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 whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and we conduct impairment tests on goodwill annually. 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 have negatively impacted our business during 2016 with continued depressed commodity prices and 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, 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 a new pump and blender 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 approximately 13,000 for the first nine months of 2016 and corresponding severance charges recognized during the period. 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 nine months ended September 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 Note 10 and “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 impairments and other charges of approximately $3.2 billion and $1.9 billion during the nine months ended September 30, 2016 and 2015, respectively, and $381 million during the three months ended September 30, 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. There were no impairments and other charges recorded during the three months ended September 30, 2016.

We also performed our annual goodwill impairment assessment at September 30, 2016. This assessment consists of a discounted cash flow analysis based on management’s short-term and long-term forecast of operating performance for each reporting unit. Our discounted cash flow analysis for each reporting unit includes significant assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures, the timing of an anticipated market recovery, and the timing of expected future cash flows. As such, these analyses incorporate inherent uncertainties that are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts. As a result of our analyses, we determined that the fair value of each reporting unit exceeded its net book value and, therefore, no goodwill impairment was necessary as of September 30, 2016.

The following table presents various charges we recorded during the nine months ended September 30, 2016 and 2015 and three months ended September 30, 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:



	Nine Months Ended					Three Months Ended
Millions of dollars	September 30, 2016			September 30, 2015		September 30, 2015
Industry downturn:
Fixed asset impairments	$	2,537		$	648	$	154
Severance costs	261			308		96
Inventory write-downs	130			410		64
Intangible asset impairments	87			209		37
Other	40			173		21
Other matters:
Venezuela promissory note loss	148			—		—
Country closures	2			81		4
Other	(16		)	66		5
Total impairments and other charges	$	3,189		$	1,895	$	381