Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

11. Fair Value Measurements

Accounting standards define fair value, outline a framework for measuring fair value, and detail the required disclosures about fair value measurements. Under these standards, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Standards establish a hierarchy in determining the fair market value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Standards require the utilization of the highest possible level of input to determine fair value.

Level 1 – inputs include quoted market prices in an active market for identical assets or liabilities.

Level 2 – inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.

Level 3 – inputs are unobservable and corroborated by little or no market data.

These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable at March 31, 2017 and December 31, 2016, respectively (in thousands).

			Fair Value Measurements at March 31, 2017 (Inthousands)
	Fair Value at 3/31/2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring:
Derivative Warrant Liability	$	4,942	$	-	$	-	$	4,942
2017 Notes	$	16,492	$	-	$	-	$	16,492
Total Recurring Fair Value Measurements	$	21,434	$	-	$	-	$	21,434
Nonrecurring
Corn and finished goods inventory	$	2,092	$	223	$	1,869	$	-
	$	2,092	$	223	$	1,869	$	-
			Fair Value Measurements at December 31, 2016 (In thousands)
	Fair Value at 12/31/2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring:
Derivative Warrant Liability	$	2,698	$	-	$	1,884	$	814
2017 Notes	$	25,769	$	-	$	-	$	25,769
Total Recurring Fair Value Measurements	$	28,467	$	-	$	1,884	$	26,583
Nonrecurring
Corn and finished goods inventory	$	1,327	$	108	$	1,219	$	-
	$	1,327	$	108	$	1,219	$	-

The following table provides changes to those fair value measurements using Level 3 inputs for the three months ended March 31, 2017.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands)
	Derivative Warrant Liability			2017 Notes
Opening Balance	$	814		$	25,769
Transfers into Level 3		1,884			-
Transfers out of Level 3		-			-
Total (gains) or losses for the period
Included in earnings		(3,259	)		339
Included in other comprehensive income		-			-
Purchases, issues, sales and settlements
Purchases		-			-
Issues		5,670			-
Sales		-			-
Settlements		(167	)		(9,616	)
Closing balance	$	4,942		$	16,492

Inventories. The Company records its corn inventory at fair value only when the Company’s cost of corn purchased exceeds the market value for corn. The Company determines the market value of corn and dry distiller’s grain based upon Level 1 inputs using quoted market prices. The Company records its ethanol, isobutanol and hydrocarbon inventory at market using Level 2 inputs.

2017 Notes.  The Company has estimated the fair value of the 2017 Notes to be $16.5 million and $25.8 million at March 31, 2017 and December 31, 2016, respectively, utilizing a binomial lattice model. See Note 7 for the fair value inputs used to estimate the fair value of the 2017 Notes.

2022 Notes Embedded Derivative. The Company had estimated the fair value of the embedded derivative on a stand-alone basis to be $0.0 million at March 31, 2017 and December 31, 2016, respectively, based upon Level 3 inputs. See Note 5 for the fair value inputs used to estimate the fair value of the 2022 Notes with and without the embedded derivative and the fair value of the embedded derivative.   .

Derivative Warrant Liability. Prior to 2017, the Company estimated the fair value of the Series A, Series F and Series K warrants using a Monte-Carlo model (Level 3). For all other warrants the Company valued these using a standard Black-Scholes model (Level 2). However, in the first quarter 2017, the Company valued the Series F and K using a Monte-Carlo model (Level 3) and other warrants using Black-Scholes models comprised of some inputs requiring the use of Monte-Carlo models (Level 3).

 While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.