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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2016
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Note 11—Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Common Stock Warrants As of September 30, 2016 and December 31, 2015, we had 354,350 and 345,135 common stock warrants outstanding, respectively. Beginning with the first quarter 2016, we estimate the fair value of our outstanding common stock warrants using the difference between the strike price of the warrant and the market price of our common stock, which is a Level 3 fair value measurement. Previously, we estimated the fair value of our outstanding common stock warrants using a simulation model, which is considered to be a Level 3 fair value measurement. Significant inputs used in the simulation model as of December 31, 2015 include:
|  | December 31, 2015
Stock price |  | $ | 23.54 |
Weighted-average exercise price |  | $ | 0.10 |
Term (years) |  | 6.67 |
Risk-free interest rate |  | 2.04 | %
Expected volatility |  | 43.0 | %
The expected volatility is based on the 7-year historical volatilities of comparable public companies. The estimated fair value of the common stock warrants was $13.04 and $23.47 per share as of September 30, 2016 and December 31, 2015, respectively. Since the common stock warrants were in the money upon issuance, we do not believe that changes in the inputs to the simulation models will have a significant impact to the value of the common stock warrants other than changes in the value of our common stock. Increases in the value of our common stock will increase the value of the common stock warrants. Likewise, decreases in the value of our common stock will result in a decrease in the value of the common stock warrants. Derivative Instruments We utilize crude oil commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and future sales of refined products. We utilize interest rate swaps to manage our interest rate risk. Please read Note 10—Derivatives for further information on derivatives. We are obligated to repurchase the crude oil and refined products from J. Aron at the termination of the Supply and Offtake Agreements. We have determined that this obligation contains an embedded derivative, similar to forward purchase contracts of crude oil and refined products. As such, we have accounted for this embedded derivative at fair value with changes in the fair value recorded in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. Upon redemption of our 5.00% Convertible Senior Notes on or after June 20, 2019 at our election, we are obligated to pay a make-whole premium equal to the present value of the remaining scheduled payments of interest on the 5% Convertible Senior Notes to be redeemed from the relevant redemption date to the maturity date of June 15, 2021. We have determined that the redemption option and the related make-whole premium represent an embedded derivative that is not clearly and closely related to the 5.00% Convertible Senior Notes. As of September 30, 2016, this embedded derivative was deemed to have a de minimis fair value. We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These commodity derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The J.Aron repurchase obligation derivative is a Level 3 instrument. Contingent Consideration The cash consideration for our acquisition of PHR may be increased pursuant to an earnout provision. The liability is remeasured at the end of each reporting period using an estimate based on actual results to date and a Monte Carlo simulation analysis for future periods. Significant inputs used in the valuation model include estimated future gross margin, annual gross margin volatility and a present value factor. We consider this to be a Level 3 fair value measurement. Financial Statement Impact Fair value amounts by hierarchy level as of September 30, 2016 and December 31, 2015 are presented gross in the tables below (in thousands):
| September 30, 2016
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-Party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | — |  |  | $ | 9,290 |  |  | $ | — |  |  | $ | 9,290 |  |  | $ | (7,293 | ) |  | $ | 1,997 |
Interest rate derivatives | — |  |  | 228 |  |  | — |  |  | 228 |  |  | (77 | ) |  | 151 |
Total | $ | — |  |  | $ | 9,518 |  |  | $ | — |  |  | $ | 9,518 |  |  | $ | (7,370 | ) |  | $ | 2,148 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Common stock warrants | $ | — |  |  | $ | — |  |  | $ | (4,619 | ) |  | $ | (4,619 | ) |  | $ | — |  |  | $ | (4,619 | )
Contingent consideration | — |  |  | — |  |  | (17 | ) |  | (17 | ) |  | — |  |  | (17 | )
Commodity derivatives | (2,322 | ) |  | (10,550 | ) |  | — |  |  | (12,872 | ) |  | 7,293 |  |  | (5,579 | )
J. Aron repurchase obligation derivative | — |  |  | — |  |  | (10,546 | ) |  | (10,546 | ) |  | — |  |  | (10,546 | )
Interest rate derivatives | — |  |  | (723 | ) |  | — |  |  | (723 | ) |  | 77 |  |  | (646 | )
Total | $ | (2,322 | ) |  | $ | (11,273 | ) |  | $ | (15,182 | ) |  | $ | (28,777 | ) |  | $ | 7,370 |  |  | $ | (21,407 | )
| December 31, 2015
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-Party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 429 |  |  | $ | 33,797 |  |  | $ | — |  |  | $ | 34,226 |  |  | $ | (29,649 | ) |  | $ | 4,577 |
J. Aron repurchase obligation derivative | — |  |  | — |  |  | 9,810 |  |  | 9,810 |  |  | (9,810 | ) |  | — |
Total | $ | 429 |  |  | $ | 33,797 |  |  | $ | 9,810 |  |  | $ | 44,036 |  |  | $ | (39,459 | ) |  | $ | 4,577 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Common stock warrants | $ | — |  |  | $ | — |  |  | $ | (8,096 | ) |  | $ | (8,096 | ) |  | $ | — |  |  | $ | (8,096 | )
Contingent consideration | — |  |  | — |  |  | (27,581 | ) |  | (27,581 | ) |  | — |  |  | (27,581 | )
Commodity derivatives | (396 | ) |  | (43,712 | ) |  | — |  |  | (44,108 | ) |  | 29,649 |  |  | (14,459 | )
J. Aron repurchase obligation derivative | — |  |  | — |  |  | — |  |  | — |  |  | 9,810 |  |  | 9,810 |
Total | $ | (396 | ) |  | $ | (43,712 | ) |  | $ | (35,677 | ) |  | $ | (79,785 | ) |  | $ | 39,459 |  |  | $ | (40,326 | )
_________________________________________________________
(1) | Does not include cash collateral of $13.0 million and $28.0 million as of September 30, 2016 and December 31, 2015, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.
A roll forward of Level 3 financial instruments measured at fair value on a recurring basis is as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Balance, at beginning of period | $ | (8,564 | ) |  | $ | (37,387 | ) |  | $ | (25,867 | ) |  | $ | (21,254 | )
Settlements | — |  |  | 7,691 |  |  | 16,810 |  |  | 7,691 |
Total unrealized income (loss) included in earnings | (6,618 | ) |  | (5,278 | ) |  | (6,125 | ) |  | (21,411 | )
Balance, at end of period | $ | (15,182 | ) |  | $ | (34,974 | ) |  | $ | (15,182 | ) |  | $ | (34,974 | )
The carrying value and fair value of long-term debt and other financial instruments as of September 30, 2016 and December 31, 2015 are as follows (in thousands):
| September 30, 2016
| Carrying Value |  | Fair Value (1)
Hawaii Retail Credit Agreement (2) | $ | 99,712 |  |  | $ | 99,712 |
5% Convertible Senior Notes due 2021 (3) | 90,011 |  |  | 115,491 |
Term Loan | 58,613 |  |  | 60,854 |
Par Wyoming Holdings Term Loan (2) | 63,508 |  |  | 63,508 |
Wyoming Refining Senior Secured Term Loan (2) | 57,768 |  |  | 57,768 |
Wyoming Refining Senior Secured Revolver (2) | 16,604 |  |  | 16,604 |
Common stock warrants | 4,619 |  |  | 4,619 |
Contingent consideration | 17 |  |  | 17 |
| December 31, 2015
| Carrying Value |  | Fair Value (1)
Hawaii Retail Credit Agreement (2) | $ | 110,000 |  |  | $ | 110,000 |
Term Loan | 60,119 |  |  | 62,037 |
Common stock warrants | 8,096 |  |  | 8,096 |
Contingent consideration | 27,581 |  |  | 27,581 |
_________________________________________________________
(1) | The fair values of these instruments are considered Level 3 measurements in the fair value hierarchy with the exception of the fair value measurement of the 5.00% Convertible Senior Notes which is considered a Level 2 measurement as discussed below.
(2) | Fair value approximates carrying value due to the floating rate interest which approximates a current market rate.
(3) | The carrying value of the 5.00% Convertible Senior Notes excludes the fair value of the equity component, which was classified as equity upon issuance.
We estimate the fair value of the Term Loan using a discounted cash flow analysis and an estimate of the current yield of 11.05% and 9.63% as of September 30, 2016 and December 31, 2015, respectively, by reference to market interest rates for term debt of comparable companies. The fair value of the 5.00% Convertible Senior Notes was determined by aggregating the fair value of the liability and equity components of the notes. The fair value of the liability component of the 5.00% Convertible Senior Notes was determined using a discounted cash flow analysis in which the projected interest and principal payments were discounted at an estimated market yield for a similar debt instrument without the conversion feature. The equity component was estimated based on the Black-Scholes formula for a call option with strike price equal to the conversion price, a term matching the remaining life of the 5.00% Convertible Senior Notes, and an implied volatility based on market values of options outstanding as of September 30, 2016. The fair value of the 5.00% Convertible Senior Notes is considered a Level 2 measurement in the fair value hierarchy. The fair value of all non-derivative financial instruments included in current assets, including cash and cash equivalents, restricted cash and trade accounts receivable and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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