IMPAIRMENT AND RESTRUCTURING CHARGES

IMPAIRMENT CHARGES

We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable based on estimated future cash flows. In the fourth quarter of 2015, negative market sentiment increased and oil prices fell to a seven year low. Additionally, the current market outlook is for a prolonged recovery. We considered these events to be possible impairment indicators and performed testing of long-lived assets for impairment.

As a result of our testing, certain machinery and equipment, with a total carrying value of $1.64 billion, was written down to its estimated fair value, resulting in an impairment charge of $1.05 billion. Additionally, certain intangible assets, comprised of customer relationships and trade names, with a total carrying value of $178 million, were written down to their estimated fair values, resulting in an impairment charge of $116 million. Total impairment charges for 2015 were $1.16 billion. The majority of the machinery and equipment and intangible assets impaired related to our pressure pumping business in North America. The estimated fair values for these assets were determined using discounted future cash flows. The significant level 3 unobservable inputs used in the determination of the fair value of these assets were the estimated future cash flows and the weighted average cost of capital of 9.8%.

RESTRUCTURING CHARGES

Beginning in the second half of 2014 and throughout 2015, the oil and natural gas market experienced a significant over supply of capacity leading to a substantial and rapid decline in oil prices resulting in significantly lower activity and customer spending. Accordingly, to adjust to the lower level of activity, beginning in the first quarter of 2015, we initiated actions to restructure and adjust our operations and cost structure to reflect current and expected near-term activity levels. These restructuring activities included workforce reductions, contract terminations, facility closures and the removal of excess machinery and equipment that resulted in asset impairments. As a result of these restructuring activities, we recorded restructuring charges of $830 million in 2015. Depending on future market conditions and activity levels, further actions may be necessary to adjust our operations which may result in additional charges.

Our restructuring charges as summarized below:



Restructuring Charges	Year Ended December 31, 2015
Workforce reductions	$	436
Contract terminations	121
Impairment of buildings and improvements	82
Impairment of machinery and equipment	191
Total restructuring charges	$	830

Workforce reduction costs: During 2015, we initiated workforce reductions that will result in the elimination of approximately 18,000 positions worldwide. As of December 31, 2015, we have eliminated approximately 17,000 positions. As a result of these workforce reductions, we recorded a charge for severance expense of $436 million during 2015, net of related employee benefit plan gains of $10 million. As of December 31, 2015, we have made payments totaling $365 million relating to workforce reductions. We expect that substantially all of the accrued severance remaining will be paid by the middle of 2016.

Contract termination costs: During 2015, we incurred costs of $121 million to terminate or restructure various contracts, primarily in North America. This includes the accrual for costs to settle leases on closed facilities and certain equipment, and other estimated exit costs, and is net of expected sublease income. This also includes costs to terminate or restructure certain take-or-pay supply contracts related to the purchase of materials used in our pressure pumping operations in North America, including the write-off of $14 million of prepayments made in 2014. As of December 31, 2015, we have made payments totaling $81 million relating to contract termination costs.

Impairment of buildings and improvements: We are consolidating facilities and shutting down certain operations and as a result are closing and abandoning or selling certain facilities, both owned and leased. During 2015, we recognized $82 million of impairment charges related to facilities primarily in North America and Latin America. For leased facilities, this charge includes the impairment of the leasehold improvements made to those facilities.

Impairment of machinery and equipment: We are exiting or substantially downsizing our presence in select markets primarily in our pressure pumping product line in North America and Latin America. During 2015, we recognized $191 million of impairment losses to adjust the carrying value of certain machinery and equipment to its fair value, net of costs to dispose. We are currently in the process of disposing of this machinery and equipment through sale or scrap.

OTHER CHARGES

In addition to the matters described above, during 2015, we also recorded charges of $194 million, of which $37 million is reported in cost of sales and $157 million is reported in cost of services, to write-down the carrying value of certain inventory. The write-down, primarily in North America, includes lower of cost or market adjustments due to the significant decline in activity and related prices for our products coupled with declines in replacement costs. In addition, the adjustments include provisions for excess inventory levels based on estimates of current and future market demand. The product lines impacted are primarily pressure pumping and drilling and completion fluids.