Financial Instruments

Fair Value Measurements

Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability), including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:


•	(Level 1) Quoted prices in active markets for identical assets or liabilities.


•	(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.


•	(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt and an interest rate swap. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

At December 31, 2011, our debt consists of borrowings outstanding under our $275 million revolving credit agreement (the “Credit Agreement”), our 6.25% senior notes due 2015, our 8.25% senior notes due 2018 and our promissory notes due to HFC. The $200 million carrying amount of outstanding debt under the Credit Agreement and the $72.9 million due HFC under the promissory notes approximate fair value as interest rates are reset frequently using current rates. The estimated fair values of our 6.25% and 8.25% senior notes were $186.9 million and $157.5 million, respectively, at December 31, 2011. These fair value estimates are based on values provided from a third-party bank, which were derived using market quotes for similar debt instruments (a Level 2 input). See Note 8 for additional information on these instruments.

We have an interest rate swap that is measured at fair value on a recurring basis using Level 2 inputs that, as of December 31, 2011, represented a liability having a fair value of $0.5 million. With respect to this instrument, fair value is based on the net present value of expected future cash flows related to both variable and fixed rate legs of our interest rate swap agreement. Our measurement is computed using the forward London Interbank Offered Rate (“LIBOR”) yield curve, a market-based observable input. See Note 8 for additional information on our interest rate swap.