Fair Value (Notes) |
12 Months Ended | |||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||
| Fair Value of Financial Disclosures |
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts receivable, derivative instruments, accounts payable, earn-out liabilities and debt instruments. For short-term instruments, other than those required to be reported at fair value on a recurring basis and for which additional disclosures are included below, management concluded the historical carrying value is a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization. Therefore, as of December 31, 2017 and December 31, 2016, the carrying amount for cash and cash equivalents, accounts receivable, accounts payable and the Company's revolving line of credit, which is based on a variable interest rate, approximates their fair value.
During 2017, the Company sold shares of Level 1 available for sales securities. Proceeds from the sale totaled $4,141,564 which resulted in a realized gain of $310,043 which is included in other income on the accompanying consolidated statements of operations. As a result of the sale, unrealized gains of $555,979, $366,346 net of taxes, were reclassified out of accumulated other comprehensive income ("AOCI") with the realized gain on sale included in earnings. As of December 31, 2017, the Company has additional available for sale securities with unrealized losses of $14,111, $10,864 net of taxes, which is included in AOCI at December 31, 2017. The Company used the average cost method to determine the realized gain or loss for each transaction. The fair value of available for sale securities held by the Company as of December 31, 2017 was $537,233 and is included in prepaid expenses and other current assets on the accompanying consolidated balance sheets. The Company did not have any available for sale securities held at December 31, 2016.
The Company has two Level 2 financial assets and liabilities. The fair value of the interest rate swap contract entered into on August 21, 2012 was an asset of $127,981 and $31,285 at December 31, 2017 and December 31, 2016, respectively. The interest rate swap was priced using discounted cash flow techniques. Changes in the swap fair value was recorded in current assets or liabilities, as appropriate, with corresponding offsetting entries to other income (expense). Significant inputs to the discounted cash flow model include projected future cash flows based on projected one-month LIBOR and the average margin for companies with similar credit ratings and similar maturities. It is classified as Level 2 as it is not actively traded and is valued using pricing models that use observable market inputs. See Note 17 for further discussion of interest rate swap.
To manage the impact on earnings of fluctuating nickel prices, the Company enters into three-month forward option contracts, which are classified as Level 2. At December 31, 2017, the Company had contracts in place with notional quantities totaling 1,351,494 pounds with strike prices ranging from $3.75 to $4.64 per pound. At December 31, 2016, the Company had contracts in place with notional quantities totaling 638,168 pounds with strike prices ranging from $3.92 to $4.38 per pound. The fair value of the option contracts were an asset of $9,027 and $87,283 at December 31, 2017 and December 31, 2016, respectively. The fair value of the contracts was priced using discounted cash flows techniques based on forward curves and volatility levels by asset class determined on the basis of observable market inputs, when available. Changes in their fair value were recorded to cost of goods sold with corresponding offsetting entries to other current assets.
The fair value of earn-out liabilities resulting from the MUSA acquisition discussed in Note 18 is classified as Level 3. The fair value was estimated by applying the Monte Carlo simulation approach using management's projection of pounds shipped and price per unit. Each quarter-end the Company re-evaluates its assumptions and adjusts to the estimated present value of the expected payments to be made.
Earn-out liabilities associated with the acquisitions of Palmer in 2012 and Specialty in 2014 were adjusted to zero during 2015 and gains of approximately $2,483,333 and $2,414,115, respectively, were recognized. The Palmer earn-out period expired August 21, 2015 and the Specialty earn-out period expired on November 22, 2016. No earn-out payments were made in 2015 or 2016.
There were no changes in the carrying amount of the earn-out liability for the year ended December 31, 2016. The following table presents a summary of changes in fair value of the Company's Level 3 liabilities measured on a recurring basis for 2017:
There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 in the years ended December 31, 2017 or December 31, 2016. There have also been no changes in the fair value methodologies used by the Company during the years ended December 31, 2017 or December 31, 2016.
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