XML 24 R13.htm IDEA: XBRL DOCUMENT

Note 6 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Text Block]

Note 6—Goodwill and Intangible Assets

Goodwill

Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. Frank's has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference. Frank's has historically completed its assessment of goodwill impairment as of October 31 each year.

As a result of the decline in oil prices due to the ongoing Coronavirus Disease 2019 ("COVID-19") pandemic and the failure by the Organization of Petroleum Exporting Countries (“OPEC”) and Russia to reach an agreement on lowering production quotas during the first quarter of 2020, Frank's identified that it was more likely than not that the fair value of goodwill within its Cementing Equipment reporting unit was less than its carrying value. Based on the result of the goodwill impairment test as of March 31, 2020, Frank's recorded a $57.1 million impairment charge to goodwill, which is included in goodwill impairment on the condensed consolidated statements of operations.

Frank's used the income approach to estimate the fair value of the Cementing Equipment reporting unit, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using an estimated discount rate, or expected return, that a marketplace participant would have required as of the valuation date. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results and involves significant judgment in the selection of the appropriate peer group companies and valuation multiples. The inputs used in the determination of fair value are generally level 3 inputs.

Some of the more significant assumptions inherent in the income approach include the estimated future net annual cash flows for the reporting unit and the discount rate. Management of Frank's selected the assumptions used in the discounted cash flow projections using historical data supplemented by current and anticipated market conditions and estimated growth rates. These estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, actual results may differ from those used in management's valuation which could result in additional impairment charges in the future. Assuming all other assumptions and inputs used in the discounted cash flow analysis were held constant, a 50 basis point increase in the discount rate assumption would have increased the Cementing Equipment reporting unit goodwill impairment charge described above by approximately $4.3 million.

No goodwill impairment was recorded during the three and nine months ended September 30, 2021. At September 30, 2021, goodwill is allocated to Frank's reportable segments as follows: Cementing Equipment - approximately $24.1 million; Tubular Running Services - approximately $18.7 million.

Intangible Assets

Identifiable intangible assets are amortized using the straight-line method over the estimated useful lives of the assets. Frank's has historically evaluated impairment of Frank's intangible assets on an asset group basis whenever circumstances indicate that the carrying value may not be recoverable. Intangible assets deemed to be impaired are written down to their fair value using a discounted cash flow model and, if available, comparable market values.

The following table provides information related to Frank's intangible assets as of September 30, 2021, and December 31, 2020 (in thousands):

	*September 30, 2021*							*December 31, 2020*
	*Gross Carrying Amount*		*Accumulated Amortization*			*Total*		*Gross Carrying Amount*		*Accumulated Amortization*			*Total*
Customer Relationships	$	28,300	$	(28,103	)	$	197	$	28,300	$	(26,324	)	$	1,976
Intellectual Property		18,135		(9,576	)		8,559		13,860		(7,939	)		5,921
Total intangible assets	$	46,435	$	(37,679	)	$	8,756	$	42,160	$	(34,263	)	$	7,897

Frank's intangible assets are primarily associated with its Cementing Equipment and Tubular Running Services segments. Amortization expense for intangible assets was $1.2 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively and $3.4 million and $3.5 million for the nine months ended September 30, 2021 and 2020, respectively. During the first quarter of 2020, the results of Frank's test for impairment of goodwill in the Cementing Equipment segment as a result of the negative market indicators described above was a triggering event that indicated that the intangible assets in this segment were impaired. Impairment testing performed in the first quarter resulted in the determination that certain intangible assets were not recoverable and that the estimated fair value was below the carrying value. As a result, during the nine months ended September 30, 2020, impairment charges of $4.7 million were recorded associated with certain customer relationships and intellectual property intangible assets in the Cementing Equipment segment, which are included in severance and other charges, net on the condensed consolidated statements of operations. No intangible asset impairments were recorded during the three or nine months ended September 30, 2021. Please see Note 15—Severance and Other Charges, net for additional details.