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 continue to remain 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 during the first three quarters of 2016, we have recorded impairment charges of $578 million, of which $462 million pertains to certain machinery and equipment and $116 million pertains to certain intangible assets that were written down to their estimated fair value. These assets remain in use. Specific to the third quarter of 2016, certain machinery and equipment, with an initial total carrying value of $380 million, was written down to its estimated fair value, resulting in an impairment charge of $116 million. Additionally, certain intangible assets, with an initial total carrying value of $40 million, were written down to their estimated fair values, resulting in an impairment charge of $15 million. Total impairment charges for the three months ended September 30, 2016 were $131 million. The majority of the machinery and equipment and intangible assets impaired in the third quarter of 2016 were related to our pressure pumping business in North America and Latin 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 10.0% for North America and 16.0% for Latin America.

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 nine months ended September 30, 2016 and 2015, we recorded restructuring charges as summarized below:



	Three Months Ended						Nine Months Ended
Restructuring Charges	September 30, 2016			September 30, 2015			September 30, 2016		September 30, 2015
Workforce reductions	$	58		$	108		$	203	$	416
Contract terminations	55			—			146		83
Impairment of buildings and improvements	91			—			196		82
Impairment of machinery and equipment	(31		)	(10		)	467		166
Total restructuring charges	$	173		$	98		$	1,012	$	747

Workforce reduction costs: During the first nine months of 2016, we initiated workforce reductions that will result in the elimination of approximately 6,400 additional positions worldwide, of which 1,400 workforce reductions were initiated during the third quarter of 2016. As a result, we recorded a charge for severance expense of $203 million for the nine months ended September 30, 2016, and made payments totaling $236 million during the same period. As of September 30, 2016, we had $42 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 first nine months of 2016, we canceled supply contracts and certain facility and equipment leases and recorded a charge of $146 million. During the same period, we made payments totaling $97 million relating to contract termination costs. As of September 30, 2016, we had accrued contract termination costs of $75 million. We expect that substantially all of the accrued contract termination costs will be paid within the next twelve months.

Impairment of buildings and improvements: During the first nine months of 2016, we consolidated and closed certain facilities and recorded related impairment charges of $196 million. The total impairment of buildings and improvements for the first nine months of 2016 reduced our segment assets as follows: North America - $130 million; Latin America - $18 million; Europe/Africa/Russia Caspian - $41 million; and Middle East/Asia Pacific - $7 million. These facilities have been taken out of service and will be disposed.

Impairment of machinery and equipment: Following the termination of the Merger Agreement with Halliburton in 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 $467 million for the nine months ended September 30, 2016 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 - $200 million; Latin America - $82 million; Europe/Africa/Russia Caspian - $81 million; Middle East/Asia Pacific - $71 million; and Industrial Services - $33 million. We have been disposing of all excess machinery and equipment and expect to be substantially complete by the end of 2016.

OTHER CHARGES

During the nine months ended September 30, 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 $587 million, including $31 million of disposal costs, of which $194 million is reported in cost of sales and $393 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 - $200 million; Latin America - $84 million; Europe/Africa/Russia Caspian - $143 million; Middle East/Asia Pacific - $117 million; and Industrial Services - $43 million. We have been disposing of the excess inventory, and were substantially completed by the end of the third quarter of 2016. During the first nine 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.