(2) Reduction in Value of Assets

Since late 2014, oil and gas prices have declined significantly to their lowest levels since 2009. As a result of the reduced price of oil and gas and the subsequent downturn in the oil and gas industry, the Company has experienced a decline in demand for most of its services in the U.S. land businesses, primarily in the Production Services and Onshore Completion and Workover Services segments. For the quarter ended June 30, 2015, the Company recorded $807.6 million in expense related to reduction in value of assets. The components of reduction in value of assets are as follows (in thousands):



Reduction in value of goodwill	$	575,389
Reduction in value of long-lived assets		150,256
Retirements of long-lived assets		42,545
Reduction in value of assets related to sale of a business		39,447
Total reduction in value of assets	$	807,637

Reduction in Value of Goodwill

Goodwill is tested for impairment annually as of October 1 or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. The Company completed a qualitative analysis of its goodwill as of June 30, 2015 and determined that further testing of the Production Services segment’s goodwill was necessary. Due to the downturn in the oil and gas industry and the impact it has had on activity levels for oilfield services, the Company’s goodwill impairment evaluation indicated that the carrying value of the Production Services segment exceeded its fair value so that goodwill was potentially impaired. The Company then performed the second step of the goodwill impairment test, which involved calculating the implied fair value of its goodwill by allocating the fair value of the Production Services segment to all of the assets and liabilities (other than goodwill) and comparing it to the carrying amount of goodwill. To estimate the fair value of the reporting unit (which is consistent with the reported business segments), the Company used a weighting of the discounted cash flow method and the public company guideline method of determining fair value of the reporting unit. The Company weighted the discounted cash flow method 80% and the public company guideline method 20% due to differences between the Company’s reporting unit and peer companies’ size, profitability and diversity of operations.

The Company determined that the implied fair value of its goodwill for the Production Services segment was less than its carrying value and recorded a $575.4 million impairment of the Production Services segment’s goodwill, which is included in the reduction in value of assets in the consolidated statement of operations. The reduction in value of goodwill in the Production Services segment was primarily driven by the continued decline in demand for coiled tubing services. During the second quarter of 2015, the demand for coiled tubing services continued to decline and the Company’s forecast did not indicate a timely recovery sufficient to support the carrying value of the goodwill.

Reduction in Value of Long-Lived Assets

Long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to their fair value calculated, in part, by the estimated undiscounted future cash flows expected to be generated by the assets. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of future market rates, utilization levels, and operating performance. Estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. The Company’s assets are grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. If the asset grouping’s fair value is less than the carrying amount of those items, impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. The estimate of fair value represents the Company’s best estimate based on industry trends and reference to market transactions and is subject to variability.

During the second quarter of 2015, the Company recorded $150.3 million in expense in connection with the reduction in value of its long-lived assets. The reduction in value of assets expense was comprised of $78.5 million related to equipment and $43.1 million related to intangibles in the coiled tubing division within the Production Services segment and $12.9 million related to mechanical drilling rigs included in the Onshore Completion and Workover Services segment. In addition, the Company recorded a $15.8 million expense related to reduction in carrying values of certain international accommodation units included in the Drilling Products and Services segment.

The reduction in value of assets in the Production Services segment was primarily driven by the decline in demand for coiled tubing services. During the second quarter of 2015, the demand for these services continued to decline and the Company’s forecast did not indicate a timely recovery sufficient to support the carrying values of these assets. The reduction in value of assets in the Onshore Completion and Workover Services segment related to the reduction in carrying values of the mechanical drilling rigs, primarily as a result of the decreased demand for certain mechanical drilling rigs driven by the downturn in the oil and gas market. The reduction in value of assets in the Drilling Products and Services segment related to certain international accommodation units primarily driven by the decrease in demand for the rental of accommodation units and a decrease in the Company’s forecast for future rentals of these units.

Retirements of Long-Lived Assets

During the second quarter of 2015, the Company recorded $42.5 million for retirement and abandonment of inoperable and/or functionally obsolete long-lived assets that would require a significant cost to refurbish. The total amount recorded includes $27.3 million for the Onshore Completion and Workover Services segment and $15.2 million for the Production Services segment.

Reduction in Value of Assets Related to Sale of Coiled Tubing Business in Mexico

During the second quarter of 2015, the Company sold its Mexico based coiled tubing business and related assets. The Company received proceeds in the form of cash and a note receivable. The Company recorded a full valuation allowance on the note receivable in the amount of $16.8 million because its collectability was not reasonably assured. In connection with the sale, the Company recorded a $39.4 million reduction in value of assets, primarily related to property, plant and equipment and intangible assets.