FAIR VALUE MEASUREMENTS |
12 Months Ended |
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Dec. 31, 2016 | |
| Fair Value Disclosures [Abstract] | |
| FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTS
Recurring fair value measurements and financial instruments - The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payables approximate their fair values.
LEEVAC transaction - We recorded the assets and liabilities acquired from LEEVAC at their estimated fair values. See Note 2. The values assigned for the valuation of the machinery and equipment we acquired were estimated primarily using the cost method. The cost method uses the concept of replacement and/or reproductive cost of the asset less depreciation due to physical, functional and economic factors, including obsolescence. The preliminary values assigned to the intangible assets (leasehold interest) and below market contracts were calculated using the income method by applying a discounted cash flow model to the differences between the forecasted cash flows and market rates. The significant estimates and assumptions used in calculating these estimates are generally unobservable in the marketplace and reflect management’s estimates of assumptions that market participants would use. Accordingly, we have determined that the fair values assigned to the assets and liabilities acquired in the LEEVAC transaction fall within Level 3 of the fair value hierarchy.
Impairment of long-lived assets - We evaluate long-lived assets or asset groups used in operations for impairment losses when events and circumstances indicate that the assets or asset groups might not be recoverable. If events and circumstance indicate that the assets or asset groups might not be recoverable, the expected future undiscounted cash flows from the assets or asset groups are estimated and compared with the carrying amount of the assets or asset groups. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets or asset groups, an impairment loss is recorded.
An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and recording the excess of the carrying amount of the asset or asset group over its fair value as an impairment charge. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other asset or liability groups. Fair value is determined based on discounted cash flows or appraised values, as appropriate. As a result of the indicators of impairment identified for the South Texas properties asset group, and the uncertainty with respect to the future undiscounted cash flows, we have obtained appraisals, level 3 inputs, to determine the fair value of the asset group, which did not result in impairment.
Assets held for sale - We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell. The determination of fair value can require the use of significant judgment and can vary on the facts and circumstances.
We had no assets held for sale at December 31, 2016. Assets held for sale at December 31, 2015 consist of equipment that was subsequently sold during the first quarter of 2016. We estimated the fair value as the actual cash proceeds received less costs incurred to sell. We recorded an impairment of $0.6 million related to this equipment during the fourth quarter of 2015.
During 2015, we recorded an impairment related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract for a deepwater project in 2012 in the amount of $6.6 million. We reclassified the asset’s net realizable value of $3.7 million from assets held for sale to inventory based on the estimated scrap value of these materials. The impairment was the result of our limited ability to effectively market these assets held for sale due to the sustained downturn in the energy sector and a potential buyer that was no longer expressing interest in the assets.
During the fourth quarter of 2014, management recorded an impairment charge of $3.2 million related to these same assets based upon a fair value $10.3 million for these assets with the assistance of third party valuation specialists, 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.
We have determined that our impairments of assets held for sale and inventory are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy.
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