Impairments and Other Charges

We carry a variety of long-lived assets on our balance sheet including property, plant and equipment, goodwill, and other intangibles. We conduct impairment tests on long-lived assets at least annually, and more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We review the recoverability of the carrying value of our assets based upon estimated future cash flows while taking into consideration assumptions and estimates including the future use of the asset, remaining useful life of the asset and service potential of the asset. Additionally, inventories are valued at the lower of cost or market.

Market conditions continued to negatively impact our business in the second quarter of 2016. The average rig count continued to decline in the second quarter, in the face of continued depressed commodity prices, which created further widespread pricing pressure and activity reductions for our products and services on a global basis. As a result of these conditions and their corresponding impact on our business outlook, during the three and six months ended June 30, 2016, we determined the carrying amount of a number of our long-lived assets exceeded their respective fair values due to projected declines in asset utilization. We assessed the fair value of our long-lived assets based on a discounted cash flow analysis, which required the use of significant unobservable inputs such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, and a discount rate based on our weighted average cost of capital.

Over the last four years, we have been systematically converting our pressure pumping fleet in North America over to the Frac of the Future design. As such, we impaired or wrote off a large portion of our older equipment, primarily during the first quarter of 2016. Additionally, current market conditions required us to take other actions to reduce some of our infrastructure and further reduce our global workforce in an effort to mitigate the impact of the industry downturn and better align our workforce with anticipated activity levels in the near-term. This resulted in a headcount reduction of another 5,000 during the second quarter of 2016, bringing our total reduction for the first half of the year to almost 12,000. Severance costs relating to these terminations were recognized during the three and six months ended June 30, 2016. We also determined that the cost of some of our inventory exceeded its market value, resulting in associated write-downs of its carrying value during the three and six months ended June 30, 2016.

We executed a financing agreement with our primary customer in Venezuela during the second quarter of 2016 in an effort to actively manage outstanding receivables in the country, resulting in an exchange of $200 million of outstanding trade receivables for an interest-bearing promissory note. We recorded the note at its fair market value at the date of exchange based on available pricing data points for similar assets in an illiquid market, which resulted in a $148 million pre-tax loss on exchange during the second quarter. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Environment and Results of Operations.”

As a result of the events described above, we recorded a total of $423 million in impairments and other charges during the second quarter of 2016 and approximately $3.2 billion in such charges during the first six months of 2016, compared to $306 million during the second quarter of 2015 and approximately $1.5 billion during the first six months of 2015. Total impairments and other charges consisted of fixed asset impairments and write-offs, severance costs, impairments of intangible assets, inventory write-downs, country and facility closures, a loss on exchange for the Venezuela promissory note, and other items.

The following table presents various charges we recorded during the three and six months ended June 30, 2016 and 2015 as a result of the downturn in the energy industry and other matters, all of which were recorded within "Impairments and other charges" on our condensed consolidated statements of operations:



	Three Months Ended					Six Months Ended
Millions of dollars	June 30, 2016			June 30, 2015		June 30, 2016			June 30, 2015
Industry downturn:
Severance costs	$	126		$	78	$	261		$	212
Fixed asset impairments	92			177		2,537			494
Inventory write-downs	64			39		130			346
Intangible asset impairments	—			8		87			172
Other	9			—		40			152
Other matters:
Venezuela promissory note loss	148			—		148			—
Country closures	—			2		2			77
Other	(16		)	2		(16		)	61
Total impairments and other charges	$	423		$	306	$	3,189		$	1,514