Fair Value

12 Months Ended

Dec. 31, 2011

Fair Value

Fair Value

NOTE 8: Fair Value

Fair Value Measurements

The Company categorizes the fair value measurements of its financial assets and liabilities into a three level fair value hierarchy based on the inputs used in determining fair value.  The categories in the fair value hierarchy are as follows:

Level 1— Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.  The Company had no assets or liabilities in this category at December 31, 2011 or 2010.

Level 2— Financial assets and liabilities whose values are based on quoted market prices for similar assets and liabilities, quoted market prices in markets that are not active or other inputs that can be corroborated by observable market data.  The Company had no assets or liabilities in this category at December 31, 2011 or 2010.

Level 3— Financial assets and liabilities whose values are based on inputs that are both significant to the fair value measurement and unobservable.  Internally developed valuations reflect the Company’s judgment about assumptions market participants would use in pricing the asset or liability estimated impact to quoted market prices.  The Company records derivative liabilities on its balance sheet related to the 2008 and the 2010 Warrants and the conversion feature embedded in the Series B Preferred Stock in this category.  At December 31, 2011, the fair value of these liabilities was determined using a binomial tree valuation model.  At December 31, 2010 and 2009, the fair value of these liabilities was determined using a Monte Carlo valuation model.

In selecting the binomial tree model to value the Company’s derivative liabilities at the end of 2011, management evaluated the model’s capability to incorporate certain provisions present in these financial instruments and believes that the model is consistent with the fair value measurement objectives and requirements under the applicable accounting guidance and that it has the ability to more easily assess the potential impact to the fair value measurements of changes in the underlying assumptions.

The assumptions used in the valuation models to determine the fair value of the Company’s derivative liabilities are as follows:

	At December 31,
	2011			2010
2008 Warrants exercise price (1)	$	9.05		$	9.25
2010 Warrants exercise price (1)	$	3.84		$	9.64
Series B Preferred Stock conversion price (1)	$	15.95		$	16.40
Stock price	$	2.15		$	9.29
Volatility	78.43		%	83.64		%
Risk-free discount rate (2)  — 2008 Warrants	0.19		%	0.84		%
Risk-free discount rate (2)  — 2010 Warrants	0.83		%	2.38		%
Risk-free discount rate (2) — Series B Preferred Stock embedded conversion feature	0.59		%	1.99		%

(1)Anti-dilution provisions for these financial instruments were triggered as a result of the issuance of the Advisory Shares on August 29, 2011, associated with the Whitebox Revolving Credit Facility.  See notes 6, 7 and 9.

(2)Based on the remaining life of the instruments.

The Company’s derivative liabilities measured at fair value on a recurring basis were as follows (in thousands):

	December 31, 2011
	Total		(Level 1)		(Level 2)		(Level 3)
Conversion feature embedded in Preferred Stock	$	1,835	$	—	$	—	$	1,835
2008 Warrants	29		—		—		29
2010 Warrants	3,914		—		—		3,914
Total derivative liabilities	$	5,778	$	—	$	—	$	5,778

	December 31, 2010
	Total		(Level 1)		(Level 2)		(Level 3)
Conversion feature embedded in Preferred Stock	$	14,142	$	—	$	—	$	14,142
2008 Warrants	1,097		—		—		1,097
2010 Warrants	23,032		—		—		23,032
Total derivative liabilities	$	38,271	$	—	$	—	$	38,271

A reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

	2011			2010
Balance at the beginning of the period	$	38,271		$	9,317
Total unrealized (gains) losses
Included in earnings	(33,300		)	6,415
Included in other comprehensive income	—			—
Issuances	807			22,539
Transfers in and/or out of Level 3	—			—
Balance at the end of the period	$	5,778		$	38,271

The Company is not a party to any hedging arrangements, commodity swap agreements or any other derivative financial instruments.

See note 4(d) for discussion of the Company’s fair value measurements for non-financial assets.

Estimated Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value due to the short maturity of those instruments, and therefore, have been excluded from the table below.  The fair value of debt was determined using quoted market prices, when available.  The fair value of the mandatorily redeemable preferred stock is calculated by using the discounted cash flow method of the income approach.

The following table sets forth the fair value of the Company’s remaining financial assets and liabilities (in thousands):

	December 31, 2011				December 31, 2010
	Carrying Amount		FairValue		Carrying Amount		FairValue
Financial liabilities:
Long-term debt	$	354,726	$	226,637	$	320,918	$	324,862
Mandatorily redeemable preferred stock:
Series C	$	41,477	$	25,767	$	36,608	$	44,950
Series D	$	11,733	$	14,229	$	8,657	$	28,168