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. Although oil prices have risen since the lows reached in February 2016 and rig counts have begun to stabilize, customer spending and activity continues at low levels, thus continuing lower demand for our products and services. We consider our customers' constrained capital spending budgets for 2016 and the current outlook for low activity levels to be impairment indicators and accordingly continue to evaluate our long-lived assets for impairment.

As a result of our impairment testing in the second quarter of 2016, certain machinery and equipment, with a total carrying value of $754 million, was written down to its estimated fair value, resulting in an impairment charge of $240 million. These assets remain in use. Additionally, certain intangible assets, with a total carrying value of $174 million, were written down to their estimated fair values, resulting in an impairment charge of $89 million. Total impairment charges for the three and six months ended June 30, 2016 were $329 million and $447 million, respectively. The majority of the impaired machinery and equipment and intangible assets related to our pressure pumping business in North America, Middle East and 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 10.0% for North America, 14.0% for Middle East and 13.5% for Asia Pacific.

RESTRUCTURING CHARGES

We recognize restructuring charges for costs associated with workforce reductions, contract terminations, facility closures and impairments related to the permanent removal from service and disposal of excess machinery and equipment. As a result of the downturn in the industry in 2015 and its impact on our business outlook, we took actions to restructure and adjust our operations and cost structure to reflect current and expected activity levels to the extent allowable under the Merger Agreement with Halliburton. Following the termination of the Merger Agreement in the second quarter of 2016, to address ongoing industry challenges, we took additional actions to reduce costs, simplify our organization, refine and rationalize our operating strategy and adjust our capacity to meet expected levels of future demand. These actions necessitated workforce reductions, contract terminations, facility closures and the permanent removal from service and disposal of excess machinery and equipment. 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 and six months ended June 30, 2016 and 2015, we recorded restructuring charges as summarized below:



	Three Months Ended					Six Months Ended
Restructuring Charges	June 30, 2016		June 30, 2015			June 30, 2016		June 30, 2015
Workforce reductions	$	98	$	61		$	145	$	308
Contract terminations	91		(3		)	91		83
Impairment of buildings and improvements	110		5			105		82
Impairment of machinery and equipment	498		13			498		176
Total restructuring charges	$	797	$	76		$	839	$	649

Workforce reduction costs: During the second quarter of 2016, we initiated workforce reductions that will result in the elimination of approximately 3,000 additional positions worldwide and recorded a charge for severance expense of $98 million. As of June 30, 2016, we had $66 million of accrued severance. We expect that substantially all of the accrued severance will be paid by the end of 2016.

Contract termination costs: During the second quarter of 2016, we canceled a supply contract and certain equipment leases and recorded a charge of $91 million. During the same period, we made payments totaling $54 million relating to contract termination costs. As of June 30, 2016, we had accrued contract termination costs of $47 million.

Impairment of buildings and improvements: During the second quarter of 2016, we consolidated and closed certain facilities and recorded related impairment charges of $110 million in North America. These facilities have been taken out of service and will be disposed.

Impairment of machinery and equipment: During the second quarter of 2016, we evaluated our capacity and made adjustments to align our capacity to expected future operational levels and strategy. These actions impacted all product lines and as a result, we recognized an impairment loss of $498 million relating to the cost to impair excess machinery and equipment to its net realizable value. The total machinery and equipment impairments reduced our segment assets as follows: North America - $203 million; Latin America - $97 million; Europe/Africa/Russia Caspian - $84 million; Middle East/Asia Pacific - $76 million; and Industrial Services - $38 million. We are disposing of all excess machinery and equipment and expect to be substantially complete by the end of the third quarter of 2016.

OTHER CHARGES

During the second quarter of 2016, in connection with the evaluation of our current inventory levels and expected future demand and to align with our future strategy, we recorded charges of $621 million, including $34 million of disposal costs, of which $205 million is reported in cost of sales and $416 million is reported in cost of services, to write off the carrying value of inventory deemed excess. These actions impacted all product lines. The amount of the inventory write-off recorded by segment is as follows: North America - $209 million; Latin America - $88 million; Europe/Africa/Russia Caspian - $152 million; Middle East/Asia Pacific - $125 million; and Industrial Services - $47 million. We are disposing of the excess inventory, and we expect to be substantially complete by the end of the third quarter of 2016. During the first six months of 2015, we 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 product lines impacted were primarily pressure pumping and drilling and completion fluids.

The second quarter of 2016 was benefited by a reversal of a loss on a firm purchase commitment of $51 million that was recorded in cost of service in the first quarter of 2016 as the contract was settled in the second quarter of 2016.