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Fair Value Measurement
 12 Months Ended
Dec. 31, 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 December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
Commodity contract derivatives
$
4,459

 
$
2,196

 
$
2,263

 
$
—

Contingent consideration for LS9 acquisition
$
(7,590
)
 
—

 
—

 
(7,590
)
Contingent consideration for Dynamic Fuels acquisition
$
(29,209
)
 
—

 
—

 
(29,209
)
Contingent consideration for Imperium acquisition
$
(4,913
)
 
—

 
—

 
(4,913
)
 
$
(37,253
)
 
$
2,196

 
$
2,263

 
$
(41,712
)

 
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/bonds
$
6,775

 
—

 
6,775

 
—

Commodity contract derivatives
$
14,696

 
6,885

 
7,811

 
—

Contingent consideration for LS9 acquisition
$
(8,624
)
 
—

 
—

 
(8,624
)
Contingent consideration for 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) during the years ended as follows:
 
Contingent Consideration for LS9 Acquisition
 
Contingent Consideration for Dynamic Fuels Acquisition
 
Contingent Consideration for Imperium Acquisition
Balance at January 1, 2013 and December 31, 2013
$
—

 
$
—

 
$
—

Issuance of contingent consideration for acquisitions
17,050

 
28,900

 
—

Change in estimates included in earnings
(8,426
)
 
1,795

 
—

Settlements
—

 
—

 
—

Balance at December 31, 2014
8,624

 
30,695

 
—

Issuance of contingent consideration for acquisitions
—

 
—

 
5,000

Change in estimates included in earnings
(1,034
)
 
675

 
—

Settlements
—

 
(2,161
)
 
(87
)
Ending balance - December 31, 2015
$
7,590

 
$
29,209

 
$
4,913


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 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 contract 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 is determined based on quoted prices of similar contracts in over-the-counter markets and are 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 based on the sales and volumes 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 was estimated based on an income approach. 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.
The estimated fair values of the Company’s financial instruments, which are not recorded at fair value are as follows as of December 31:
 
2015
 
2014
 
Asset (Liability)
Carrying Amount
 
Estimated Fair Value
 
Asset (Liability)
Carrying Amount
 
Estimated Fair Value
Financial Liabilities:
 
 
 
 
 
 
 
Debt and lines of credit
$
(279,711
)
 
$
(275,123
)
 
$
(269,608
)
 
$
(270,331
)