Note 12 - Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

(12)

     

Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into

three

broad categories:

• Level 1 - quoted prices in active markets for identical securities;

• Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and

• Level 3 - significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing financial assets and liabilities are not necessarily an indication of the risk associated with investing in them.

We use the income approach to determine the fair value of any interest rate swap using observable Level

2

market expectations at each measurement date and an income approach to convert estimated future cash flows to a single present value amount (discounted) assuming that participants are motivated, but not compelled, to transact. Level

2

inputs for the swap valuation are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the

first

two

years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs, including the cash rates for very short term borrowings, futures rates for up to

two

years and LIBOR swap rates beyond the derivative maturity, are used to predict future reset rates to discount those future cash flows to present value at the measurement date.

Inputs are collected from Bloomberg on the last market day of the period and used to determine the rate applied to discount the future cash flows. The valuation of an interest rate swap also takes into consideration estimates of our own, as well as the counterparty’s, risk of non-performance under the contract. See Note

8

and

11

for more details regarding our derivative contracts.

We estimate the value of our equity-method investments, which are recorded at fair value on a non-recurring basis, based on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets. Because these valuations contain unobservable inputs, we classified the measurement of fair value of our equity-method investments as Level

3.

We estimate the value of other long-lived assets that are recorded at fair value on a non-recurring basis based on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in divestitures, acquisitions and real estate transactions. Additionally, we

may

use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence. When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value. Real estate appraisers’ and brokers’ valuations are typically developed using

one

or more valuation techniques including market, income and replacement cost approaches. Because these valuations contain unobservable inputs, we classified the measurement of fair value of long-lived assets as Level

3.

There were no changes to our valuation techniques during the year ended

December

 

31,

2016.

Assets and Liabilities Measured at Fair Value

We did not have any amounts associated with derivative contracts, our equity method investment or long-lived assets recorded at fair value as of

December

31,

2016.

Following are the disclosures related to our assets that are measured at fair value (in thousands) as of

December

31,

2015:

Fair Value at December 31, 2015	Level 1		Level 2		Level 3
Measured on a recurring basis:
Derivative contract, net	$	—	$	532	$	—
Measured on a non-recurring basis:
Equity-method investment	$	—	$	—	$	22,284
Long-lived assets held and used:
Certain buildings and improvements	$	—	$	—	$	6,559

See Note

11

for more details regarding our derivative contracts and Note

4

regarding our long-lived assets.

Based on operating losses recognized by the equity-method investment, we determined that an impairment of our investment had occurred. Accordingly, we performed a fair value calculation for this investment and determined that a

$14.0

million,

$16.5

million and

$1.9

million impairment, respectively, was required to be recorded as asset impairments in our Consolidated Statements of Operations for the years ended

December

 

31,

2016,

2015

and

2014

respectively. See Note

18.

Fair Value Disclosures for Financial Assets and Liabilities

We have fixed rate debt and calculate the estimated fair value of our fixed rate debt using a discounted cash flow methodology. Using estimated current interest rates based on a similar risk profile and duration (Level

2),

the fixed cash flows are discounted and summed to compute the fair value of the debt. As of

December

 

31,

2016,

this debt had maturity dates between

May

 

1,

2018

and

December

 

31,

2050.

A summary of the aggregate carrying values and fair values of our long-term fixed interest rate debt is as follows (in thousands):

December 31,	2016		2015
Carrying value	$	286,660	$	297,463
Fair value		293,522		296,961

We believe the carrying value of our variable rate debt approximates fair value.