Fair Value Measurements

12 Months Ended

Dec. 31, 2016

The three-tier value hierarchy the Company utilizes, which prioritizes the inputs used in the valuation methodologies, is:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

The fair value of cash, accounts receivable and accounts payable approximate their carrying values. The fair value of cash equivalents are determined using the fair value hierarchy described above. Cash equivalents consisting of money market funds are valued based on quoted prices in active markets and as a result are classified as Level 1.

The Company’s pension plan asset portfolio as of December 31, 2016 and 2015 is primarily invested in fixed income securities, which generally fall within Level 2 of the fair value hierarchy. Fixed income securities in the pension plan asset portfolio are valued based on evaluated prices provided to the trustee by independent pricing services. Such prices may be determined by factors which include, but are not limited to, market quotations, yields, maturities, call features, ratings, institutional size trading in similar groups of securities and developments related to specific securities. Refer to Note 10 - Employee Benefit Plans to the Consolidated Financial Statements for pension fair value disclosures.

Fair Value Measurements of Debt

The fair value of the Company's New Secured Notes as of December 31, 2016 was estimated to be $116,833 compared to a carrying value of $177,019. The fair value of the Company’s Secured Notes as of December 31, 2015 was estimated to be $160,662 compared to a carrying value of $210,000. The fair values for both the Secured Notes and New Secured Notes were determined based on recent trades of the bonds on the open market and fall within Level 2 of the fair value hierarchy.

Because it entered into the new Credit Facilities in December 2016, the Company determined that the fair value of borrowings outstanding under the Credit Facilities approximated carrying value at December 31, 2016.

The fair value of the Convertible Notes, as of December 31, 2016 was estimated to be approximately $25 compared to a carrying value of $41. The fair value of the Convertible Notes as of December 31, 2015 was approximately $21,966 compared to a carrying value of $57,500. The fair value of the Company's New Convertible Notes as of December 31, 2016, including the bifurcated embedded conversion option, was estimated to be $5,369 compared to a carrying value of $22,323. The fair values for both the Convertible Notes and New Convertible Notes, which fall within Level 3 of the fair value hierarchy, were determined based on similar debt instruments that do not contain a conversion feature, as well as other factors related to the callable nature of the Convertible Notes and New Convertible Notes.

The main inputs and assumptions into the fair value model for the New Convertible Notes at December 31, 2016 were as follows:



Company's stock price at the end of the period	$	0.25
Expected volatility	97.90		%
Credit spreads	69.8		%
Risk-free interest rate	1.47		%

Given the nature and the variable interest rates, the Company determined that the fair value of borrowings under the Revolving Credit Facility at December 31, 2015 approximated the carrying value.

Fair Value Measurement of Common Stock Warrants

The fair value of the Warrants to purchase shares of the Company's common stock issued in connection with the closing of the Company's new Credit Facilities in December 2016, which falls within Level 3 of the fair value hierarchy, was estimated using the Black-Scholes option-pricing model with the following assumptions:



Expected volatility	97.90	%
Risk-free interest rate	1.03	%
Expected life (in years)	1.5
Expected dividend yield	—

Fair Value Measurements of Embedded Conversion Feature

The fair value of the derivative liability for the embedded conversion feature of the New Convertible Notes was estimated to be $403 as of December 31, 2016. The estimated fair value of the derivative liability for the embedded conversion feature of the New Convertible Notes, which falls within Level 3 of the fair value hierarchy, is measured on a recurring basis using a binomial lattice model using the Company's historical volatility over the term corresponding to the remaining contractual term of the New Convertible Notes and observed spreads of similar debt instruments that do not include a conversion feature. The following reconciliation represents the change in fair value of the embedded conversion feature of the New Convertible Notes between December 31, 2015 and December 31, 2016:



	Derivative liability for embedded conversion feature
Fair value as of December 31, 2015	$	—
Fair value at issuance date	11,574
Settlement upon conversion into common stock	(721		)
Mark-to-market adjustment on conversion feature^(a)	(10,450		)
Fair value as of December 31, 2016	$	403

^(a) Mark-to-market adjustment is recognized in unrealized gain on embedded debt conversion option in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2016.

Fair Value Measurements of Commodity Hedges

The Company has a commodity hedging program to mitigate risks associated with certain commodity price fluctuations. At December 31, 2016, the Company had no executed forward contracts outstanding. The counterparty to forward contracts into which the Company enters is not considered a credit risk by the Company. At December 31, 2016 and 2015, the notional value associated with forward contracts was $0 and $3,080, respectively. The Company recorded, through cost of materials, realized and unrealized net losses of $49, $852 and $288 during the years ended December 31, 2016, 2015 and 2014, respectively, as a result of the decline in the fair value of the contracts. As of December 31, 2015, all commodity hedge contracts were in a liability position.

The Company uses information which is representative of readily observable market data when valuing derivative liabilities associated with commodity hedges. The derivative liabilities are classified as Level 2 in the table below.

The liabilities measured at fair value on a recurring basis were as follows:



	Level 1		Level 2		Level 3		Total ^(a)
As of December 31, 2016
Derivative liability for commodity hedges	$	—	$	—	$	—	$	—
As of December 31, 2015
Derivative liability for commodity hedges	$	—	$	1,015	$	—	$	1,015

^(a)As of December 31, 2015, the entire derivative liability for commodity hedges balance of $1,015 is included in accrued and other current liabilities in the Consolidated Balance Sheet.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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