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Goodwill and Other Intangible Assets and Liabilities | 12 Months Ended
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Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and Other Intangible Assets and Liabilities | GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES Goodwill The carrying amount of goodwill as of December 31, 2015 is detailed below by reporting unit (in millions):
| December 31, 2015 |  | December 31, 2014
| Gross Carrying Amount |  | Accumulated Impairment Losses |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Impairment Losses |  | Net Carrying Amount
Floaters |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 3,081.4 |  |  | $ | (2,997.9 | ) |  | $ | 83.5 |  |  | $ | 3,081.4 |  |  | $ | — |  |  | $ | 3,081.4 |
Loss on impairment | — |  |  | (83.5 | ) |  | (83.5 | ) |  | — |  |  | (2,997.9 | ) |  | (2,997.9 | )
Balance, end of period | $ | 3,081.4 |  |  | $ | (3,081.4 | ) |  | $ | — |  |  | $ | 3,081.4 |  |  | $ | (2,997.9 | ) |  | $ | 83.5 |
Jackups |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 192.6 |  |  | $ | — |  |  | $ | 192.6 |  |  | $ | 192.6 |  |  | $ | — |  |  | $ | 192.6 |
Loss on impairment | — |  |  | (192.6 | ) |  | (192.6 | ) |  | — |  |  | — |  |  | — |
Balance, end of period | $ | 192.6 |  |  | $ | (192.6 | ) |  | $ | — |  |  | $ | 192.6 |  |  | $ | — |  |  | $ | 192.6 |
Impairment of Goodwill Our business consists of three operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which consists of management services on rigs owned by third-parties. Our two reportable segments, Floaters and Jackups, represent our reporting units. We test goodwill for impairment on an annual basis or when events or changes in circumstances indicate that a potential impairment exists. Year Ended December 31, 2015 - As part of our annual goodwill impairment test, we considered the decline in Brent crude oil prices to around $35 per barrel as of December 31, 2015. Commodity prices continued to decline further into 2016, and Brent crude oil prices reached a ten-year low of approximately $26 per barrel in January 2016. These prices resulted in significant capital spending reductions by our customers, causing a decline in day rates for the few contracts executed during the fourth quarter. Customers have delayed drilling programs and are exploring subletting opportunities for contracted rigs thereby exacerbating supply pressure. In addition, certain customers are requesting contract concessions or terminating drilling contracts. Customers are expected to continue to operate under reduced budgets in the current commodity price environment. The significant supply and demand imbalance will continue to be adversely impacted by future newbuild deliveries, program delays and lower capital spending by operators. These adverse changes resulted in further deterioration in our forecasted day rates and utilization during the fourth quarter. Additionally, during the latter half of 2015, our stock price declined significantly, trading between $13.26 and $22.21. Our average stock price was $17.21 and $16.34 during the third and fourth quarters, respectively. Our stock price continued to decline during 2016, reaching a 20-year low closing price of approximately $8.00 in February. During the first half of 2015, our average stock price was $25.31. We considered the deterioration in our forecasted day rates and utilization, the sustained decline in our stock price and the impairment charge on certain rigs during the fourth quarter and concluded it was more-likely-than-not that the fair values of both the Floaters and Jackups reporting units were less than their carrying amounts. We estimated the fair values of each reporting unit using an income approach. In the current market environment, we concluded the income approach provided a better estimate of fair value compared to other valuation approaches. Based on the valuations performed as of December 31, 2015, both the Floater and Jackup reporting unit estimated fair values were less than their carrying values; therefore, we concluded that the Floater and Jackup goodwill balances were impaired. We compared the estimated fair value of each reporting unit to the fair values of all assets and liabilities within the respective reporting unit to calculate the implied fair value of goodwill. As a result, we recorded a non-cash loss on impairment of $192.6 million and $83.5 million for the Jackups and Floaters reporting units, respectively, which was included in loss on impairment in our consolidated statement of operations for the year ended December 31, 2015. There is no goodwill on our consolidated balance sheet as of December 31, 2015. The income approach was based on a discounted cash flow model, which utilized present values of cash flows to estimate fair value and was based on unobservable inputs that require significant judgments for which there is limited information. The future cash flows were projected based on our estimates of future day rates, utilization, operating costs, capital requirements, growth rates and terminal values. Forecasted day rates and utilization take into account current market conditions and our anticipated business outlook, both of which have been impacted by the adverse changes in the business environment observed during the fourth quarter. The day rates reflect contracted rates during the respective contracted periods and our estimate of market day rates in uncontracted periods. The forecasted market day rates were depressed in the near-term but were forecasted to grow in the longer-term and terminal period. Operating costs were forecasted using a combination of our historical average operating costs and expected future costs, adjusted for an estimated inflation factor. Capital requirements in the discounted cash flow model were based on our estimates of future capital costs, taking into consideration our historical trends. The estimated capital requirements included cash outflows for new rig construction and cash outflows to maintain the current operating condition of our rigs through their remaining marketable lives. A terminal period was used to reflect our estimate of stable, perpetual growth. The terminal period reflects a terminal growth rate of 3.0%, which includes an estimated inflation factor. The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital of 11.5%. These assumptions were derived from unobservable inputs and reflect our judgments and assumptions. We evaluated the estimated fair value of our reporting units compared to our market capitalization as of December 31, 2015. The aggregate fair values of our reporting units exceeded our market capitalization, and we believe the resulting implied control premium was reasonable based on recent market transactions within our industry or other relevant benchmark data. Year Ended December 31, 2014 - As part of our annual goodwill impairment test as of December 31, 2014, we considered the significant decline in commodity prices during the fourth quarter of 2014. Specifically, Brent crude oil prices declined from approximately $95 per barrel at September 30, 2014 to near $55 per barrel at December 31, 2014. These declines resulted in further reductions in capital spending by operators, including the cancellation or deferral of planned drilling programs, which caused further deterioration in forecasted day rates and utilization. Our stock price also declined significantly during the latter half of 2014, reaching a five-year low of $25.88 on December 16th. Our stock traded between $25.88 and $41.99 during the fourth quarter of 2014 and averaged $35.23 during this period. We considered the adverse changes in the floater business climate, the sustained decline in our stock price and the impairment charge on older, less capable floaters during the fourth quarter and concluded it was more-likely-than-not that the fair value of the Floater reporting unit was less than its carrying amount. We estimated the fair value of the Floater reporting unit using a blended income and market approach. Based on the valuation performed as of December 31, 2014, the reporting unit estimated fair value was less than the carrying value; therefore, we concluded that the Floater goodwill balance was impaired. We compared the estimated fair value of the reporting unit to the fair value of all assets and liabilities within the reporting unit to calculate the implied fair value of goodwill. As a result, we recorded a non-cash loss on impairment totaling $3.0 billion which was included in loss on impairment in our consolidated statement of operations for the year ended December 31, 2014. We evaluated the estimated fair value of our reporting units compared to our market capitalization as of December 31, 2014. To perform this assessment, we used a market approach to estimate the fair value of the Jackups reporting unit. The aggregate fair values of our reporting units exceeded our market capitalization, and we believe the resulting implied control premium was reasonable based on recent market transactions within our industry or other relevant benchmark data. We performed a qualitative assessment for our Jackup reporting unit as of December 31, 2014. Goodwill impairment tests performed during prior years indicated that the fair value of the Jackup reporting unit significantly exceeded its carrying amount. Despite the adverse changes in the offshore drilling business climate, we concluded that the fair value remained substantially in excess of the carrying value of the reporting unit, as evidenced by the estimated fair value of the Jackup reporting unit calculated for the purpose of reconciling the fair value of our reporting units to our market capitalization. Therefore, we concluded that it remained more-likely-than-not that the Jackup reporting unit was not impaired. Drilling Contract Intangibles In connection with the Pride acquisition, we recorded intangible assets and liabilities representing the estimated fair values of the acquired company's firm drilling contracts in place at the date of acquisition with favorable or unfavorable contract terms as compared to then-current market day rates for comparable drilling rigs. The gross carrying amounts of our drilling contract intangibles, which we consider to be definite-lived intangibles assets and intangible liabilities, and accumulated amortization as of December 31, 2015 and 2014 were as follows (in millions):
| December 31, 2015 |  | December 31, 2014
| Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount
Drilling contract intangible assets |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 209.0 |  |  | $ | (163.3 | ) |  | $ | 45.7 |  |  | $ | 209.0 |  |  | $ | (130.6 | ) |  | $ | 78.4 |
Amortization | — |  |  | (41.4 | ) |  | (41.4 | ) |  | — |  |  | (32.7 | ) |  | (32.7 | )
Balance, end of period | $ | 209.0 |  |  | $ | (204.7 | ) |  | $ | 4.3 |  |  | $ | 209.0 |  |  | $ | (163.3 | ) |  | $ | 45.7 |
Drilling contract intangible liabilities |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 278.0 |  |  | $ | (237.3 | ) |  | $ | 40.7 |  |  | $ | 278.0 |  |  | $ | (208.9 | ) |  | $ | 69.1 |
Amortization | — |  |  | (28.1 | ) |  | (28.1 | ) |  | — |  |  | (28.4 | ) |  | (28.4 | )
Balance, end of period | $ | 278.0 |  |  | $ | (265.4 | ) |  | $ | 12.6 |  |  | $ | 278.0 |  |  | $ | (237.3 | ) |  | $ | 40.7 |
The various factors considered in the determination of the fair values of our drilling contract intangibles were (1) the day rate of each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the date of acquisition. The intangible assets and liabilities were calculated based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated then-current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. We amortize the drilling contract intangibles to operating revenues over the respective remaining drilling contract terms on a straight-line basis. The estimated net increase to future operating revenues related to the amortization of these intangible assets and liabilities as of December 31, 2015, is as follows (in millions):
2016 |  | $ | 8.3 |
Total |  | $ | 8.3 |

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- Definition The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16373-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16265-109275 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16323-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267 + Details
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