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 first quarter of 2016, oil prices fell to a twelve year low. Additionally, we experienced a continued decline in customer spending as our customers finalized their capital spending budgets for 2016 given the current outlook for a prolonged downturn. 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 $203 million, was written down to its estimated fair value, resulting in an impairment charge of $106 million. Additionally, certain customer relationship intangible assets, with a total carrying value of $29 million, were written down to their estimated fair values, resulting in an impairment charge of $12 million. Total impairment charges for the first quarter of 2016 were $118 million. The majority of the impaired machinery and equipment and intangible assets related to our businesses in Russia Caspian and in Asia Pacific. 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 15.0% for Russia Caspian and 13.5% for Asia Pacific.

RESTRUCTURING CHARGES

Throughout 2015 and during the first quarter of 2016, we have taken actions to restructure and adjust our operations and cost structure to reflect current and expected 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. Depending on future market conditions and activity levels, further actions may be necessary to adjust our operations, which may result in additional charges.

During the three months ended March 31, 2016 and 2015, we recorded restructuring charges as summarized below:



	Three Months Ended			Three Months Ended
Restructuring Charges	March 31, 2016			March 31, 2015
Workforce reductions	$	47		$	247
Contract terminations	—			86
Impairment of buildings and improvements	(5		)	77
Impairment of machinery and equipment	—			163
Total restructuring charges	$	42		$	573

Workforce reduction costs: During 2015, we initiated workforce reductions that resulted in the elimination of approximately 18,000 positions worldwide. As of December 31, 2015, we had $81 million accrued severance remaining to be paid. In the first three months of 2016, we initiated workforce reductions that will result in the elimination of approximately 2,000 additional positions worldwide. As a result of this action, we recorded a charge for severance expense of $47 million. During the first quarter of 2016, we made payments totaling $77 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 the first three months of 2015, we incurred costs of $86 million for various contracts being terminated, primarily in North America. As of December 31, 2015, we had accrued contract termination costs of $26 million remaining to be paid. During the first quarter of 2016, we made payments totaling $16 million relating to contract termination costs.

Impairment of buildings and improvements: During 2015, we consolidated facilities and shut down certain operations, and as a result, we recognized $77 million of impairment charges in the first quarter of 2015 related to facilities primarily in North America and Latin America.

Impairment of machinery and equipment: During 2015 we exited or substantially downsized our presence in select markets primarily in our pressure pumping product line in North America and Latin America, and as a result, we recognized $163 million of impairment losses in the first quarter of 2015 to adjust the carrying value of certain machinery and equipment to its fair value, net of costs to dispose.

OTHER CHARGES

In addition to the matters described above, during the first three months of 2016, we recorded a loss on a firm purchase commitment of $51 million in North America. This loss is reported in cost of services. During the first three months of 2015, we recorded charges of $171 million, of which $29 million is reported in cost of sales and $142 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.