24. Fair Value Measurements

The Company measures certain financial and non-financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Fair value disclosures are reflected in a three-level hierarchy, maximizing the use of observable inputs and minimizing the use of unobservable inputs.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:


•	Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.


•	Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.


•	Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis. The Company’s cash equivalents, which amounted to $15.4 million and $88.2 million at December 31, 2015 and 2014, respectively, were measured at fair value based on quoted prices in active markets for identical assets. These inputs are classified as Level 1 within the valuation hierarchy.

CMT Contingent Consideration

Contingent consideration related to the CMT acquisition is measured at fair value and amounted to $7.9 million at December 31, 2015. The fair value was based on a probability-weighted analysis using significant inputs that are not observable in the market, or Level 3 inputs. There have been no changes to the significant inputs since acquisition. See Note 3.

Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment).

Coal Mining Impairments

In the second quarter of 2014, the Company evaluated the recoverability of its long-lived coal asset group given the probable disposition of the assets as well as projected losses resulting from the weakening coal market.

The Company performed a probability-weighted undiscounted cash flows analysis which indicated that the carrying value of the asset group was not recoverable. As such, the Company reduced the carrying value of the long-lived assets to their estimated fair value and recorded a pre-tax impairment charge of $97.1 million, $59.5 million, net of tax. The fair value was determined based on estimated discounted cash flows from the coal mining assets, which reflected the weakness in the coal market and were considered Level 3 inputs in the fair value hierarchy. Key assumptions included (a) coal sales prices of $97 per ton to $149 per ton; (b) sales volumes of 1.6 million tons to 1.8 million tons; and (c) a 14.0 percent discount rate representing the estimated weighted average cost of capital. Various third-party indicative offers for the assets were considered and were also included in the Company's assessment of the fair value of the asset group. In previous analyses, based upon the business plan and market expectations of coal prices at that time, the carrying value was recoverable and was substantially in excess of the undiscounted cash flows. Recent changes in market conditions, specifically decreased coal sales price expectations, were included in our asset impairment analysis. Additionally, in connections with plans to idle our preparation plant we recorded $1.7 million of impairment charges in the fourth quarter of 2014.

As a result of the weakening coal market and the long-lived asset impairment discussed above, the Company also performed a goodwill impairment analysis as of June 30, 2014 for the coal mining reporting unit. This analysis concluded the fair value of the reporting unit, based on a discounted cash flows analysis, was less than the carrying amount. As a result, the Company recorded a $6.0 million pre-tax impairment of the entire goodwill balance, $3.7 million, net of tax.

During 2014, with our previous held for sale presentation of our coal mining assets, the Company valued these assets at fair value less costs to sell. This resulted in additional impairment charges of $45.5 million, $27.9 million, net of tax. The fair value was estimated utilizing a market approach, which was considered Level 2 in the fair value hierarchy. See Note 5.

During the second quarter of 2015 the Company determined that a sale of our coal mining business was no longer probable, and Coal Mining segment assets and liabilities were reclassified as held and used for all periods presented, at which time the net assets were fair valued, with no net impact on the Consolidated Statements of Operations during 2015. Additionally, the Consolidated Balance Sheet at December 31, 2014, was reclassified to reflect the coal mining assets and liabilities as held and used. There have been no changes since the second quarter of 2015 that would require further valuations of the Coal Mining business.

India Equity Method Investment Valuation

VISA SunCoke has continued to experience downward market pressures. Coke imports from China caused weakness in the coke pricing environment, and certain iron ore restrictions in India limited steel production. As a result of these sustained depressed market conditions, during 2014, the Company evaluated the recoverability of its equity method investment in VISA SunCoke, which resulted in an other-than-temporary impairment charge of the joint venture investment in the Company's India reportable segment of $30.5 million, which was recorded in loss from equity method investment on the Consolidated Statement of Operations. Continued deterioration of market factors led to additional impairment of $19.4 million during 2015, resulting in an investment balance of zero.

The estimated discounted cash flows in both 2014 and in 2015 reflect weakness in the India market and utilize inputs considered Level 3 in the fair value hierarchy. Key assumptions in the 2014 discounted cash flow analysis included the timing and extent of future improvements in the Indian market and gross margin of $4 per ton to $24 per ton and a discount rate of 13.5 percent. These assumptions reflect the lifting of iron ore mining restrictions and the anticipated mitigation of Chinese coke imports. Key assumptions in the 2015 discounted cash flow analysis included a 13.5 percent discount rate and estimated cash flows, which considered the timing and extent of future improvements in the Indian market, an important component of which is gross margin recovery. The continuing deterioration of market conditions has resulted in forecasted gross loss of $8 per ton to a forecasted gross margin gain of $13 per ton upon market recovery. A $5 per ton change in the gross margin assumption would impact the valuation of our investment by approximately $8 million. To the extent possible, the Company considered available market information and other third-party data and compared the inputs to relevant historical information.

Certain Financial Assets and Liabilities not Measured at Fair Value

At December 31, 2015 and 2014, the fair value of the Company’s long-term debt was estimated to be $788.8 million and $662.9 million, respectively, compared to a carrying amount of $1,003.8 million and $640.0 million, respectively. These fair values were estimated by management based upon estimates of debt pricing provided by financial institutions which are considered Level 2 inputs.