| 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.
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 |
|
| 07/03/2012 |
|
$6.09 |
|
|
40.9% |
|
|
|
0.62% |
|
|
|
0.50 |
|
|
|
11.3% |
|
|
|
211,000 |
|
|
$ |
651,000 |
|
Significant
assumptions used and related fair values for the warrants as of December 31, 2015 were as follows:
| Original Issuance |
|
Exercise
Price |
|
Volatility |
|
|
Risk Free
Interest
Rate |
|
|
Term
(years) |
|
|
Market
Discount |
|
|
Warrants
Outstanding |
|
|
Fair
Value |
|
| 07/03/2012 |
|
$6.09 |
|
|
49.1% |
|
|
|
0.86% |
|
|
|
1.51 |
|
|
|
22.9% |
|
|
|
211,000 |
|
|
$ |
200,000 |
|
| 12/13/2011 |
|
$8.43 |
|
|
48.4% |
|
|
|
0.65% |
|
|
|
0.95 |
|
|
|
18.3% |
|
|
|
138,000 |
|
|
|
73,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
273,000 |
|
The estimated
fair value of the warrants is affected by the above underlying inputs. Observable inputs include the values of exercise price,
stock price, term and risk-free interest rate. As separate inputs, an increase (decrease) in either the term or risk free interest
rate will result in an increase (decrease) in the estimated fair value of the warrant.
Unobservable
inputs include volatility and market discount. An increase (decrease) in volatility will result in an increase (decrease) in the
estimated warrant value and an increase (decrease) in the market discount will result in a decrease (increase) in the estimated
warrant fair value.
The volatility
utilized was a blended average of the Company’s historical volatility and implied volatilities derived from a selected peer
group. The implied volatility component has remained relatively constant over time given that implied volatility is a forward-looking
assumption based on observable trades in public option markets. Should the Company’s historical volatility increase (decrease)
on a go-forward basis, the resulting value of the warrants would increase (decrease).
The market
discount, or a discount for lack of marketability, is quantified using a Black-Scholes option pricing model, with a primary model
input of assumed holding period restriction. As the assumed holding period increases (decreases), the market discount increases
(decreases), conversely impacting the fair value of the warrants.
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, 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(7) |
|
$ |
(651 |
) |
|
$ |
– |
|
|
$ |
– |
|
|
$ |
(651 |
) |
|
|
|
|
| Derivative
financial instruments(8) |
|
|
(4,115 |
) |
|
|
(4,115 |
) |
|
|
– |
|
|
|
– |
|
|
|
|
|
| |
|
$ |
(4,766 |
) |
|
$ |
(4,115 |
) |
|
$ |
– |
|
|
$ |
(651 |
) |
|
|
|
|
The following table summarizes
recurring fair value measurements by level at December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plan |
|
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Allocation |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative financial
instruments(1) |
|
$ |
2,081 |
|
|
$ |
2,081 |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
|
|
| Defined benefit plan assets(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (pooled separate accounts): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Large U.S. Equity(3) |
|
|
3,662 |
|
|
|
– |
|
|
|
3,662 |
|
|
|
– |
|
|
29% |
|
| Small/Mid U.S. Equity(4) |
|
|
1,099 |
|
|
|
– |
|
|
|
1,099 |
|
|
|
– |
|
|
9% |
|
| International Equity(5) |
|
|
1,525 |
|
|
|
– |
|
|
|
1,525 |
|
|
|
– |
|
|
12% |
|
| Fixed
Income(6) |
|
|
6,281 |
|
|
|
– |
|
|
|
6,281 |
|
|
|
– |
|
|
50% |
|
| |
|
$ |
14,648 |
|
|
$ |
2,081 |
|
|
$ |
12,567 |
|
|
$ |
– |
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Warrants(7) |
|
$ |
(273 |
) |
|
$ |
– |
|
|
$ |
– |
|
|
$ |
(273 |
) |
|
|
|
|
| Derivative
financial instruments(8) |
|
|
(1,848 |
) |
|
|
(1,848 |
) |
|
|
– |
|
|
|
– |
|
|
|
|
|
| |
|
$ |
(2,121 |
) |
|
$ |
(1,848 |
) |
|
$ |
– |
|
|
$ |
(273 |
) |
|
|
|
|
__________
| (1) |
|
Included
in derivative assets in the consolidated balance sheets. |
| (2) |
|
See
Note 10 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 warrant liabilities at fair value in the consolidated balance sheets. |
| (8) |
|
Included
in derivative liabilities in the consolidated balance sheets. |
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, 2013 |
|
$ |
8,215 |
|
| Exercises of warrants |
|
|
(41,486 |
) |
| Expiration of warrants |
|
|
(3 |
) |
| Adjustments to fair value for the period |
|
|
35,260 |
|
| 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 |
|
|