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Fair Value Measurements
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements

7. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for 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. A fair value hierarchy has been established by GAAP that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At times,

the Company holds certain derivative contracts that it uses to manage foreign currency risk or commodity price risk. The Company does not hold or issue derivatives for speculative or trading purposes. The fair values of these financial instruments are summarized as follows:

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

At December 31, 2020

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable Inputs

(Level 3)

 

Fuel hedge contracts

 

$

1,739

 

 

$

 

 

$

1,739

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

At December 31, 2019

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable Inputs

(Level 3)

 

Fuel hedge contracts

 

$

849

 

 

$

 

 

$

849

 

 

$

 

 

Fuel hedge contracts

The Company is exposed to certain market risks, primarily commodity price risk as it relates to the diesel fuel purchase requirements, which occur in the normal course of business. The Company enters into heating oil commodity swap contracts to hedge the risk that fluctuations in diesel fuel prices will have an adverse impact on cash flows associated with its domestic dredging contracts. The Company’s goal is to hedge approximately 80% of the eligible fuel requirements for work in domestic backlog.

As of December 31, 2020, the Company was party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through December 2021. As of December 31, 2020, there were 11.9 million gallons remaining on these contracts which represent approximately 80% of the Company’s forecasted domestic fuel purchases through December 2021. Under these swap agreements, the Company will pay fixed prices ranging from $1.12 to $1.90 per gallon.

At December 31, 2020 and 2019, the fair value asset of the fuel hedge contracts were estimated to be $1,739 and $849, respectively, and are recorded in other current assets. For fuel hedge contracts considered to be highly effective, the losses reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the year ended December 31, 2020 were $5,825. The remaining gains and losses included in the accumulated other comprehensive income (loss) at December 31, 2020 will be reclassified into earnings over the next twelve months, corresponding to the period during which the hedged fuel is expected to be utilized. Changes in the fair value of fuel hedge contracts not considered highly effective are recorded as cost of contract revenues in the Statement of Operations.  The fair value of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair values of these fuel hedges using Level 2 inputs.

The Company is exposed to counterparty credit risk associated with non-performance of its various derivative instruments. The Company’s risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher. In addition, all counterparties are monitored on a continuous basis.

The fair value of the fuel hedge contracts outstanding as of December 31, 2020 and 2019 is as follows:

 

 

 

Balance Sheet Location

 

Fair Value at December 31,

 

 

 

 

 

2020

 

 

2019

 

Asset derivatives:

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

Fuel hedge contracts

 

Other current assets

 

$

1,739

 

 

$

849

 

 

 

Assets and liabilities measured at fair value on a nonrecurring basis

All other nonfinancial assets and liabilities measured at fair value in the financial statements on a nonrecurring basis are subject to fair value measurements and disclosures. Nonfinancial assets and liabilities included in the consolidated balance sheets and measured on a nonrecurring basis consist of goodwill and long-lived assets. Assets included within assets held for sale are reclassified from property and equipment at fair value less cost to sell. Goodwill and long-lived assets are measured at fair value to test for and measure impairment, if any, at least annually for goodwill or when necessary for both goodwill and long-lived assets.

Accumulated other comprehensive income (loss)

Changes in the components of the accumulated balances of other comprehensive income (loss) are as follows:

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Cumulative translation adjustments—net of tax

 

$

 

 

$

 

 

$

1,513

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of derivative (gains) losses to earnings—net of tax

 

 

5,825

 

 

 

1,458

 

 

 

(1,569

)

Change in fair value of derivatives—net of tax

 

 

(5,152

)

 

 

2,646

 

 

 

(3,756

)

Net unrealized (gain) loss on derivatives—net of tax

 

 

673

 

 

 

4,104

 

 

 

(5,325

)

Total other comprehensive income (loss)

 

$

673

 

 

$

4,104

 

 

$

(3,812

)

 

Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are as follows:

 

 

 

Statement of Operations Location

 

 

2020

 

 

 

2019

 

 

 

2018

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fuel hedge contracts

 

Costs of contract revenues

 

$

7,703

 

 

$

1,975

 

 

$

(2,125

)

 

 

Income tax (provision) benefit

 

 

1,878

 

 

 

517

 

 

 

(556

)

 

 

 

 

$

5,825

 

 

$

1,458

 

 

$

(1,569

)

 

The Company substantially completed the liquidation of the investment in its Brazil and Australia operations during 2018. This liquidation resulted in the reversal of the Company’s cumulative translation adjustment.  Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are as follows:

 

 

 

Statement of Operations Location

 

 

2018

 

Cumulative translation adjustment:

 

Other expense

 

$

(2,337

)

 

 

Income tax benefit

 

 

612

 

 

 

 

 

$

(1,725

)

 

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. Based on timing of the cash flows and comparison to current market interest rates, the carrying value of the senior revolving credit agreement approximates fair value. In May 2017, the Company issued a total of $325,000 of 8.000% senior notes due May 15, 2022, which were outstanding at December 31, 2020 (See Note 6, Long-Term Debt). The 8% Senior Notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the Senior Notes. The fair value of the senior notes was $333,320 at December 31, 2020, which is a Level 1 fair value measurement as the senior notes value was obtained using quoted prices in active markets. It is impracticable to determine the fair value of outstanding letters of credit or performance, bid and payment bonds due to uncertainties as to the amount and timing of future obligations, if any.