Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements Fair Value Measurements (Tables)

v3.7.0.1
Fair Value Measurements Fair Value Measurements (Tables)
6 Months Ended
Jun. 30, 2017
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 June 30, 2017 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)
$
688

 
$

 
$

Derivative instruments (included in other receivables)

 
225

 

Construction reserve funds
67,799

 

 

LIABILITIES
 
 
 
 
 
Derivative instruments (included in other current liabilities)

 
623

 

Conversion option liability on 3.75% Convertible Senior Notes

 

 
27,109


____________________
(1)
Marketable security gains (losses), net include unrealized losses of $0.1 million for the six months ended June 30, 2017 related to marketable security positions held by the Company as of June 30, 2017.
The fair value of the conversion option liability on the 3.75% 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. The Company used a binomial lattice model that assumes the holders will maximize their value by finding the optimal decision between redeeming at the redemption price or exchanging into shares of Common Stock. This model estimates the fair value of the conversion option as the differential in the fair value of the notes including the conversion option compared with the fair value of the notes excluding the conversion option.
The significant observable inputs used in the fair value measurement include the price of Common Stock and the risk free interest rate. The significant unobservable inputs are the estimated Company credit spread and Common Stock volatility, which were based on comparable companies in the marine transportation and energy industries.
The estimated fair values of the Company’s other financial assets and liabilities as of June 30, 2017 were as follows (in thousands):
 
 
 
Estimated Fair Value
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
$
152,782

 
$
152,782

 
$

 
$

Investments, at cost, in 50% or less owned companies (included in other assets)
132

 
see below

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
315,497

 
$

 
$
283,893

 
$


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 by using discounted cash flow analysis 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. 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 six months ended June 30, 2017 were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
Investments, at equity, and advances to 50% or less owned companies
$
15,700

 
$

 
$
19,374


Investments, at equity, and advances in 50% or less owned companies. During the six months ended June 30, 2017, the Company marked its investments in Sea-Cat Crewzer and Sea-Cat Crewzer II to fair value upon the acquisition of 100% controlling interests in the companies. The fair values were determined based on the purchase price of the acquired interests.
    
During the six months ended June 30, 2017, the Company’s partner declined to participate in a capital call from Falcon Global and, as a consequence, the Company obtained 100% voting control of Falcon Global in accordance with the terms of the operating agreement (see Note 4). Upon the change in control, the Company marked its investment in Falcon Global to fair value. Falcon Global’s primary assets consist of two newly constructed foreign-flag liftboats. The estimated fair value of the liftboats was the primary input used by the Company in determining the fair value of its investment based on a third-party valuation using significant inputs that are unobservable in the market and therefore are considered a Level 3 fair value measurement. Due to limited market transactions, the primary valuation methodology applied by the appraisers was an estimated cost approach less economic obsolescence based on utilization and rates per day worked trending over the prior year in the Middle East region where the vessels are intended to operate.
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis
The Company’s financial assets and liabilities as of June 30, 2017 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)
$
688

 
$

 
$

Derivative instruments (included in other receivables)

 
225

 

Construction reserve funds
67,799

 

 

LIABILITIES
 
 
 
 
 
Derivative instruments (included in other current liabilities)

 
623

 

Conversion option liability on 3.75% Convertible Senior Notes

 

 
27,109


____________________
(1)
Marketable security gains (losses), net include unrealized losses of $0.1 million for the six months ended June 30, 2017 related to marketable security positions held by the Company as of June 30, 2017.
Estimated Fair Value Of Other Financial Assets And Liabilities
The estimated fair values of the Company’s other financial assets and liabilities as of June 30, 2017 were as follows (in thousands):
 
 
 
Estimated Fair Value
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
$
152,782

 
$
152,782

 
$

 
$

Investments, at cost, in 50% or less owned companies (included in other assets)
132

 
see below

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
315,497

 
$

 
$
283,893

 
$

Fair value 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 six months ended June 30, 2017 were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
Investments, at equity, and advances to 50% or less owned companies
$
15,700

 
$

 
$
19,374