Note 5 - Goodwill and Intangible Asset Impairment

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE 5 – GOODWILL AND INTANGIBLE ASSET IMPAIRMENT

We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.

In the first half of 2020, demand for oil and natural gas declined sharply as a result of the coronavirus disease 2019 (“COVID-19”) pandemic. This disruption in demand and the resulting decline in the price of oil has had a dramatic negative impact on our business. We experienced a significant reduction in sales beginning in April 2020, which continued throughout the second quarter. At that time, there remained ongoing uncertainty around the timing and extent of any recovery. We took a more pessimistic long-term outlook due to the significant reduction in the demand for oil, the implications of that demand destruction on the price of oil for an extended period of time and actions our customers had taken to curtail costs and reduce spending. As a result of those developments, we concluded that it was more likely than not the fair values of our U.S. and International reporting units were lower than their carrying values. Accordingly, we completed an interim goodwill impairment test as of April 30, 2020. This test resulted in a $217 million goodwill impairment charge during the nine months ended September 30, 2020 comprised of $177 million in our U.S. reporting unit and $40 million in our International reporting unit. 

Goodwill by reporting unit is shown as follows (in millions):

	U.S.			Canada		International			Total
Balance at December 31, 2019 (1)	$	441		$	-	$	42		$	483
Impairment		(177	)		-		(40	)		(217	)
Foreign currency translation adjustments		-			-		(2	)		(2	)
Balance at September 30, 2020	$	264		$	-	$	-		$	264

(1) Net of prior years’ accumulated impairment of $350 million, $69 million and $183 million in the United States, Canada and International, respectively.

As a result of the same factors that necessitated an interim impairment test for goodwill, we completed an interim impairment test, as of April 30, 2020, for our U.S. indefinite-lived tradename asset. This test resulted in an impairment charge of $25 million during the nine months ended September 30, 2020. The remaining balance of the indefinite-lived tradename was $107 million as of September 30, 2020. The U.S. tradename is our only indefinite-lived intangible asset.

Our impairment methodology uses discounted cash flow and multiples of cash earnings valuation techniques, acquisition control premium and valuation comparisons to similar businesses to determine the fair value of a reporting unit. Each of these methods involves Level 3 unobservable market inputs and require us to make certain assumptions and estimates including future operating results, the extent and timing of future cash flows, working capital requirements, sales prices, profitability, discount rates, sales growth trends and cost trends. As of April 30, 2020, the discount rates utilized to value the reporting units were in a range from 9.75% to 11.25%. We utilized third-party valuation advisors to assist us with these valuations. These impairment assessments incorporate inherent uncertainties, which are difficult to predict in volatile economic environments. While we believe that our assumptions and estimates were reasonable, actual results may differ materially from projected results which could result in the recognition of additional impairment charges in future periods.