| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation These audited financial statements include all the accounts of ICD, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). As we had no items of other comprehensive income in any period presented, no other comprehensive income or comprehensive income is presented. Cash and Cash Equivalents We consider short-term, highly liquid investments that have an original maturity of three months or less to be cash equivalents. Accounts Receivable Accounts receivable is comprised primarily of amounts due from our customers for contract drilling services. Accounts receivable are reduced to reflect estimated realizable values by an allowance for doubtful accounts based on historical collection experience and specific review of current individual accounts. Receivables are written off when they are deemed to be uncollectible. The allowance for doubtful accounts totaled $8 thousand and $0.1 million as of December 31, 2015 and 2014 , respectively. Inventory Inventory is stated at lower of cost or market and consists primarily of replacement parts and supplies held for use in our drilling operations. Cost is determined on an average cost basis. Property, Plant and Equipment Property, plant and equipment, including renewals and betterments, are stated at cost less accumulated depreciation. All property, plant and equipment are depreciated using the straight-line method based on the estimated useful lives of the assets. The cost of maintenance and repairs are expensed as incurred. Major overhauls and upgrades are capitalized and depreciated over their remaining useful life. Depreciation of property, plant and equipment is recorded based on the estimated useful lives of the assets as follows: Estimated Useful Life Buildings 20 - 39 years Drilling rigs and related equipment 3 - 20 years Machinery, equipment and other 3 - 7 years Vehicles 2 - 5 years Software 2 - 7 years We own substantially all of our rig assembly yard and corporate offices located in Houston, Texas. We lease a number of vehicles and land for equipment and inventory storage. Leases are evaluated at inception or at any subsequent material modification to determine if the lease should be classified as a capital or operating lease. We do not currently have any capital leases. We review our assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets that are held and used is measured by comparison of the estimated future undiscounted cash flows associated with the asset to the carrying amount of the asset. If the carrying value of such assets is less than the estimated undiscounted cash flow, an impairment charge is recorded in the amount by which the carrying amount of the assets exceeds their estimated fair value. For the years ended December 31, 2015 and 2014, due to depressed industry conditions, we carried out an impairment evaluation for each of our drilling rigs. Based on the evaluation, during the fourth quarter of 2015, we recorded an impairment of $3.6 million as "Asset impairments, net of insurance recoveries" related to the substructure, mast and various other rig components of our last remaining non-walking rig due to its limited marketability in its current configuration given market conditions. We have the ability to upgrade this rig when market conditions improve. Additionally, we also recorded an impairment, net of insurance recoveries, of $0.4 million associated with the damage to the driller's cabin and the impairment of various other drilling equipment during the years ended December 31, 2015. During the year ended December 31, 2014, we recorded an impairment of $4.7 million associated with the damage to one of our non-walking rigs. We did not record any asset impairment for the year ended December 31, 2013. Construction in progress represents the costs incurred for drilling rigs that remain under construction at the end of the period. This includes third party costs relating to the purchase of rig components as well as labor, material and other identifiable direct and indirect costs associated with the construction of the rig. Capitalized Interest We capitalize interest costs related to rig construction projects. Interest costs are capitalized during the construction period based on the weighted average interest rate of the related debt. Capitalized interest amounted to $0.9 million , $1.0 million , and $0.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with a business combination. Goodwill is not amortized, but rather tested and assessed for impairment annually or more frequently if certain events or changes in circumstance indicate the carrying amount may exceed fair value. The annual test for goodwill impairment is performed during the fourth quarter of each year and begins with a qualitative assessment of whether it is “more likely than not” that the fair value of our business is less than its carrying value. If the qualitative analysis indicates that it is “more likely than not” that our business’ fair value is less than its carrying value, the resulting goodwill impairment test would consist of a two-step accounting test. The first step of the goodwill impairment test identifies the potential impairment, resulting if the fair value of a reporting unit (including goodwill) is less than its carrying amount. If during testing, it is determined that the fair value of net assets (including goodwill) exceeds its carrying amount, the goodwill of such net assets are not considered impaired and the second step of the goodwill impairment test is not applicable. However, if the fair value of net assets (including goodwill) is less than its carrying amount, we would then proceed to the second step in the goodwill impairment test. The second step includes hypothetically valuing the net assets as if they had been acquired in a business combination. Then, the implied fair value of the net assets’ goodwill is compared to the carrying value of that goodwill. If the carrying value of net assets’ goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess, not to exceed the carrying value. Our analysis of goodwill in 2014 considered the discounted cash flow method, market capitalization and the guideline company method. Based on this analysis, we recorded a goodwill impairment of $11.0 million for the year ended December 31, 2014, which represents the impairment of 100% of our goodwill. This impairment was primarily the result of the significant downturn in industry conditions in late 2014 and the related uncertainty regarding demand for our contract drilling services and new rig construction, as well as the decline in the price of our common stock as of December 31, 2014. We had no goodwill recorded on our balance sheets as of December 31, 2015 and December 31, 2014. Intangible Assets Identifiable intangible assets with determinable lives have historically consisted of drilling contracts and rig manufacturing intellectual property. Intangibles related to the drilling contracts were amortized on a straight-line basis over their estimated useful lives of six months while the identified intangibles related to the rig manufacturing intellectual property were being amortized on a straight-line basis over their estimated useful lives of ten years. Identifiable intangibles are evaluated for impairment at the end of each reporting period if events occur or circumstances change that would more likely than not reduce the fair value of the intangibles below their carrying amounts. During the fourth quarter of 2014, as a result of the significant downturn in industry conditions in late 2014 and the related uncertainty regarding demand for our drilling services and new rig construction, we re-evaluated the cost efficiencies to be realized in future rig construction. As a result of this evaluation, and the economic environment, management reassessed the remaining useful life of our rig manufacturing intellectual property reducing it from 7.2 years , to zero years . As a result of this revised estimate, we recorded additional amortization expense of $19.6 million which was included in "Goodwill impairment and other charges" in the accompanying statements of operations. Amortization expense recorded in the caption depreciation and amortization in our statement of operations was $2.7 million and $2.7 million for the years ended December 31, 2014 and 2013, respectively. We had no identifiable intangible assets recorded on our balance sheets as of December 31, 2015 and December 31, 2014. Financial Instruments and Fair value In accordance with Accounting Standards Codification 815 “Accounting for Derivative Instruments and Hedging Activities,” as amended, this warrant derivative liability was marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 Unadjusted quoted market prices for identical assets or liabilities in an active market; Level 2 Quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and Level 3 Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The carrying value of certain of our assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable and accounts payable, approximates their fair value due to the short-term nature of such instruments. Our financial instruments that are subject to fair value measurements are a warrant to purchase approximately 2.2 million shares of our common stock, held by Global Energy Services Operating, LLC ("GES"), which expired unexercised on March 2, 2015, (the "GES Warrant") and long-term debt. The GES Warrant contained a provision that protected the holder from a decline in the issue price of our common stock, or a “down-round” provision. Down-round provisions reduce the exercise or conversion price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise or conversion price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price. As a result of this provision, we accounted for this warrant as a liability. Following our initial public offering completed on August 13, 2014, and the full exercise of the Over-Allotment Option on August 29, 2014, the exercise price of the GES Warrant was reduced from $12.74 per share to $11.37 per share. Prior to the completion of our initial public offering on August 13, 2014, the warrant liability was recorded at fair value using Level 3 inputs. Significant Level 3 inputs used to calculate the fair value of the warrant included the estimated share price on the valuation date, expected volatility, risk-free interest rate and management’s assumptions regarding the likelihood of a future repricing of these warrants pursuant to the down-round provision. After the initial public offering was completed on August 13, 2014, the warrant liability was recorded at fair value using Level 1 inputs. As of December 31, 2014, the fair value of the GES Warrant was estimated at zero , and the warrant expired unexercised on March 2, 2015. There was no gain or loss associated with the warrant for the year ended December 31, 2015 and we recorded a non-cash gain on the warrant derivative associated with the changes in fair value of $3.2 million and $1.0 million for the years ended December 31, 2014 and December 31, 2013, respectively. The following provides a reconciliation of financial liabilities measured at fair value on a recurring basis using Level 3 inputs: December 31, (in thousands) 2014 2013 Beginning balance $ 3,189 $ 4,224 Issuance of GES warrant — — Gain on warrant derivative (3,189 ) (1,035 ) Ending balance $ — $ 3,189 The fair value of our long-term debt is determined by Level 3 measurements based on quoted market prices and terms for similar instruments, where available, and on the amount of future cash flows associated with the debt, discounted using our current borrowing rate for comparable debt instruments (the Income Method). Based on our evaluation of the risk free rate, the market yield and credit spreads on comparable company publicly traded debt issues, we used an annualized discount rate, including a credit valuation allowance, of 6.6% . The estimated fair value of our long-term debt totaled $59.7 million and $22.9 million as of December 31, 2015 and 2014, respectively, compared to a carrying amount of $62.7 million and $22.5 million as of December 31, 2015 and 2014, respectively. Fair value measurements were applied with respect to our non-financial assets and liabilities measured on a nonrecurring basis, which primarily consisted of the fair value of measurements of goodwill, intangibles and property, plant and equipment for impairment purposes. There were no transfers between levels of the hierarchy for the years ended December 31, 2015 and 2014 . Revenue and Cost Recognition Our revenues are principally derived from contract drilling services. We record contract drilling revenue for daywork contracts daily as work progresses, assuming collectability is reasonably assured. Daywork drilling contracts provide that revenue is earned daily based on a specified rate per day and the term of the contract which can be for a specific period of time or a specified number of wells. We generally receive lump-sum payments for the mobilization of rigs and other drilling equipment at the commencement of a new drilling contract. Revenue and costs associated with the initial mobilization are deferred and recognized ratably over the term of the related drilling contract once the rig spuds. Costs incurred to relocate rigs and other equipment to an area in which a contract has not been secured are expensed as incurred. If a contract is terminated prior to the specified contract term, early termination payments received from the customer are only recognized as revenues when all contractual obligations, such as mitigation requirements, are satisfied. Stock-Based Compensation We record compensation expense over the applicable requisite service period for all stock-based compensation based on the grant date fair value of the award. The expense is included in selling, general and administrative expense in our statements of operations or capitalized in connection with rig construction activity. Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, we record deferred income taxes based upon differences between the financial reporting basis and tax basis of assets and liabilities, and use enacted tax rates and laws that we expect will be in effect when we realize those assets or settle those liabilities. We review deferred tax assets for a valuation allowance based upon management’s estimates of whether it is more likely than not that a portion of the deferred tax asset will be fully realized in a future period. We recognize the financial statement benefit of a tax position only after determining that the relevant taxing authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Our policy is to include interest and penalties related to the unrecognized tax benefits within the income tax expense (benefit) line item in our statements of operations. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses recognized during the reporting period. Actual results could differ from these estimates. Significant estimates made by management include depreciation of property, plant and equipment, impairment of property, plant and equipment, impairment of goodwill and intangible assets and the collectibility of accounts receivable. Recently Issued Accounting Pronouncements We have not elected to avail ourselves of the extended transition period available to emerging growth companies ("EGCs") as provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards, therefore, we will be subject to new or revised accounting standards at the same time as other public companies that are not EGCs. In May 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting standards update to provide guidance on the recognition of revenue from customers. Under this guidance, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. This guidance also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty, if any, of revenue and cash flows arising from contracts with customers. This guidance is effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact this guidance will have on our financial statements. In June 2014, the FASB issued an accounting standards update to provide guidance on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. This guidance is effective for interim and annual periods beginning after December 15, 2015. Adoption of this guidance is not expected to have a material impact on our financial statements. In August 2014, the FASB issued guidance requiring management to perform interim and annual assessments of an entity’s ability to continue as a going-concern within one year of the date the financial statements are issued. The standard also provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. An entity must provide certain disclosures if there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going-concern. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The new guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We will begin performing the assessments and making the required disclosures, if applicable, beginning at the end of fiscal year 2016. In April 2015, the FASB issued an accounting standards update intended to simplify the presentation of debt issuance costs. This new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This guidance is effective for public companies for fiscal years beginning after December 15, 2015. This guidance will affect the presentation of deferred issuance costs on the balance sheet but will not have any impact on our results of operations or financial position. Had this guidance been adopted at December 31, 2015 and 2014, respectively, $1.8 million and $2.3 million of debt issuance costs would have been reclassed from "Other long-term assets, net" to reduce "Long-term debt" and "Current portion of long-term debt" respectively. In July 2015, the FASB issued an accounting standards update requiring an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out ("LIFO") or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out ("FIFO") or average cost. Management should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This guidance is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. Adoption of this pronouncement is not expected to have a material impact on our financial statements. In November 2015, the FASB issued an accounting standards update intended to simplify the presentation of deferred income taxes. This new guidance requires that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Current Generally Accepted Accounting Principles require an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. This guidance is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We adopted this accounting standard for 2015. Prior periods were not retrospectively adjusted. |
