Note 19. Fair Value Measurements

Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. We followed consistent methods and assumptions to estimate fair values as more fully described in Note 1.

Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives, short-term investments and long-term debt. As of December 31, 2017, the carrying values of these financial instruments approximated fair value. The fair value of floating-rate debt approximates the carrying amount because the interest rates paid are based on short-term maturities. As of December 31, 2017, we had no fixed-rate debt outstanding.

Nonrecurring Fair Value Measurements

We completed the Vandalia acquisition on October 2, 2017. In connection with our accounting for this acquisition, it was necessary for us to estimate the values of the assets acquired and liabilities assumed, which involved the use of various assumptions discussed in Note 3. The following table summarizes the fair value estimates for financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis by category as of the acquisition date:


				Fair Value Measurements During 2017, Using
Description	Fair Value Measurements at Acquisition Date			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Vandalia current assets	$	10,166		$	—	$	—	$	10,166
Vandalia property, plant and equipment		13,981			—		—		13,981
Vandalia intangible assets subject to amortization		6,900			—		—		6,900
Vandalia other non-current assets		29			—		—		29
Vandalia goodwill		9,452			—		—		9,452
Vandalia non-current liabilities		(1,794	)		—		—		(1,794	)

	$	38,734		$	—	$	—	$	38,734

Recurring Fair Value Measurements

Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.

Our policy is to manage interest expense using a mix of fixed and variable rate debt. To manage this mix effectively, we may enter into interest rate swaps in which we agree to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. At December 31, 2016, we had a $150 million interest rate swap that fixed the interest rate on a portion of our variable rate debt at 6.466%. The objective of the interest rate swap was to eliminate the variability of cash flows in interest payments on the first $150 million of variable interest debt. At the inception of the interest rate swap, the variable rate benchmark was three-month LIBOR for both the variable rate debt and the interest rate swap. The changes in cash flows of the interest rate swap were expected to exactly offset the changes in cash flows of the variable rate debt. The hedged risk was the interest rate risk exposure to changes in the interest payments, attributable to changes in the benchmark three-month LIBOR interest rates (subject to a 1.0% LIBOR index floor) through December 31, 2018. During 2016, the LIBOR floor index on our Senior Secured Term Loan was lowered to 0.75%, and our intent regarding future interest rate resets changed. Three-month LIBOR was above the floor, and it was more economical to use one-month LIBOR. Therefore, our intensions called into question the probability of the amounts deferred in AOCI as the forested transactions would not be probable. As a result, we chose to discontinue hedge accounting in 2016, reclassified all amounts in AOCI to earnings, and began to account for the interest rate swap on a mark-to-market basis. The change in reporting had no impact on our reported cash flows. In October 2017, we terminated the interest rate swap with a cash payment of $1.3 million. As of December 31, 2017, we had no interest rate swaps outstanding.

The following table summarizes assets and liabilities measured at fair value on a recurring basis for the interest rate swap derivative financial instrument as of December 31, 2016.


				Fair Value Measurements as of December 31, 2016
Description	December 31, 2016			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Derivative asset—current	$	69		$	—	$	69		$	—
Derivative asset—noncurrent		6			—		6			—
Derivative liability—current		(1,903	)		—		(1,903	)		—
Derivative liability—noncurrent		(1,028	)		—		(1,028	)		—

	$	(2,856	)	$	—	$	(2,856	)	$	—

The inputs for determining fair value of the interest rate swap are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparties to these derivative contracts are highly rated financial institutions which management believes carry only a minimal risk of nonperformance.

We have elected to present the derivative contracts on a gross basis in the Consolidated Balance Sheets included within other current assets, other non-current assets, other current liabilities and other non-current liabilities.

As of December 31, 2017, we had no gains or losses in AOCI related to the interest rate swap. In connection with lowering the LIBOR index floor from 1.0% to 0.75% within the $150 million interest rate swap, we received a $0.3 million payment in 2016 that reduced the net liability position on the $150 million interest rate swap. The payment was reported in the “Derivative payments on interest rate swap” line in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2016. Additionally, during the portion of 2016 when the interest rate swap was accounted for in accordance with hedge accounting, the periodic settlements and related reclassification of other comprehensive income were recognized as $1.4 million of net hedging losses on the interest rate swap in the “Interest expense” line on the Consolidated Statements of Operations and Comprehensive Income (Loss). The “Derivative loss (gain) on change in interest rate swap fair value” line on the Consolidated Statements of Operations and Comprehensive Income (Loss) includes interest rate swap settlements of $1.4 million in both 2017 and 2016.

Derivatives’ Hedging Relationships

As of December 31, 2017 and 2016, we did not own derivative instruments that were classified as fair value hedges or trading securities. In addition, as of December 31, 2017 and 2016, we did not own derivative instruments containing credit risk contingencies.