Baker Hughes 2015 Annual Report Download - page 67

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
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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