5. ASSETS HELD FOR SALE

Assets held for sale consist of a partially constructed topside, related valves, piling and equipment that we acquired from a customer following its default under a contract for a deepwater project in 2012. Assets held for sale are required to be measured at the lower of their carrying amount or fair value less cost to sell. Management determined fair value of these assets with the assistance of third party valuation specialists, assuming the sale of the underlying assets individually or in the aggregate to a willing market participant, including normal ownership risks assumed by the purchaser, and the sale of certain components at scrap value. We estimated fair value relying primarily on the cost approach and applied the market approach where comparable sales transaction information was readily available. The cost approach is based on current replacement or reproduction costs of the subject assets less depreciation attributable to physical, functional, and economic factors. The market approach involves gathering data on sales and offerings of similar assets in order to value the subject assets. This approach also includes an assumption for the measurement of the loss in value from physical, functional, and economic factors. The fair value of assets held for sale represent Level 3 fair value measurements (as defined by GAAP), based primarily on the limited availability of market pricing information for either identical or similar items. In connection with its 2014 fourth quarter assessment of the fair value of assets held for sale, management determined that its previous estimate of $13.5 million for the fair value of these assets had declined to $10.3 million. As a result, we included in our income statement within general and administrative expenses for the year ended December 31, 2014 an impairment charge of $3.2 million.

During the first quarter, 2014, we entered into an agreement with the manufacturer of certain equipment, representing approximately 50% of the fair value of assets held for sale, whereby the manufacturer agreed to assist with restoration and marketing efforts, in return for a percentage of the sale proceeds. The agreement includes an assessment period at the end of which the two parties determine whether or not to continue marketing efforts for an additional six months. It is management’s intention to continue to renew the agreement at least through the end of calendar year 2015. In addition, Management has engaged consultants to assist with the marketing efforts for the assets held for sale as well as providing assistance to secure potential FLNG (“Floating Liquefied Natural Gas”) opportunities.

To date, we have not sold, licensed, or leased any of the equipment subject to the security agreement; however, we continue to actively market the equipment, and believe that the fair value of the assets is recoverable through the eventual disposition of project deliverables. However, the ultimate amount we are able to recover for these assets is dependent upon various factors including overall market interest in the project deliverables and equipment, which may change in the future. The timing of any sales we are able to consummate and the price we are able to obtain may result in a revision to the recorded fair value amount of any remaining assets held for sale.

In addition, during 2013, we included $1.0 million in assets held for sale for the sale of an aircraft and recorded a $0.3 million loss related to the sale. The aircraft was delivered to the buyer in February 2014.