Financial Instruments and Fair Value Measurements

Fair Value Measurements

The financial instruments measured at fair value on a recurring basis at September 30, 2017 were as follows:



	Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
Money market funds	$	5,947	$	—	$	—	$	5,947
Commercial paper	141,618		—		—		141,618
	147,565		—		—		147,565
Investments:
U.S. Treasury securities	9,996		—		—		9,996
Corporate debt securities	—		101,507		—		101,507
Preferred stock	10,903		22,830		—		33,733
	20,899		124,337		—		145,236
Restricted investments:
Short-term bond	4,245		—		—		4,245
Money market fund	217		—		—		217
	4,462		—		—		4,462
	$	172,926	$	124,337	$	—	$	297,263

The financial instruments measured at fair value on a recurring basis at December 31, 2016 were as follows:



	Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
Money market funds	$	86,236	$	—	$	—	$	86,236
Commercial paper	129,671		—		—		129,671
	215,907		—		—		215,907
Investments:
Corporate debt securities	57,788		81,344		—		139,132
Preferred stock	19,177		17,416		—		36,593
	76,965		98,760		—		175,725
Restricted investments:
Short-term bond	4,226		—		—		4,226
Money market fund	1,410		—		—		1,410
	5,636		—		—		5,636
	$	298,508	$	98,760	$	—	$	397,268

Money market funds, commercial paper, U.S. Treasury securities, certain preferred stocks and short-term bonds are measured based on quoted market prices in an active market and categorized within level 1 of the fair value hierarchy. Money market funds and commercial paper with a maturity date of ninety days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.

The Company’s corporate debt securities and certain preferred stocks are not traded on a nationally recognized exchange but rather are traded in the U.S. over-the-counter market where there is less trading activity and these are measured primarily using pricing data from external pricing services that report prices observed for recently executed market transactions. For these reasons, the Company has determined that corporate debt securities and certain preferred stocks are categorized as level 2 financial instruments since their fair values were determined from market inputs in an inactive market.

Restricted investments include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) Plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. As of September 30, 2017 and December 31, 2016, the assets held in the suspense account were invested in Vanguard Money Market Funds, which invest in short-term, high quality securities or short-term U.S. government securities and seek to provide current income and preserve shareholders’ principal investment and a Vanguard Short-Term Bond Fund, which invests in money market instruments and short-term high quality bonds, including asset-backed, government, and investment grade corporate securities with an expected maturity of 0-3 years. The Vanguard Money Market Funds and Vanguard Short-Term Bond Fund are measured based on quoted market prices in an active market and categorized within level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee is responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 14. Employee Benefit Plan.

Fair Value of Financial Instruments

The Company uses the following methods and assumptions in estimating fair value for financial instruments:


•	The fair value of the Company’s retained interest investments is based on the present value of the expected future cash flows at the effective yield.


•	The fair value of the investments held by special purpose entities - time deposit is based on the present value of future cash flows at the current market rate.


•	The fair value of the investments held by special purpose entities - U.S. Treasury securities are measured based on quoted market prices in an active market.


•	The fair value of the senior notes held by special purpose entity is based on the present value of future cash flows at the current market rate.

The carrying amount and fair value, measured on a nonrecurring basis, of the Company’s financial instruments were as follows:



	September 30, 2017					December 31, 2016
	Carrying value		Fair value		Level	Carrying value		Fair value		Level
Assets
Retained interest investments	$	11,012	$	13,951	3	$	10,635	$	13,669	3
Investments held by special purpose entities:
Time deposit	$	200,000	$	200,000	3	$	200,000	$	200,000	3
U.S. Treasury securities and cash equivalents	$	7,942	$	7,821	1	$	8,590	$	8,398	1
Liabilities
Senior notes held by special purpose entity	$	176,479	$	199,730	3	$	176,310	$	199,691	3

Retained Interest Investments

The Company has a beneficial interest in certain bankruptcy-remote qualified SPEs used in the installment sale monetization of certain sales of timberlands in 2007 and 2008. The SPEs’ assets are not available to satisfy the Company’s liabilities or obligations and the liabilities of the SPEs are not the Company’s liabilities or obligations. Therefore, the SPEs’ assets and liabilities are not consolidated in the Company’s condensed consolidated financial statements as of September 30, 2017 and December 31, 2016. The Company’s continuing involvement with the SPEs is the receipt of the net interest payments and the remaining principal of approximately $16.8 million to be received at the end of the installment notes’ fifteen year maturity period, in 2022 through 2024. The Company has a beneficial or retained interest investment related to these SPEs of $11.0 million and $10.6 million as of September 30, 2017 and December 31, 2016, respectively, recorded in other assets on the Company’s condensed consolidated balance sheets.

Investments and Senior Notes Held by Special Purpose Entities

In connection with a real estate sale in 2014, the Company received consideration including a $200.0 million fifteen-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC. The Company contributed the Timber Note and assigned its rights as a beneficiary under a letter of credit to Northwest Florida Timber Finance, LLC. Northwest Florida Timber Finance, LLC monetized the Timber Note by issuing $180.0 million aggregate principal amount of its 4.8% Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of 98.5% of face value to third party investors. The investments held by Panama City Timber Finance Company, LLC as of September 30, 2017, consist of a $200.0 million time deposit that, subsequent to April 2, 2014, pays interest at 4.0% and matures in March 2029, U.S. Treasuries of $7.5 million and cash of $0.4 million. The Senior Notes held by Northwest Florida Timber Finance, LLC as of September 30, 2017 consist of $176.5 million, net of the $3.5 million discount and debt issuance costs. Panama City Timber Finance Company, LLC and Northwest Florida Timber Finance, LLC are VIEs, which the Company consolidates as the primary beneficiary of each entity.