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Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
Note 4 – Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, cash collateral deposited with insurance carriers, life insurance assets, cost and equity investees, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, certain intangible assets and liabilities, including off-market contracts, and debt obligations.
Fair value is the price that would be received to sell an asset or paid to 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 fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The three levels of inputs that may be used are: (i) Level 1 - quoted market prices in active markets for identical assets or liabilities; (ii) Level 2 - observable market-based inputs or other observable inputs; and (iii) Level 3 - significant unobservable inputs that cannot be corroborated by observable market data, which are generally determined using valuation models incorporating management estimates of market participant assumptions. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Fair values of financial instruments are estimated using public market prices, quotes from financial institutions and other available information. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair values. Management believes the carrying values of notes and other receivables, cash collateral deposited with insurance carriers, deferred compensation plan assets and liabilities and outstanding balances on its credit facilities approximate their fair values.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of September 30, 2016 and December 31, 2015, financial instruments required to be measured at fair value on a recurring basis consisted primarily of acquisition-related contingent consideration, which represents the estimated fair value of future earn-outs payable for acquisitions of businesses (“ASC 805 contingent consideration”), and is based on management estimates and entity-specific assumptions, which are Level 3 inputs, and is evaluated on an ongoing basis. As of September 30, 2016 and December 31, 2015, the fair value of the Company’s ASC 805 contingent consideration totaled $41.0 million and $58.4 million, respectively.
There were no additions to ASC 805 contingent consideration from new business combinations in either of the three or nine month periods ended September 30, 2016 or 2015. Payments in connection with ASC 805 contingent consideration for the three and nine month periods ended September 30, 2016 totaled $5.3 million and $15.8 million, respectively, and totaled $5.5 million and $37.7 million for the three and nine month periods ended September 30, 2015, respectively. During the first quarter of 2016, the Company recognized a net reduction in ASC 805 contingent consideration of $2.3 million related to a decrease in the expected earn-out obligations for certain of the Company’s western Canadian oil and gas businesses due to finalization of completed earn-out arrangements and adjustments to expected future period earn-out obligations. For the three and nine month periods ended September 30, 2015, the Company recognized net reductions of $4.4 million and $8.0 million, respectively, of ASC 805 contingent consideration, which related primarily to finalization of earn-out arrangements in the Oil and Gas, Electrical Transmission and Communications segments. These adjustments were recorded within other income. Foreign currency translation activity associated with ASC 805 contingent consideration, which is included within other comprehensive income or loss, as appropriate, was de minimis for the three month period ended September 30, 2016. Foreign currency translation losses for the nine month period ended September 30, 2016 totaled $0.5 million. Foreign currency translation gains associated with ASC 805 contingent consideration totaled $2.8 million and $6.4 million for the three and nine month periods ended September 30, 2015, respectively.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities recognized or disclosed at fair value on a non-recurring basis, for which remeasurement occurs in the event of an impairment or other measurement event, if applicable, include items such as cost and equity investees, life insurance assets, long-lived assets, goodwill, other intangible assets and liabilities, including off-market contracts, and debt.
As of both September 30, 2016 and December 31, 2015, the carrying amount of the Company’s 4.875% senior notes due 2023 (the “4.875% Senior Notes”) totaled $400 million. As of September 30, 2016 and December 31, 2015, the estimated fair value of the Company’s 4.875% Senior Notes, based on quoted market prices in active markets, a Level 1 input, totaled $396.0 million and $344.0 million, respectively.
Cost and Equity Investees. The Company’s cost and equity investees as of September 30, 2016 are primarily composed of: (i) the Company’s equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) the Company’s equity interests in a pre-acquisition investment of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”); (iii) a $15 million cost investment in Cross Country Pipeline Supply, Inc. (“CCP”); and the Company’s interests in certain proportionately consolidated non-controlled contractual joint ventures, as discussed in Note 15 - Related Party Transactions.
The Waha JVs. The Company has issued letters of credit as collateral for its equity commitments in the Waha JVs (the “Equity LC Amount”). As of September 30, 2016 and December 31, 2015, $109 million and $78 million of Equity LC Amounts, respectively, were outstanding. The Waha JVs are party to certain interest rate swaps. The Company reflects its proportionate share of any unrealized fair market value gains or losses from fluctuations in interest rates associated with these swaps in its financial statements. For the three and nine month periods ended September 30, 2016, the Company’s proportionate share of unrecognized unrealized fair market value losses on these interest rate swaps, which are accounted for as qualifying cash flow hedges by the Waha JVs, totaled approximately $0.6 million and $21.1 million, or $0.3 million and $12.9 million, net of tax, which amounts were included within other comprehensive loss. For the three and nine month periods ended September 30, 2016, revenue recognized in connection with work performed for the Waha JVs, net of intercompany eliminations, totaled $80.9 million and $142.8 million, respectively. As of September 30, 2016, related receivables, including retainage, and net of billings in excess of costs and earnings, totaled $11.4 million. As of September 30, 2016 and December 31, 2015, the Company’s net investment in the Waha JVs represented a liability within the Company’s consolidated balance sheets totaling $21.9 million and $4.4 million.
Other equity investees. In connection with the 2014 acquisition of Pacer, the Company acquired equity interests in two joint ventures. One of these entities was liquidated in 2016, and the second, which is in the final stages of liquidation, is being managed by a receiver to assist with the orderly wind-down of its operations. During the first quarter of 2016, the Company recorded $3.6 million of earnings related to increases in expected recoveries from these investments. The aggregate net carrying value of these investments, including project and financing receivables, totaled $32.2 million and $28.8 million as of September 30, 2016 and December 31, 2015, which amounts were substantially all recorded within other current assets. There are no remaining amounts expected to be advanced to these entities, and all related project work was complete as of September 30, 2016.
The fair values of the Company’s cost and equity investees are not readily observable. The Company is not aware of events or changes in circumstances that would have a significant adverse effect on the carrying values of its cost and/or equity investees as of September 30, 2016 or December 31, 2015.