Fair Value Measurement

9 Months Ended

Sep. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurement

FAIR VALUE MEASUREMENT

The fair value hierarchy prioritizes the inputs used in measuring fair value as follows:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

• Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A summary of assets (liabilities) measured at fair value is as follows:

	As of September 30, 2015
	Total			Level 1		Level 2		Level 3
Money market funds	$	5,002		$	5,002	$	—	$	—
Commercial paper	2,998			—		2,998		—
Commercial notes/bonds	4,033			—		4,033		—
Commodity contract derivatives	2,319			441		1,878		—
Contingent consideration for LS9 acquisition	(7,258		)	—		—		(7,258		)
Contingent consideration for Dynamic Fuels acquisition	(29,233		)	—		—		(29,233		)
Contingent consideration for Imperium Renewables, Inc. acquisition	(5,000		)	—		—		(5,000		)
	$	(27,139	)	$	5,443	$	8,909	$	(41,491	)

	As of December 31, 2014
	Total			Level 1		Level 2		Level 3
Money market funds	$	302		$	302	$	—	$	—
Certificates of deposit	9,995			—		9,995		—
Commercial notes/bond	6,775			—		6,775		—
Commodity contract derivatives	14,696			6,885		7,811		—
Contingent consideration for LS9 acquisition	(8,624		)	—		—		(8,624		)
Contingent consideration of Dynamic Fuels acquisition	(30,695		)	—		—		(30,695		)
	$	(7,551	)	$	7,187	$	24,581	$	(39,319	)

The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Contingent Consideration for LS9 Acquisition			Contingent Consideration for Dynamic Fuels Acquisition			Contingent Consideration for Imperium Acquisition
Balance at beginning of period, January 1, 2015	$	8,624		$	30,695		$	—
Change in estimates included in earnings	(31		)	324			—
Settlements	—			(1,052		)	—
Balance at end of period, March 31, 2015	8,593			29,967			—
Change in estimates included in earnings	(2,434		)	313			—
Settlements	—			(943		)	—
Balance at end of period, June 30, 2015	6,159			29,337			—
Fair value of contingent consideration at measurement date	—			—			5,000
Change in estimates included in earnings	1,099			7			—
Settlements	—			(111		)	—
Balance at end of period, September 30, 2015	$	7,258		$	29,233		$	5,000

	Contingent Consideration for LS9 Acquisition			Contingent Consideration for Dynamic Fuels Acquisition
Balance at beginning of period, January 1, 2014	$	—		$	—
Fair value of contingent consideration at measurement date	17,050			—
Balance at end of period, March 31, 2014	17,050			—
Fair value of contingent consideration at measurement date	—			28,900
Change in estimates included in earnings	(384		)	—
Settlements	—			—
Balance at end of period, June 30, 2014	16,666			28,900
Change in estimates included in earnings	(1,192		)	133
Settlements	—			—
Balance at end of period, September 30, 2014	$	15,474		$	29,033

The estimated fair values of the Company’s financial instruments, which are not recorded at fair value, are as follows:

	As of September 30, 2015						As of December 31, 2014
	Asset (Liability) Carrying Amount			Fair Value			Asset (Liability) Carrying Amount			Fair Value
Financial liabilities:
Debt and lines of credit	$	(279,365	)	$	(277,059	)	$	(269,608	)	$	(270,331	)

The carrying amounts reported in the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values. Money market funds are included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

The Company used the following methods and assumptions to estimate fair value of its financial instruments:

Marketable securities: The fair value of marketable securities, which include certificates of deposit, commercial papers and commercial notes/bonds are obtained using quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices, e.g., interest rates and yield curves. The Company utilizes a pricing service to assist in obtaining fair value pricing for the majority of this investment portfolio.

Commodity derivatives: The instruments held by the Company consist primarily of futures contracts, swap agreements, purchased put options and written call options. The fair value of contracts based on quoted prices of identical assets in an active exchange-traded market is reflected in Level 1. Contract fair value that is determined based on quoted prices of similar contracts in over-the-counter markets is reflected in Level 2.

Contingent consideration for acquisitions: The fair value of the LS9 contingent consideration is determined using an expected present value technique. Expected cash flows are determined using the probability weighted-average of possible outcomes that would occur should achievement of certain milestones related to the development and commercialization of products from LS9’s technology occur. There is no observable market data available to use in valuing the contingent consideration; therefore, the Company developed its own assumptions related to the expected future delivery of product enhancements to estimate the fair value of these liabilities. An 8.0% discount rate is used to estimate the fair value of the expected payments.

The fair value of the Dynamic Fuels contingent consideration is determined using an expected present value technique. Expected cash flows are determined using the probability weighted-average of possible outcomes that would occur should the achievement of certain milestones related to the sale of renewable hydrocarbon diesel at the REG Geismar's production facility. A 5.8% discount rate is used to estimate the fair value of the expected payments.

The fair value of the Imperium contingent consideration is determined using the discrete probability technique. Expected earnouts are determined as total present value of the possible outcomes at a discount rate of 10% should the achievement of the production and sales volume at the REG Grays Harbor facility occur post acquisition as well as whether the biodiesel mixture excise tax credit is reinstated.

Debt and lines of credit: The fair value of long-term debt and lines of credit was established using discounted cash flow calculations and current market rates reflecting Level 2 inputs.