Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements Fair Value Measurements (Tables)

v3.5.0.2
Fair Value Measurements Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The Company’s financial assets and liabilities as of September 30, 2016 that are measured at fair value on a recurring basis were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
Marketable securities(1)
$
78,717

 
$

 
$

Derivative instruments (included in other receivables)
51

 

 

Construction reserve funds
161,865

 

 

LIABILITIES
 
 
 
 
 
Short sale of marketable securities(1) (included in other current liabilities)
2,745

 

 

Derivative instruments (included in other current liabilities)
1,479

 
481

 

Exchange option liability on subsidiary convertible senior notes

 

 
8,938

______________________
(1)
Marketable security losses, net include unrealized losses of $8.0 million and $1.7 million for the three months ended September 30, 2016 and 2015, respectively, related to marketable security positions held by the Company as of September 30, 2016. Marketable security losses, net include unrealized losses of $56.8 million and $1.3 million for the nine months ended September 30, 2016 and 2015, respectively, related to marketable security positions held by the Company as of September 30, 2016.
Level 3 Inputs. The fair value of the exchange option liability on subsidiary convertible senior notes is estimated with significant inputs that are both observable and unobservable in the market and therefore is considered a Level 3 fair value measurement. Observable inputs include market quotes, current interest rates, benchmark yield curves, volatility, quoted prices of securities with similar characteristics and historical dividends. The significant unobservable input used in the fair value measurement is the probability assessment of a SMH Spin-off. In the fair value measurement, holding the observable inputs constant, a significant increase in the probability of a SMH Spin-off would result in a significantly lower exchange option liability.
The estimated fair values of the Company’s other financial assets and liabilities as of September 30, 2016 were as follows (in thousands):
 
 
 
Estimated Fair Value
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
$
474,544

 
$
474,544

 
$

 
$

Investments, at cost, in 50% or less owned companies (included in other assets)
9,545

 
see below
 
 
 
 
Notes receivable from third parties (included in other receivables and other assets)
24,723

 
see below
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion(1)
1,041,919

 

 
1,047,546

 

______________________
(1)
The estimated fair value includes the embedded conversion options on the Company’s 2.5% and 3.0% Convertible Senior Notes.
The carrying value of cash, cash equivalents and restricted cash approximates fair value. The fair value of the Company’s long-term debt was estimated based upon quoted market prices or by using discounted cash flow analyses based on estimated current rates for similar types of arrangements. It was not practicable to estimate the fair value of certain of the Company’s investments, at cost, in 50% or less owned companies because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. It was not practicable to estimate the fair value of the Company’s notes receivable from third parties as the overall returns are uncertain due to certain provisions for additional payments contingent upon future events. Considerable judgment was required in developing certain of the estimates of fair value and, accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The Company’s other assets and liabilities that were measured at fair value during the nine months ended September 30, 2016 were as follows (in thousands):
 
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
Property and equipment(1)
 
$

 
$
2,853

 
$
172,230

Intangible assets, net(1)
 

 

 

Investment at cost (included in other assets)(2)
 

 
3,500

 

Investment at equity in a 50% or less owned company(3)
 

 

 

Notes receivable from third parties (included in other assets)(4)
 

 

 

______________________
(1)
During the nine months ended September 30, 2016, the Company recognized impairment charges of $51.7 million associated with certain Offshore Marine Services’ offshore support vessels (see Note 1) and certain Inland River Services’ equipment currently under construction. The fair value of two offshore support vessels were determined based on the contracted sales prices of the vessels. The fair value of the equipment under construction was determined based on scrap steel value. The fair value of the remaining offshore support vessels were determined based on third-party valuations using significant inputs that are unobservable in the market and therefore are considered a Level 3 fair value measurement. The significant unobservable inputs used in the fair value measurement were the construction costs of similar new equipment and estimated economic depreciation for comparably aged assets with a discount applied for economic obsolescence based on current and prior two years’ performance trending.
(2)
During the nine months ended September 30, 2016, the Company identified indicators of impairment in a Shipping Services’ cost investment in a foreign container shipping company and, as a consequence, recognized an impairment charge of $6.5 million for an other-than-temporary decline in fair value. The fair value was based on the value of the common stock issued in a recent offering.
(3)
During the nine months ended September 30, 2016, the Company identified indicators of impairment in one of Offshore Marine Services’ equity method investments as a result of continuing weak market conditions and, as a consequence, recognized a $0.3 million impairment charge, net of tax, for an other-than-temporary decline in fair value. The investment was determined to have no value and the Company has suspended equity method accounting.
(4)
During the nine months ended September 30, 2016, the Company recorded a $6.7 million reserve for one of its notes receivable from third parties following a decline in the underlying collateral value. The collateral was determined to have no value.
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis
The Company’s financial assets and liabilities as of September 30, 2016 that are measured at fair value on a recurring basis were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
Marketable securities(1)
$
78,717

 
$

 
$

Derivative instruments (included in other receivables)
51

 

 

Construction reserve funds
161,865

 

 

LIABILITIES
 
 
 
 
 
Short sale of marketable securities(1) (included in other current liabilities)
2,745

 

 

Derivative instruments (included in other current liabilities)
1,479

 
481

 

Exchange option liability on subsidiary convertible senior notes

 

 
8,938

______________________
(1)
Marketable security losses, net include unrealized losses of $8.0 million and $1.7 million for the three months ended September 30, 2016 and 2015, respectively, related to marketable security positions held by the Company as of September 30, 2016. Marketable security losses, net include unrealized losses of $56.8 million and $1.3 million for the nine months ended September 30, 2016 and 2015, respectively, related to marketable security positions held by the Company as of September 30, 2016.
Estimated Fair Value Of Other Financial Assets And Liabilities
The estimated fair values of the Company’s other financial assets and liabilities as of September 30, 2016 were as follows (in thousands):
 
 
 
Estimated Fair Value
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
$
474,544

 
$
474,544

 
$

 
$

Investments, at cost, in 50% or less owned companies (included in other assets)
9,545

 
see below
 
 
 
 
Notes receivable from third parties (included in other receivables and other assets)
24,723

 
see below
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion(1)
1,041,919

 

 
1,047,546

 

______________________
(1)
The estimated fair value includes the embedded conversion options on the Company’s 2.5% and 3.0% Convertible Senior Notes.
Fair vale of non-financial assets and liabilities measured on a nonrecurring basis
The Company’s other assets and liabilities that were measured at fair value during the nine months ended September 30, 2016 were as follows (in thousands):
 
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
Property and equipment(1)
 
$

 
$
2,853

 
$
172,230

Intangible assets, net(1)
 

 

 

Investment at cost (included in other assets)(2)
 

 
3,500

 

Investment at equity in a 50% or less owned company(3)
 

 

 

Notes receivable from third parties (included in other assets)(4)
 

 

 

______________________
(1)
During the nine months ended September 30, 2016, the Company recognized impairment charges of $51.7 million associated with certain Offshore Marine Services’ offshore support vessels (see Note 1) and certain Inland River Services’ equipment currently under construction. The fair value of two offshore support vessels were determined based on the contracted sales prices of the vessels. The fair value of the equipment under construction was determined based on scrap steel value. The fair value of the remaining offshore support vessels were determined based on third-party valuations using significant inputs that are unobservable in the market and therefore are considered a Level 3 fair value measurement. The significant unobservable inputs used in the fair value measurement were the construction costs of similar new equipment and estimated economic depreciation for comparably aged assets with a discount applied for economic obsolescence based on current and prior two years’ performance trending.
(2)
During the nine months ended September 30, 2016, the Company identified indicators of impairment in a Shipping Services’ cost investment in a foreign container shipping company and, as a consequence, recognized an impairment charge of $6.5 million for an other-than-temporary decline in fair value. The fair value was based on the value of the common stock issued in a recent offering.
(3)
During the nine months ended September 30, 2016, the Company identified indicators of impairment in one of Offshore Marine Services’ equity method investments as a result of continuing weak market conditions and, as a consequence, recognized a $0.3 million impairment charge, net of tax, for an other-than-temporary decline in fair value. The investment was determined to have no value and the Company has suspended equity method accounting.
(4)
During the nine months ended September 30, 2016, the Company recorded a $6.7 million reserve for one of its notes receivable from third parties following a decline in the underlying collateral value. The collateral was determined to have no value.