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Asset Impairments | 12 Months Ended
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Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract] |
Asset Impairments | 6. Asset Impairments Impairment of 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 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 judgements, 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 Reporting Units 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 judgement must be applied to determine whether credit changes are a short-term or long-term trend. For the second quarter of 2019, the Company recorded $3,099 million in impairment charges to goodwill and $87 million in charges 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 charges were 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 no impairment charges were necessary. The restructuring did not affect Wellbore Technologies’ consolidated financial position and results of operations. The Company conducted its annual impairment test during the fourth quarter of 2019, as of October 1, 2019, using the same process described above for the second quarter test. During the fourth quarter, drilling activity further declined in North America as U.S. rig count experienced its first double digit sequential decline since 2016. This and other market condition deteriorations during the fourth quarter reduced management’s near-term market and recovery path expectations, and the forecasts used in the impairment test. Based on the assessment, the Company recorded $410 million in impairment charges to goodwill and $16 million in charges to indefinite-lived intangibles. Following the impairment charges, several Reporting Units did not have a fair value substantially in excess of their book value. Further deterioration of market conditions, in management’s judgement, beyond those incorporated into the extended forecast by management, will likely result in additional impairment charges. The remaining goodwill balance for these Reporting Units at December 31, 2019 is as follows: Marine Construction ($57 million), Downhole ($124 million), ReedHycalog ($358 million), Grant Prideco ($125 million), M/D Totco ($63 million), PFT ($407 million), and Completion Tools ($20 million). The Company has approximately $2.8 billion of goodwill, by segment as follows (in millions):
|  | Wellbore Technologies |  |  | Completion & Production Solutions |  |  | Rig Technologies |  |  | Total |
Balance at December 31, 2017 |  | $ | 2,956 |  |  | $ | 2,122 |  |  | $ | 1,149 |  |  | $ | 6,227 |
Goodwill acquired and adjusted during period |  |  | 64 |  |  |  | (33 | ) |  |  | 71 |  |  |  | 102 |
Currency translation adjustments |  |  | (9 | ) |  |  | (48 | ) |  |  | (8 | ) |  |  | (65 | )
Balance at December 31, 2018 |  |  | 3,011 |  |  |  | 2,041 |  |  |  | 1,212 |  |  |  | 6,264 |
Goodwill acquired and adjusted during period |  |  | 9 |  |  |  | 40 |  |  |  | 13 |  |  |  | 62 |
Impairment |  |  | (2,178 | ) |  |  | (1,019 | ) |  |  | (312 | ) |  |  | (3,509 | )
Currency translation adjustments |  |  | 1 |  |  |  | (8 | ) |  |  | (3 | ) |  |  | (10 | )
Balance at December 31, 2019 (1) |  | $ | 843 |  |  | $ | 1,054 |  |  | $ | 910 |  |  | $ | 2,807 |
(1) | Accumulated goodwill impairment was $5,966 million as of December 31, 2019.
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 finite-lived intangible assets, comprise a significant amount of the Company’s total assets. The Company makes judgements 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 ass e ts and finite-lived intangible assets were impaired. Impairment testing performed in the second quarter 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 impairment charges 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 second half of 2019, the Company recorded $22 million impairment charges to property, plant and equipment ($5 million in the Wellbore Technologies segment, $7 million in the Completion & Production Solutions segment, and $10 million in the Rig Technologies segment). Remaining identified intangible assets with determinable lives consist primarily of customer relationships, trademarks, trade names, patents, and technical drawings acquired in acquisitions, and are being amortized in a manner consistent with the underlying cash flows over the estimated useful lives of 2-30 years. Amortization expense of identified intangibles is expected to be approximately $61 million, $57 million, $55 million, $48 million, and $43 million for the next five years. The Company has approximately $852 million of identified intangible assets, by segment as follows (in millions):
|  | Wellbore Technologies |  |  | Completion & Production Solutions |  |  | Rig Technologies |  |  | Total |
Balance at December 31, 2017 |  | $ | 1,883 |  |  | $ | 1,160 |  |  | $ | 258 |  |  | $ | 3,301 |
Additions to intangible assets |  |  | 41 |  |  |  | 3 |  |  |  | 55 |  |  |  | 99 |
Amortization |  |  | (201 | ) |  |  | (111 | ) |  |  | (29 | ) |  |  | (341 | )
Currency translation adjustments |  |  | 12 |  |  |  | (47 | ) |  |  | (4 | ) |  |  | (39 | )
Balance at December 31, 2018 |  | $ | 1,735 |  |  | $ | 1,005 |  |  | $ | 280 |  |  | $ | 3,020 |
Impairment |  |  | (1,314 | ) |  |  | (690 | ) |  |  | — |  |  |  | (2,004 | )
Additions to intangible assets |  |  | 6 |  |  |  | 11 |  |  |  | — |  |  |  | 17 |
Amortization |  |  | (94 | ) |  |  | (56 | ) |  |  | (28 | ) |  |  | (178 | )
Currency translation adjustments |  |  | (7 | ) |  |  | 5 |  |  |  | (1 | ) |  |  | (3 | )
Balance at December 31, 2019 |  | $ | 326 |  |  | $ | 275 |  |  | $ | 251 |  |  | $ | 852 |
Identified intangible assets by major classification consist of the following (in millions):
|  | Gross |  |  | Accumulated Amortization |  |  | Net Book Value |
December 31, 2018: |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  | $ | 4,078 |  |  | $ | (2,352 | ) |  | $ | 1,726 |
Trademarks |  |  | 891 |  |  |  | (341 | ) |  |  | 550 |
Patents |  |  | 661 |  |  |  | (414 | ) |  |  | 247 |
Indefinite-lived trade names |  |  | 383 |  |  |  | — |  |  |  | 383 |
Other |  |  | 491 |  |  |  | (377 | ) |  |  | 114 |
Total identified intangibles |  | $ | 6,504 |  |  | $ | (3,484 | ) |  | $ | 3,020 |
December 31, 2019: |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  | $ | 598 |  |  | $ | (305 | ) |  | $ | 293 |
Trademarks |  |  | 190 |  |  |  | (123 | ) |  |  | 67 |
Patents |  |  | 121 |  |  |  | (47 | ) |  |  | 74 |
Indefinite-lived trade names |  |  | 280 |  |  |  | — |  |  |  | 280 |
Other |  |  | 283 |  |  |  | (145 | ) |  |  | 138 |
Total identified intangibles |  | $ | 1,472 |  |  | $ | (620 | ) |  | $ | 852 |

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