Goodwill

We perform an impairment test for goodwill annually as of October 1, or more frequently if indicators of potential impairment exist. For the purposes of this test, the fair value of our reporting units is determined using both an income approach and a market approach. Through the income approach we estimate fair value by discounting each reporting unit’s estimated future cash flows using a weighted-average cost of capital that reflects current market conditions and considers the risk profile of each reporting unit. Through the market approach we estimate fair value using both forward and trailing-twelve-month earnings multiples derived from recent representative transactions and observable market multiples.

Our reporting units are components of our operating segments, certain of which are aggregated. Our reporting units include the United States, Canada, Latin America, Europe, SSA, Russia, MENA and Asia Pacific. In addition, five additional reporting units were identified in the current period representing the rigs business in each region with the exception of the United States, Canada and Russia.

Our annual goodwill impairment test indicated that the goodwill of the rigs reporting units in Latin America, Europe and Asia Pacific was potentially impaired. The results of our “step-one” analysis were accompanied by other indicators in the form of a decline in the anticipated utilization rates for our drilling rig fleet. Responsive to the impairment indicators noted, we performed a “step two” analysis, comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The “step two” analysis indicated that the goodwill for these reporting units was fully impaired and we recognized an impairment loss of $40 million in the fourth quarter, of which $15 million, $13 million, $12 million, were attributable to the Latin America, Europe and Asia Pacific rigs reporting units, respectively.

In addition, during the second quarter of 2014, we engaged in negotiations to sell our land drilling and workover operations in Russia and Venezuela and we subsequently entered into an agreement to sell the business in July 2014. During this timeframe we expected the sale would significantly impact the revenues and results of operations of our Russia reporting unit, and consequently, we considered the associated circumstances to assess whether an event or change had occurred that, more likely than not, reduced the fair value of our reporting units below their carrying amount. We concluded that the planned sale represented an indicator of impairment and we prepared the analysis necessary to identify the potential impairment and recognize any necessary impairment loss. The analysis indicated that the goodwill for the Russia reporting unit was impaired, we recognized a goodwill impairment loss of $121 million, $95 million of which pertained to goodwill classified, at the time, in current assets held for sale. See “Note 2 – Business Combinations and Divestitures” for additional information regarding the non-cash impairment charges to our assets held for sale.

During the second quarter of 2012, we noted a sustained decline in the market price of our registered shares such that our market capitalization was lower than our total shareholders’ equity for an extended period. Additionally, certain of our reporting units were not performing at the levels previously expected. In response, we considered the associated circumstances to assess whether an event or change occurred that, more likely than not, reduced the fair value of any of our reporting units below their carrying amount. After considering the relevant circumstances, we concluded that the decline in our market capitalization was a potential indicator of impairment and we prepared the analysis necessary to identify potential impairment through the comparison of reporting unit fair values and carrying amounts. This “step one” analysis indicated that the goodwill attributed to our MENA and SSA reporting units was potentially impaired. Consequently, we performed the “step two” analysis of the goodwill impairment test, comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The “step two” analysis indicated that the goodwill for both reporting units was fully impaired and we recognized an impairment loss of $589 million in the second quarter, of which $512 million was attributable to MENA and $77 million to SSA.

The changes in the carrying amount of goodwill by reportable segment for the two years ended December 31, 2014 and 2013, were as follows:



(Dollars in millions)	North America			MENA/ Asia Pacific			Europe/ SSA/ Russia			Latin America			Total
Balance at December 31, 2012	$	2,336		$	226		$	955		$	354		$	3,871
Acquisitions	—			—			2			—			2
Disposals	(23		)	(4		)	(13		)	(1		)	(41		)
Purchase price and other adjustments	1			—			(3		)	2			—
Foreign currency translation	(71		)	(13		)	(29		)	(10		)	(123		)
Reclassification to current assets held for sale	(262		)	(2		)	(143		)	(12		)	(419		)
Balance at December 31, 2013	$	1,981		$	207		$	769		$	333		$	3,290

Impairment	$	—		$	(12	)	$	(39	)	$	(15	)	$	(66	)
Acquisitions	—			6			—			—			6
Purchase price and other adjustments	1			—			8			(14		)	(5		)
Foreign currency translation adjustments	(86		)	(6		)	(115		)	(7		)	(214		)
Balance at December 31, 2014	$	1,896		$	195		$	623		$	297		$	3,011