Note 4. Property and Equipment

Property and equipment consisted of the following at December 31 (in thousands):

 

 

Property and equipment includes assets held for sale of $17.5 million and $7.4 million at December 31, 2016 and 2015, respectively (see Note 5). See Note 24 for assets held for sale subsequent to December 31, 2016.

At December 31, 2016, the Partnership had a $63.0 million remaining net book value of long-lived assets at its West Coast facility, including $30.5 million related to the Partnership’s ethanol plant acquired in 2013. In 2016, the Partnership shifted the facility from crude oil to ethanol transloading and has begun transloading ethanol. The Partnership would, however, need to take certain measures to prepare the facility for ethanol production in order to place the plant into service. Therefore, the $30.5 million related to the ethanol plant was included in property and equipment and classified as idle plant assets at December 31, 2016 and 2015. Previously the plant asset had been included in property and equipment classified as construction in process. As the Partnership continues to monitor the business development of this facility, the plant was reclassified within property and equipment as an idle plant given the uncertainty as to when the plant might be placed into service. The prior year balance of the plant asset has been reclassified to conform to the current year presentation.

If the Partnership is unable to generate cash flows to support the recoverability of the plant and facility assets, this may become an indicator of potential impairment of the West Coast facility. Associated with the fair value appraisals determined by third-party valuation specialists in support of the Partnership’s step two goodwill impairment test, the Partnership received an estimated fair value for the West Coast facility significantly in excess of the $63.0 million remaining net book value. The estimated fair value obtained was based on market comparable transactions for sale of ethanol plant assets, both active and idle, at the time of sale. While the fair value analysis was not prepared or obtained to support the recoverability of the West Coast facility or idle plant assets, the Partnership does not believe that changes in assumptions would impact the estimated fair value such that it might result in a fair value estimate of the West Coast facility that would be less than the $63.0 million net book value at December 31, 2016. The Partnership will monitor the market for ethanol, the continued business development of this facility for either ethanol or crude oil transloading, and the related impact this may have on the facility’s operating cash flows and whether this would constitute an impairment indicator.

Construction in process in 2016 included $20.0 million in costs associated with the Partnership’s terminals, which primarily included investments in information technology and tank construction projects and $22.1 million in costs related to the Partnership’s gasoline stations.

Construction in process in 2015 included $23.1 million in costs associated with the Partnership’s terminals, which primarily included dock expansion, tank construction projects, rail expansion and improvements, various upgrades at certain terminals and investments in information technology and $13.5 million in costs related to the Partnership’s gasoline stations.

Depreciation

Depreciation expense allocated to cost of sales was approximately $95.6 million, $94.8 million and $61.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in 2015 compared to 2014 was due primarily to the January 2015 acquisition of Warren and the June 2015 acquisition of Capitol.

Depreciation expense allocated to selling, general and administrative expenses was approximately $7.0 million, $7.5 million and $6.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in 2015 compared to 2014 was due primarily to the January 2015 acquisition of Warren and the June 2015 acquisition of Capitol.