Impairments and Other Charges

6 Months Ended

Jun. 30, 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				Six Months Ended
		June 30,				June 30,
		2020		2019		2020		2019
	(In thousands)
Tangible Assets & Equipment:
Impairment of long-lived assets		$	—	$	—	$	147,750	$	—
Write offs and charges on long-lived assets			46,295		—	$	46,295		—
Subtotal			46,295		—		194,045		—
Goodwill & Intangible Assets:
Goodwill impairments			—		93,634		27,798		93,634
Intangible asset impairment			—		5,235		83,624		5,235
Subtotal			—		98,869		111,422		98,869
Other Charges:
Other assets			316		—		15,394		—
Severance and transaction-related costs			11,241		—		13,425		—
Loss (gain) on early extinguishment of debt			—		3,701		—		1,034
Total		$	57,852	$	102,570	$	334,286	$	99,903

For the three and six months ended June 30, 2020

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. Lower prices continued through the second quarter and into the third. As a result of these conditions, we determined a triggering event had occurred in the first quarter which required us to perform impairment testing of our long-lived assets, goodwill and intangible assets.

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.

During the second quarter of 2020, we wrote off all the remaining value on our rig and drilling-related equipment in Venezuela due to our lack of work in the country and limited visibility to any possibility of further work.  This resulted in a charge of $32.6 million caused by sanctions and inability to relocate assets.   Other assets throughout the Drilling and Drilling Solutions business were reviewed and approximately $13.8 million were written off due to functional obsolescence.

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 performed in the first quarter, 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 in the quarter ended March 31, 2020.

Intangible asset impairments

We also reviewed our intangible assets for impairment in the first quarter of 2020. The fair value of our intangible assets are determined using discounted cash flow models. Based on our updated projections of future cash flows, the fair value of our intangible assets did not support the carrying value. As such, we recognized an impairment of $83.6 million to write off all remaining intangible assets in the quarter ended March 31, 2020.

Other assets

We recognized charges of $15.4 million in the first six months of 2020, primarily in the first quarter of 2020, for certain assets 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 six months ended June 30, 2020, we recognized charges of $11.2 million due to severance and other related costs incurred to right-size our cost structure. 

For the three and six months ended June 30, 2019

Goodwill impairments

During the three and six months ended June 30, 2019, we recognized goodwill impairment charges of $93.6 million. As part of our annual goodwill impairment test, we determined the carrying value of some of our reporting units exceeded their fair value. As such, we recognized an impairment of $75.6 million for the remaining goodwill balance attributable to our International Drilling operating segment and $18.0 million for a partial impairment to our goodwill balance related to the acquisition of 2TD in 2014, reported within our Rig Technologies operating segment. These non-cash pre-tax impairment charges were primarily the result of a sustained decline in our market capitalization and lower future cash flow projections due to expectations for future commodity prices and the resulting impact on the demand for our products and services within these reporting units.

Intangible impairments

Additionally, we determined the fair value of one of our intangible assets was less than the current book value. As such, we recognized a partial impairment of $5.2 million to write down the intangible asset to its fair value. This intangible asset relates to in-process research and development associated with our rotary steerable tools purchased as part of the 2TD acquisition. Based on our updated projections of future cash flows, the carrying value did not support the current fair value and thus an impairment charge was recognized.