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DERIVATIVES
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9 Months Ended | 12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011
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Dec. 31, 2010
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
The
business and activities of the Company expose it to a
variety of market risks, including risks related to
changes in commodity prices and interest rates. The
Company monitors and manages these financial exposures as
an integral part of its risk management program. This
program recognizes the unpredictability of financial
markets and seeks to reduce the potentially adverse
effects that market volatility could have on operating
results.
Commodity
Risk –
Cash
Flow Hedges – The Company uses derivative
instruments to protect cash flows from fluctuations
caused by volatility in commodity prices for periods of
up to twelve months in order to protect gross profit
margins from potentially adverse effects of market and
price volatility on ethanol sale and purchase commitments
where the prices are set at a future date and/or if the
contracts specify a floating or index-based price for
ethanol. In addition, the Company hedges anticipated
sales of ethanol to minimize its exposure to the
potentially adverse effects of price volatility. These
derivatives may be designated and documented as cash flow
hedges and effectiveness is evaluated by assessing the
probability of the anticipated transactions and
regressing commodity futures prices against the
Company’s purchase and sales prices.
Ineffectiveness, which is defined as the degree to which
the derivative does not offset the underlying exposure,
is recognized immediately in cost of goods sold. For the
three and nine months ended September 30, 2011 and 2010,
the Company did not designate any of its derivatives as
cash flow hedges.
Commodity
Risk – Non-Designated Hedges – The
Company uses derivative instruments to lock in prices for
certain amounts of corn and ethanol by entering into
forward contracts for those commodities. These
derivatives are not designated for special hedge
accounting treatment. The changes in fair value of these
contracts are recorded on the balance sheet and
recognized immediately in cost of goods sold. The Company
recognized gains of $395,000 and $0 as the change in the
fair value of these contracts for the three months ended
September 30, 2011 and 2010, respectively. The
notional balances remaining on these contracts were
$1,612,000 and $237,000 as of September 30, 2011 and
December 31, 2010, respectively.
Interest
Rate Risk – The Company, through the Plant
Owners, used derivative instruments to minimize
significant unanticipated income fluctuations that may
arise from rising variable interest rate costs associated
with existing and anticipated borrowings. To meet these
objectives the Company purchased interest rate caps and
swaps. On the Effective Date, all interest rate caps and
swaps were removed from the Company’s consolidated
statement of position. For the three and nine months
ended September 30, 2010, the Company recognized gains
from undesignated hedges of $0 and $1,227,000 in interest
expense, net, respectively.
Non
Designated Derivative Instruments – The
Company classified its derivative instruments not
designated as hedging instruments of $140,000 and $15,000
in accrued liabilities as of September 30, 2011 and
December 31, 2010, respectively.
The
classification and amounts of the Company’s
recognized gains (losses) for its derivatives not
designated as hedging instruments are as follow (in
thousands):
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The
business and activities of the Company expose it to a variety
of market risks, including risks related to changes in
commodity prices and interest rates. The Company monitors and
manages these financial exposures as an integral part of its
risk management program. This program recognizes the
unpredictability of financial markets and seeks to reduce the
potentially adverse effects that market volatility could have
on operating results.
Commodity
Risk –
Cash
Flow Hedges – The Company uses derivative
instruments to protect cash flows from fluctuations caused by
volatility in commodity prices for periods of up to twelve
months in order to protect gross profit margins from
potentially adverse effects of market and price volatility on
ethanol sale and purchase commitments where the prices are
set at a future date and/or if the contracts specify a
floating or index-based price for ethanol. In addition, the
Company hedges anticipated sales of ethanol to minimize its
exposure to the potentially adverse effects of price
volatility. These derivatives may be designated and
documented as cash flow hedges and effectiveness is evaluated
by assessing the probability of the anticipated transactions
and regressing commodity futures prices against the
Company’s purchase and sales prices. Ineffectiveness,
which is defined as the degree to which the derivative does
not offset the underlying exposure, is recognized immediately
in cost of goods sold.
For
the year ended December 31, 2010, the Company did not
designate any of its derivatives as cash flow hedges. For the
year ended December 31, 2009, the Company did designate
certain of its derivatives as cash flow hedges, resulting in
an effective loss of $17,000 and an ineffective loss in the
amount of $85,000, both of which were recorded in cost of
goods sold. There were no balances remaining on these
derivatives as of December 31, 2010 and 2009.
Commodity
Risk – Non-Designated Hedges – The Company
uses derivative instruments to lock in prices for certain
amounts of corn and ethanol by entering into forward
contracts for those commodities. These derivatives are not
designated for special hedge accounting treatment. The
changes in fair value of these contracts are recorded on the
balance sheet and recognized immediately in cost of goods
sold. The Company recognized a loss of $178,000 and $249,000
as the change in the fair value of these contracts for the
years ended December 31, 2010 and 2009, respectively. The
notional balances remaining on these contracts as of December
31, 2010 and 2009 were $237,000 and $319,000,
respectively.
Interest
Rate Risk – The Company uses derivative
instruments to minimize significant unanticipated income
fluctuations that may arise from rising variable interest
rate costs associated with existing and anticipated
borrowings. To meet these objectives the Company purchased
interest rate caps and swaps. During the year ended December
31, 2010, through both divesture of its investment and
resulting deconsolidation of Front Range, and the emergence
of the Plant Owners from bankruptcy, all interest rate caps
and swaps were removed from the Company’s consolidated
statement of position as of December 31, 2010.
Over
the past two years, these derivatives were, at times,
designated and documented as cash flow hedges, with
effectiveness evaluated by assessing the probability of
anticipated interest expense and regressing the historical
value of the rates against the historical value in the
existing and anticipated debt. The Company recognized gains
from undesignated hedges of $1,227,000 in interest expense,
net, for the year ended December 31, 2010. The Company
recognized gains from effectiveness in the amount of $190,000
and gains from undesignated hedges of $2,529,000 in interest
expense, net, for the year ended December 31, 2009. These
gains and losses resulted primarily from the Company’s
efforts to restructure its indebtedness prior to the Plant
Owners’ Chapter 11 Filings, therefore making it not
probable that the related borrowings would be paid as
designated. As such, the Company de-designated certain of its
interest rate caps and swaps.
Non
Designated Derivative Instruments – The
classification and amounts of the Company’s derivatives
not designated as hedging instruments are as follows (in
thousands):
The
classification and amounts of the Company’s recognized
gains (losses) for its derivatives not designated as hedging
instruments are as follow (in thousands):
The
gains for the year ended December 31, 2010 resulted from the
Plant Owners’ exit from bankruptcy. The gains for the
year ended December 31, 2009 resulted primarily from the
Company’s efforts to restructure its indebtedness and,
therefore, making it not probable that the related borrowings
would be paid as designated. As such, the Company
de-designated certain of its interest rate caps and
swaps.
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