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Asset Impairments | 9 Months Ended
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Sep. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract] |
Asset Impairments |
1 4. | Asset Impairments
Goodwill and Other Indefinite-Lived Intangible Assets The Company tests intangible assets for impairment annually, or more frequently if events or circumstances indicate they could be impaired. Potential impairment indicators include (but are not limited to) a sustained increase in worldwide inventories of oil or gas or sustained reductions in: worldwide oil and gas prices or drilling activity; the profitability or cash flow of oil and gas companies or drilling contractors; available financing or other capital investment for oil and gas companies or drilling contractors; the market capitalization of the Company or its customers; or capital investments by drilling companies and oil and gas companies. The global oil and gas market downturn that began in 2014 has repeatedly exhibited signs of recovery that subsequently faded. During the second quarter of 2019, several market indicators hit new decade-lows, consistent with a more prolonged downturn for the industry and diminished probability of a stronger near-term recovery. The Company’s stock price reached a fourteen-year low during the quarter and its market capitalization was below its carrying value. Also, during the quarter, the Oil Services Index (OSX), an indicator of the health and the cost of capital of the oil and gas services industry (and of the Company’s primary customer base), hit a low not seen since 2004. The OSX traded down approximately 14 percent from the first quarter to the second quarter of 2019, reflecting a policy of capital discipline adopted by oil and gas producers during the quarter, diminished access to capital, and a higher cost of capital to oilfield services firms. Management reduced its outlook accordingly. In the Company’s view, falling rig count levels in the second quarter provided tangible proof to the equity markets that oil and gas producers were committed to reduced levels of capital investment in drilling, which will lead to reduced levels of demand for oilfield services, and to reduced levels of demand for the capital equipment that the Company sells to its oilfield services customers. Additionally, the second quarter saw the number of oilfield services firms declaring bankruptcy increase, including one of the Company’s large-cap peers and substantial customers. In management’s judgement the current facts and circumstances including those described above constituted a triggering event in the second quarter which indicated the Company’s goodwill and other long-lived assets may be impaired. The Company performed a detailed Step 1 analysis under ASC 350, incorporating this refined outlook, which determined that the fair values were less than the respective carrying values for the following reporting units: Rig Equipment, Marine Construction, Downhole, ReedHycalog, IntelliServ, Grant Prideco, Tuboscope, Wellsite Services, Intervention & Stimulation Equipment, Floating Production Systems, XL Systems, Subsea Production Systems, Fiberglass Systems and Process & Flow Technologies (“Reporting Units”). The Company primarily uses the discounted cash flow method to estimate the fair value of its Reporting Units when conducting the impairment test, but also considers the comparable companies and representative transaction methods to validate the test result and management’s forecast and other expectations, where possible. The valuation techniques used in the test were consistent with those used during previous testing. Fair value of the reporting unit is determined using significant unobservable inputs, or level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments, using discounted cash flow. The inputs used in the test were updated to reflect management’s judgement, current market conditions and forecasts. The discounted cash flow was based on management’s forecast of operating performance for each reporting unit. The two main assumptions used, which bear the risk of change and could impact the test result, include the forecast cash flow from operations from each of the Company’s R eporting U nits and their respective weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations was the detailed mid-year plan, modified to incorporate our revised outlook, as appropriate. The reporting unit carrying values were adjusted based on the long-lived asset impairment assessment noted below. Cash flows beyond the plan or forecast were estimated using a terminal value calculation which incorporated historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgment must be applied to determine whether credit changes are a short-term or long-term trend. During the second quarter of 2019, the Company recorded a $3,099 million impairment charge to goodwill and an $87 million charge to indefinite-lived intangible assets. During the third quarter, the Company combined two Reporting Units within the Completion & Production Solutions segment, Floating Production and Process & Flow Technologies. The restructuring better aligns operations with the current and anticipated market environments and reduces administrative burden. The Company tested the two Reporting Units for goodwill impairment prior to, and after, combining them and concluded no impairment charge was necessary. Also, during the third quarter, the Company’s Wellbore Technologies segment reorganized two of its Reporting Units. The Company performed a goodwill impairment analysis prior and subsequent to the restructuring and concluded that the calculated fair values of these Reporting Units were substantially in excess of their carrying value, with the exception of Wellsite Services which has a goodwill balance of $174 million at September 30, 2019. Further deterioration of market conditions, in management’s judgement, could result in additional impairment. The restructuring did not effect Wellbore Technologies’ consolidated financial position and results of operations. At September 30, 2019, the Company has approximately $3.2 billion of goodwill, by segment as follows (in millions):
|  | Wellbore Technologies |  |  | Completion & Production Solutions |  |  | Rig Technologies |  |  | Total |
Balance at December 31, 2018 |  | $ | 3,011 |  |  | $ | 2,041 |  |  | $ | 1,212 |  |  | $ | 6,264 |
Impairment |  |  | (1,866 | ) |  |  | (1,013 | ) |  |  | (220 | ) |  |  | (3,099 | )
Additions |  |  | 11 |  |  |  | 58 |  |  |  | 14 |  |  |  | 83 |
Currency translation adjustments and other |  |  | 1 |  |  |  | (8 | ) |  |  | (5 | ) |  |  | (12 | )
Balance at September 30, 2019 |  | $ | 1,157 |  |  | $ | 1,078 |  |  | $ | 1,001 |  |  | $ | 3,236 |
Accumulated goodwill impairment was $5,556 million at September 30, 2019. Additions during the third quarter 2019 were $55 million. Impairment of Long-Lived Assets (Excluding Goodwill and Other Indefinite-Lived Intangible Assets) Long-lived assets, which include property, plant and equipment, right of use, and identified intangible assets, comprise a significant amount of the Company’s total assets. The Company makes judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and estimated useful lives. The Company identified its Reporting Units as individual asset groups. The carrying values of these asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount of the asset is not recoverable based on estimated future undiscounted cash flows. We estimate the fair value of these intangible and fixed assets using an income approach that requires the Company to make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. The forecasts are dependent upon assumptions including those regarding oil and gas prices, the general outlook for the global oil and gas industry, available financing for the Company’s customers, political stability in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors. Financial and credit market volatility directly impacts our fair value measurement through our income forecast. Changes to these assumptions, including, but not limited to: sustained declines in worldwide rig counts below current analysts’ forecasts; collapse of spot and futures prices for oil and gas; significant deterioration of external financing for our customers; higher risk premiums or higher cost of equity; or any other significant adverse economic news could require a provision for impairment. During the second quarter of 2019, the results of the Company's test for impairment of goodwill and indefinite-lived intangible assets, and the other negative market indicators described above, were a triggering event that indicated that its long-lived tangible assets and definite-lived intangible assets were impaired. Recoverability testing was performed at certain asset groups and yielded an estimated undiscounted net cash flow below the carrying amount of the related assets, and impairment was indicated. Impairment testing performed as of June 1, 2019 resulted in the determination that certain long-lived assets associated with most of the Company’s asset groups were not recoverable. The estimated fair value of these asset groups was below the carrying value and as a result, during the second quarter of 2019, the Company recorded an impairment charge of $1,901 million to customer relationships, patents, trademarks, tradenames, and other finite-lived intangible assets, $230 million to property, plant and equipment, and $56 million for right-of-use assets. During the third quarter of 2019, the Company recorded a $12 million impairment charge to property, plant and equipment ($5 million in the Wellbore Technologies segment and $7 million in the Completion & Production Solutions segment). At September 30, 2019, the Company has approximately $866 million of identified intangible assets, by segment as follows (in millions):
|  | Wellbore Technologies |  |  | Completion & Production Solutions |  |  | Rig Technologies |  |  | Total |
Balance at December 31, 2018 |  | $ | 1,735 |  |  | $ | 1,005 |  |  | $ | 280 |  |  | $ | 3,020 |
Impairment |  |  | (1,298 | ) |  |  | (690 | ) |  |  | — |  |  |  | (1,988 | )
Additions |  |  | 6 |  |  |  | — |  |  |  | — |  |  |  | 6 |
Amortization |  |  | (90 | ) |  |  | (51 | ) |  |  | (22 | ) |  |  | (163 | )
Currency translation adjustments and other |  |  | (7 | ) |  |  | — |  |  |  | (2 | ) |  |  | (9 | )
Balance at September 30, 2019 |  | $ | 346 |  |  | $ | 264 |  |  | $ | 256 |  |  | $ | 866 |

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- Definition The entire disclosure for goodwill and intangible assets. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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