Impairments and Other Charges

3 Months Ended

Mar. 31, 2020

Impairments and Other Charges

Impairments and Other Charges

Note 10 Impairments and Other Charges

The components of impairments and other charges are provided below:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Tangible Assets & Equipment:
Impairment of long-lived assets	$	147,750		—
Subtotal		147,750		—
Goodwill & Intangible Assets:
Goodwill impairments		27,798		—
Intangible asset impairment		83,624		—
Subtotal		111,422		—
Other Charges:
Other assets		15,078		—
Severance and transaction-related costs		2,184		—
Total	$	276,434	$	—

During the first quarter of 2020, the oil market experienced unprecedented volatility leading to a significant decline in oil prices resulting from oversupply and demand weakness. As a result of these conditions, we determined a triggering event had occurred which required us to perform impairment testing of our long-lived assets, goodwill and intangible assets. See Note 1—General for further details surrounding the economic environment.

Tangible Assets and Equipment

We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to the extent the carrying amount of the long-lived asset exceeds its estimated fair value. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. The determination of future cash flows requires the estimation of utilization, dayrates, operating margins, sustaining capital and remaining economic life. Such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry.

Based on our analysis during the first quarter of 2020, we impaired some of our rigs and drilling-related equipment within our U.S. Drilling, International Drilling, Drilling Solutions and Rig Technologies reportable segments resulting in charges of $82.4 million, $30.5 million, $19.8 million and $2.8 million, respectively. Additionally, we recognized an impairment of $12.3 million related to our retained interest in the oil and gas properties located on the North Slope of Alaska. These impairments resulted from the lack of future contractual opportunities on specific rigs or other assets as a result of current market conditions across certain geographic regions. A significantly prolonged period of lower oil and natural gas prices could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges.

Goodwill impairments

We perform our annual goodwill impairment test during the second quarter of each year. In addition to our annual impairment test, we are required to regularly assess whether a triggering event has occurred which would require interim impairment testing. Due to current industry conditions mentioned above and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we determined a triggering event had occurred and performed a quantitative impairment assessment of our goodwill as of March 31, 2020. Based on the results of our goodwill test, we recognized additional impairment charges to write off the remaining goodwill balances attributable to our Drilling Solutions and Rig Technologies operating segments of $11.4 million and $16.4 million, respectively.

Intangible asset impairments

We also reviewed our intangible assets for impairment. The fair value of our intangible assets are determined using discounted cash flow models. Based on our updated projections of future cash flows, the carrying value of our intangible assets did not support the current fair value. As such, we recognized an impairment of $83.6 million to write off all remaining intangible assets.

Other assets

We recognized charges of $15.1 million for certain assets, primarily including receivables related to our international operations. The charges were primarily attributable to a number of foreign countries, which have been adversely impacted by foreign sanctions or other political risk issues as well as bankruptcies or other financial problems.

Severance and transaction related costs

During the three months ended March 31, 2020, we recognized charges of $2.2 million due to severance and other related costs incurred to right-size our cost structure.