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Note 4 - Fair Value Measurements
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

4.         Fair value measurements

 

Recurring Basis

 

A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of December 31, 2021 and 2020, were as follows (in thousands):

 

  

December 31, 2021

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Investments:

                

Cash surrender value of life insurance policies-

                

Deferred compensation plan

 $-  $18,857  $-  $18,857 

Non-current accounts receivable, net

  -   11,531   -   11,531 

Liabilities:

                

Deferred compensation plan

  -   9,339   -   9,339 

Finance lease liabilities

  -   16,919   -   16,919 

 

  

December 31, 2020

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Non-current accounts receivable, net

 $-  $11,321  $-  $11,321 

Liabilities:

                

Finance lease liabilities

  -   18,194   -   18,194 

 

Our investments associated with our deferred compensation plan at December 31, 2021 consist primarily of the cash surrender value of life insurance policies and is included in other assets on the consolidated balance sheets. The liability associated with our deferred compensation plan at December 31, 2021 is included in other liabilities on the consolidated balance sheets. Our investments change as a result of contributions, payments, and fluctuations in the market. Assets and liabilities, measured using significant observable inputs, are reported at fair value based on third-party broker statements, which are derived from the fair value of the funds’ underlying investments. They are reported at fair value based on the price of the stock and are included in other assets on the consolidated balance sheets.

 

Non-recurring Basis

 

We apply the provisions of the fair value measurement standard to our non-recurring, non-financial measurements including business combinations and assets identified as held for sale, as well as impairment related to goodwill and other long-lived assets. For business combinations, the purchase price is allocated to the assets acquired and liabilities assumed based on a discounted cash flow model for most intangibles as well as market assumptions for the valuation of equipment and other fixed assets.

 

Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference. 

 

When conducting an impairment test on long-lived assets, other than goodwill, we first compare estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount. If the undiscounted cash flows are less than the asset’s carrying amount, we then determine the asset’s fair value by using a discounted cash flow analysis. These analyses are based on estimates such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential of the asset, and a discount rate based on our weighted average cost of capital. For assets that meet the criteria to be classified as held for sale, a market approach is used to determine fair value based on third-party appraisal reports.

 

The impairment assessments discussed above incorporate inherent uncertainties, including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment expense in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts. If crude oil prices decline significantly and remain at low levels for a sustained period of time, we could be required to record an impairment of the carrying value of our long-lived assets in the future which could have a material adverse impact on our operating results. Given the unobservable nature of the inputs, the discounted cash flow models are deemed to use Level 3 inputs.

 

No impairment expense was recognized during the year ended December 31, 2021. The following table presents total amount of impairment expense recognized during the years ended December 31, 2020 and 2019 (in thousands):

 

  

2020

  

2019

 

Goodwill

 $191,893  $26,422 

Intangible assets, net

  60,394   17,901 

Property, plant and equipment, net

  19,993   4,713 

Operating lease right-of-use assets

  15,174   - 

Total

 $287,454  $49,036 

 

Goodwill

 

As of October 31, 2021, our annual testing date, we performed a qualitative assessment of our goodwill and determined there were no events or circumstances that indicated it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Accordingly, no impairment expense related to goodwill has been recorded during the year ended December 31, 2021.

 

In March 2020, the Company observed a material increase in macro-economic uncertainty and a material decrease in oil and gas prices as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic and disagreements between the Organization of Petroleum Exporting Countries and other oil producing nations regarding limits on production. As a result, customers significantly decreased capital budgets and other spending, which significantly impacted our global outlook for the industry. We determined that these events constituted a triggering event that required us to perform a quantitative goodwill impairment assessment as of March 31, 2020 (“Testing Date”) and to review the recoverability of all our long-lived assets.

 

We used the income approach to estimate the fair value of our reporting units, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using an estimated discount rate, or expected return, that a marketplace participant would have required as of the valuation date. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results and involves significant judgment in the selection of the appropriate peer group companies and valuation multiples.

 

Under the income approach, we utilized third-party valuation advisors to assist us with these valuations. These analyses included significant judgment, including significant Level 3 assumptions related to management’s short-term and long-term forecast of operating performance, discount rates based on our estimated weighted average cost of capital, revenue growth rates, profitability margins and capital expenditures.

 

Our interim quantitative impairment test in 2020 determined the carrying value of certain of our reporting units exceeded their estimated fair value as of the Testing Date, which resulted in goodwill impairment expense of $191.9 million. Our annual quantitative impairment test in 2020 determined no further impairment to goodwill was to be recorded. Our annual quantitative impairment test in 2019 determined the carrying value of certain of our reporting units exceeded their estimated fair value as of the Testing Date, which resulted in goodwill impairment expense of $26.4 million. After recording of the impairment expense, the carrying value of certain of our impaired reporting units equaled their fair value whereas the estimated fair values of other reporting units was more than their carrying values.

 

Long-lived Assets

 

The Company did not identify any indicators of impairment related to our long-lived assets during the year ended December 31, 2021. In reviewing the recoverability of our long-lived assets during 2020 and 2019, we identified certain of our long-lived assets which exceeded their respective fair values and certain of our long-lived assets which were deemed to be no longer useable. As a result, during 2020 we recorded impairment expense of $20.0 million, $60.4 million and $15.2 million relating to our property, plant and equipment, intangible assets and operating lease right-of-use assets, respectively, and during 2019, we recorded impairment expense of $4.7 million and $17.9 million relating to our property, plant and equipment and intangible assets, respectively.

 

Financial Instruments

 

The estimated fair values of the Company’s financial instruments have been determined at discrete points in time based on relevant market information. The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and accrued liabilities and interest-bearing loans. The carrying amounts of the Company’s financial instruments other than interest bearing loans approximate fair value due to the short-term nature of the items. The Company does not have any outstanding borrowings on its interest-bearing loans.