Fair Value

The Company holds mortgage-backed and other asset-backed securities, fixed income and equity securities, derivatives and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market quotes are not readily accessible or available. The Company carries certain of its liabilities at fair value, including its derivative liabilities. In determining the fair value of the Company’s obligations, various factors are considered including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for equivalent instruments; the Company’s own-credit standing; and counterparty credit risk.

These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:


•	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 whose inputs are observable or whose significant value drivers are observable.


•	Level 3 – Instruments whose significant value drivers are unobservable.

The following table presents the Company’s assets that are measured at fair value and the related hierarchy levels for 2014:



			Fair Value Measurements at Reporting Date Using
	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Mortgage-backed securities	$	810	$	—	$	810	$	—
Asset-backed securities	1,165		—		1,165		—
Municipal bonds	554		—		554		—
Equity securities	16,411		16,411		—		—
Total available-for-sale securities	$	18,940	$	16,411	$	2,529	$	—
Executive deferred compensation plan trust ^(a)	$	5,927	$	5,927	$	—	$	—
Fuel price derivatives – unleaded fuel ^(b)	$	29,120	$	—	$	29,120	$	—
Fuel price derivatives – diesel ^(b)	11,849		—		—		11,849
Total fuel price derivatives	$	40,969	$	—	$	29,120	$	11,849


^(a)	The fair value of these instruments is recorded in other assets.


^(b)	The consolidated balance sheet presentation combines unleaded fuel and diesel fuel positions.

The following table presents the Company’s assets and liabilities that are measured at fair value and the related hierarchy levels for 2013:



			Fair Value Measurements at Reporting Date Using
	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Mortgage-backed securities	$	839	$	—	$	839	$	—
Asset-backed securities	1,391		—		1,391		—
Municipal bonds	519		—		519		—
Equity securities	13,214		13,214		—		—
Total available-for-sale securities	$	15,963	$	13,214	$	2,749	$	—
Executive deferred compensation plan trust ^(a)	$	4,339	$	4,339	$	—	$	—
Liabilities:
Fuel price derivatives – unleaded fuel ^(b)	$	5,216	$	—	$	5,216	$	—
Fuel price derivatives – diesel ^(b)	2,142		—		—		2,142
Total fuel price derivatives	$	7,358	$	—	$	5,216	$	2,142


^(a)	The fair value of these instruments is recorded in other assets.


^(b)	The consolidated balance sheet presentation combines unleaded fuel and diesel fuel positions.

The following table presents a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2014:



	Fuel Price Derivatives – Diesel
Beginning balance	$	(2,142	)
Total gains or (losses) – realized/unrealized
Included in earnings ^(a)	13,990
Included in other comprehensive income	—
Purchases, issuances and settlements	—
Transfers (in)/out of Level 3	—
Ending balance	$	11,848


^(a)	Gains and losses (realized and unrealized) included in earnings for the year ended December 31, 2014, are reported in net realized and unrealized gains and (losses) on fuel price derivatives on the consolidated statements of income.



	Contingent Consideration			Fuel Price Derivatives – Diesel
Beginning balance	$	(313	)	$	(107	)
Total gains or (losses) – realized/unrealized
Included in earnings ^(a)	(198		)	(2,035		)
Included in other comprehensive income	—			—
Purchases, issuances and settlements	—			—
Transfers in/(out) of Level 3	511			—
Ending balance	$	—		$	(2,142	)

^(a)

Gains and losses (realized and unrealized) included in earnings for the year ended December 31, 2013, are reported in net realized and unrealized gains and (losses) on fuel price derivatives on the consolidated statements of income. Gains and losses on the change of estimate on the contingent consideration are included in other expenses and loss of foreign currency transactions on the consolidated statements of income.

Available-for-sale securities and executive deferred compensation plan trust

When available, the Company uses quoted market prices to determine the fair value of available-for-sale securities; such items are classified in Level 1 of the fair-value hierarchy. These securities primarily consist of exchange-traded equity securities.

For mortgage-backed and asset-backed debt securities and bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. The obligations related to the deferred compensation plan trust are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets.

$400 Million Notes outstanding

The Notes outstanding as of December 31, 2014, have a carrying value of $400,000 and fair value of $388,000. The fair value is based on market rates for the issuance of our debt. The Company determined the fair value of its Notes outstanding are classified as Level 2 in the fair value hierarchy.

Fuel price derivatives

The majority of derivatives entered into by the Company are executed over-the-counter and are valued using internal valuation techniques as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of derivative and the nature of the underlying instrument. The principal technique used to value these instruments is a comparison of the spot price of the underlying instrument to its related futures curve adjusted for the Company’s assumptions of volatility and present value, where appropriate. The fair values of derivative contracts reflect the expected cash the Company will pay or receive upon settlement of the respective contracts.

The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, the spot price of the underlying instrument, volatility, and correlation. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and items with longer tenures are generally less observable.

Fuel price derivatives – diesel. The assumptions used in the valuation of the diesel fuel price derivatives use both observable and unobservable inputs. There is a lack of price transparency with respect to forward prices for diesel fuel. Such unobservable inputs are significant to the diesel fuel derivative contact valuation methodology.

Quantitative Information About Level 3 Fair Value Measurements. The significant unobservable inputs used in the fair value measurement of the Company’s diesel fuel price derivative instruments designated as Level 3 are as follows:



	Fair Value at December 31, 2014		Valuation Technique	Unobservable Input	Range $ per gallon
Fuel price derivatives – diesel	$	11,849	Option model	Future retail price of diesel fuel after December 31, 2014	3.72 – 3.86

Sensitivity To Changes In Significant Unobservable Inputs. As presented in the table above, the significant unobservable inputs used in the fair value measurement of the Company’s diesel fuel price derivative instruments are the future retail price of diesel fuel from the first quarter of 2015 through the first quarter of 2016. Significant changes in these unobservable inputs in isolation would result in a significant change in the fair value measurement.

Contingent consideration

The Company classified its liability for contingent consideration related to its acquisition of UNIK within Level 3 of the fair value hierarchy because the fair value was determined using significant unobservable inputs, which include the projected revenues of UNIK over a four month period. These assumptions included assessing the probability of meeting certain milestones required to earn the contingent consideration. On June 30, 2013, the Company finalized the contingent consideration amount based on current performance milestones and determined it to be approximately $511, which was paid on July 1, 2013.