaches and have been classified as Level 3. 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:



	2014			2013
(in thousands)	Convertible preferred securities			Convertible preferred securities
Asset at January 1,	$	25,720		$	17,220
Unrealized gains (losses) included in other comprehensive income (a)	(5,190		)	490
Asset at March 31,	20,530			17,710
Unrealized gains (losses) included in other comprehensive income (a)	(3,580		)	—
Asset at June 30,	16,950			17,710
Unrealized gains (losses) included in other comprehensive income	(1,950		)	—
Asset at September 30,	$	15,000		$	17,710

(a) The decrease in value from year end is due primarily to reductions in forecasted traffic on the railroad

The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of September 30, 2014, December 31, 2013 and September 30, 2013:



Quantitative Information about Level 3 Fair Value Measurements
(in thousands)					Range
	Fair Value as of September 30, 2014		Valuation Method	Unobservable Input	Low		High		Weighted Average
Convertible Preferred Securities	$	15,000	Market Approach	EBITDA Multiples	7.08		10.02		8.35
			Income Approach	Discount Rate	14.5	%	14.5	%	14.5	%



					Range
(in thousands)	Fair Value as of December 31, 2013		Valuation Method	Unobservable Input	Low		High		Weighted Average
Convertible Preferred Securities	$	25,720	Market Approach	EBITDA Multiples	7.50		8.00		7.75
			Income Approach	Discount Rate	14.5	%	14.5	%	14.5	%



					Range
(in thousands)	Fair Value as of September 30, 2013		Valuation Method	Unobservable Input	Low		High		Weighted Average
Convertible Preferred Securities	$	17,710	Market Approach	EBITDA Multiples	5.50		7.00		6.60
			Income Approach	Discount Rate	17.0	%	17.0	%	17.0	%

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)	September 30, 2014		December 31, 2013		September 30, 2013
Fair value of long-term debt, including current maturities	$	369,000	$	429,723	$	428,726
Fair value in excess of carrying value	2,795		2,512		3,476

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