Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS.

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FAIR VALUE MEASUREMENTS.
 12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS.

15.  FAIR VALUE MEASUREMENTS.

  

The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows: 

 

  ● Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;

  

  ● Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and

  

  ● Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.

  

Pooled separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or single mutual funds. The net asset value is used as a practical expedient to determine fair value for these accounts. Each pooled separate account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice requirement, therefore these funds are classified within Level 2 of the valuation hierarchy. 

 

Warrants – The Company’s warrants were valued using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions. The Company recorded its warrants issued from 2011 through 2012 at fair value and designated them as Level 3 on their issuance dates. All of such warrants were retired as of December 31, 2017. 

 

Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair values of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs. 

 

The following table summarizes recurring fair value measurements by level at December 31, 2017 (in thousands):

  

                            Benefit Plan  
    Fair                       Percentage  
    Value     Level 1     Level 2     Level 3     Allocation  
Assets:                                        
Derivative financial instruments(1)   $ 998     $ 998     $ —     $ —          
Defined benefit plan assets(2) (pooled separate accounts):                                        
Large U.S. Equity(3)     3,748       —       3,748       —       27 %
Small/Mid U.S. Equity(4)     2,018       —       2,018       —       14 %
International Equity(5)     2,528       —       2,528       —       18 %
Fixed Income(6)     5,664       —       5,664       —       41 %
    $ 14,956     $ 998     $ 13,958     $ —          
Liabilities:                                        
Derivative financial instruments(7)   $ (2,307 )   $ (2,307 )   $ —     $ —          

  

The following table summarizes recurring fair value measurements by level at December 31, 2016 (in thousands):

 

                            Benefit Plan  
    Fair                       Percentage  
    Value     Level 1     Level 2     Level 3     Allocation  
Assets:                                        
Derivative financial instruments(1)   $ 978     $ 978     $ —     $ —          
Defined benefit plan assets(2) (pooled separate accounts):                                        
Large U.S. Equity(3)     3,134       —       3,134       —       25 %
Small/Mid U.S. Equity(4)     1,802       —       1,802       —       15 %
International Equity(5)     2,006       —       2,006       —       16 %
Fixed Income(6)     5,481       —       5,481       —       44 %
    $ 13,401     $ 978     $ 12,423     $ —          
Liabilities:                                        
Warrants(8)   $ (651 )   $ —     $ —     $ (651 )        
Derivative financial instruments(7)     (4,115 )     (4,115 )     —       —          
    $ (4,766 )   $ (4,115 )   $ —     $ (651 )        

 

  (1) Included in derivative assets in the consolidated balance sheets.

 

 

  (2) See Note 9 for accounting discussion.

  

  (3) This category includes investments in funds comprised of equity securities of large U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

  

  (4) This category includes investments in funds comprised of equity securities of small- and medium-sized U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

  

  (5) This category includes investments in funds comprised of equity securities of foreign companies including emerging markets. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

  

  (6) This category includes investments in funds comprised of U.S. and foreign investment-grade fixed income securities, high-yield fixed income securities that are rated below investment-grade, U.S. treasury securities, mortgage-backed securities, and other asset-backed securities. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

  

  (7) Included in derivative liabilities in the consolidated balance sheets.

  

  (8) Included in warrant liabilities at fair value in the consolidated balance sheets.

  

Significant assumptions used and related fair values for the warrants as of December 31, 2016 were as follows: 

 

Original Issuance   Exercise Price     Volatility     Risk Free Interest Rate     Term (years)     Market Discount     Warrants Outstanding     Fair Value  
07/3/2012   $ 6.09       40.9 %     0.62 %     0.50       11.3 %     211,000     $ 651,000  

 

The changes in the Company’s fair value of its Level 3 inputs with respect to its warrants were as follows (in thousands): 

 

    Warrants  
Balance, December 31, 2014   $ 1,986  
Exercises of warrants     (72 )
Expiration of warrants     (527 )
Adjustments to fair value for the period     (1,114 )
Balance, December 31, 2015   $ 273  
Exercises of warrants     (179 )
Adjustments to fair value for the period     557  
Balance, December 31, 2016   $ 651  
Exercises of warrants     (178 )
Adjustments to fair value for the period     (473 )
Balance, December 31, 2017   $ —  \