Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 8 – Fair Value Measurements

The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to measurements involving unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:

Level 1 inputs - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs - other inputs that are directly or indirectly observable in the marketplace.

Level 3 inputs - unobservable inputs which are supported by little or no market activity.

The level in the fair value hierarchy within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table shows the amount and level in the fair value hierarchy of each of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013.

	December 31, 2014
	Level 1		Level 2		Level 3		TOTAL
LIABILITIES:
Contingent consideration	$	-	$	-	$	747,000	$	747,000
Commodity swap contracts	$	-	$	3,023,271	$	-	$	3,023,271

	December 31, 2013
	Level 1		Level 2		Level 3		TOTAL
ASSETS:
Available-for-sale securities	$	406,134	$	-	$	-	$	406,134
LIABILITIES:
Contingent consideration	$	-	$	-	$	685,000	$	685,000

The fair value of financial instruments including cash and cash equivalents, notes and accounts receivable, and notes and accounts payable are not materially different from their carrying amounts. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable are classified as Level 2 measurements. The fair values of marketable securities are estimated based on closing share prices on the open market at the measurement date for those investments. Cost basis is determined by specific identification of securities sold.

The commodity swap contracts, categorized in level 2 of the fair value hierarchy, are valued by comparing the futures price at the measurement date of the natural gas commodity specified in the contract to the fixed price to be paid by the Company. See Note 10 – Derivative Financial Instruments for more information regarding the commodity swap contracts.

The contingent consideration liability categorized in level 3 of the fair value hierarchy arose as a result of the JDOG Marketing acquisition. See Note 3 – Acquisitions for more information regarding this transaction. Valuation of the contingent consideration liability categorized under level 3 of the fair value hierarchy was conducted by an independent third-party valuation firm. Inputs and assumptions used in the valuation were reviewed for reasonableness by the Company in the course of the valuation process and have been updated to reflect changes in the Company’s business environment.

The following table reconciles the beginning and ending balances of the contingent consideration liability categorized under level 3 of the fair value hierarchy.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Contingent Consideration Liability
	2014		2013
Balance January 1st	$	685,000	$	-
Transfers into level 3		-		-
Transfers out of level 3		-		-
Total (gains) losses for period:
Included in net income		62,000		(1,565,000)
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Settlements		-		-
Issuances		-		2,250,000
Balance December 31st	$	747,000	$	685,000

The change in fair value included as a part of net income in the table above is reflected in the Contingent consideration loss (gain) line of the Company’s Consolidated Statement of Comprehensive Income and is the result of an unrealized holding loss (gain) associated with the change in the fair value of the Company’s contingent consideration liability.

The following table summarizes quantitative information used in determining the fair value of the Company’s liabilities categorized in level 3 of the fair value hierarchy.

Quantitative Information about Level 3 Fair Value Measures

	Fair Value		Valuation Techniques	Unobservable Input	Range
December 31, 2014
Contingent Consideration	$	747,000	Monte Carlo analysis	Forecasted annual EBITDA		$0.5 - $0.7 million
				Weighted avg cost of capital		14.0% - 14.0%
				U.S. Treasury yields		0.3% -1.1%
			Discounted cash flow	U.S. Treasury yields		0.3% -1.1%
				Credit spread		2.3% - 3.8%
December 31, 2013
Contingent Consideration	$	685,000	Monte Carlo analysis	Forecasted annual EBITDA		$0.4 - $0.6 million
				Weighted avg cost of capital		15.0% - 15.0%
				U.S. Treasury yields		0.1% -1.3%
			Discounted cash flow	U.S. Treasury yields		0.1% -1.3%
				Credit spread		1.3% - 3.3%

The significant unobservable inputs used in the fair value measure of the Company’s contingent consideration liability are its weighted average cost of capital, various U.S. Treasury yields, and the Company’s credit spread above the risk free rate. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measure. An additional significant unobservable input for this fair value measure is the Company’s forecasted annual EBITDA related to its GNR subsidiary. A significant increase (decrease) in this input would result in a significant increase (decrease) in the fair value measure.