Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.7.0.1
Fair Value Measurement
12 Months Ended
Dec. 31, 2016
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, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
Commodity contract derivatives
$
(2,239
)
 
$
(1,297
)
 
$
(942
)
 
$

Convertible debt conversion liability
$
(27,100
)
 

 
(27,100
)
 

Contingent consideration for acquisitions
$
(46,568
)
 

 

 
(46,568
)
 
$
(75,907
)
 
$
(1,297
)
 
$
(28,042
)
 
$
(46,568
)

 
As of December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
Commodity contract derivatives
$
4,459

 
2,196

 
2,263

 

Contingent consideration for acquisitions
$
(41,712
)
 

 

 
(41,712
)
 
$
(37,253
)
 
$
2,196

 
$
2,263

 
$
(41,712
)


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 Acquisitions
 
2016
 
2015
Balance at beginning of period, January 1
$
41,712

 
$
39,319

Fair value of contingent consideration at measurement date
4,500

 
5,000

Change in estimates included in earnings
7,904

 
(359
)
Settlements
(7,548
)
 
(2,248
)
Balance at end of period, December 31
$
46,568

 
$
41,712


The Company used the following methods and assumptions to estimate fair value of its financial instruments:
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 contingent consideration regarding REG Life Sciences, LLC ("REG Life Sciences") 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 REG Life Sciences' 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 all other 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 production and/or sale of biomass-based diesel at the specific production facility. A discount rate ranging from 5.8% to 10.0% is used to estimate the fair value of the expected payments.
Convertible debt conversion liability: The fair value of the convertible debt conversion liability is estimated using the Black-Scholes model incorporating the terms and conditions of the 2036 Convertible Notes and considering changes in the prices of the Company's common stock, Company stock price volatility, risk-free rates and changes in market rates. The valuations are, among other things, subject to changes in the Company's credit worthiness as well as change in general market conditions. As the majority of the assumptions used in the calculations are based on market sources, the fair value of the convertible conversion liability is reflected in Level 2.
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:
 
2016
 
2015
 
Asset (Liability)
Carrying Amount
 
Estimated Fair Value
 
Asset (Liability)
Carrying Amount
 
Estimated Fair Value
Financial Liabilities:
 
 
 
 
 
 
 
Debt and lines of credit
$
(270,735
)
 
$
(264,267
)
 
$
(279,711
)
 
$
(275,123
)