Schlumberger 2010 Annual Report - page 49

influence the ability to successfully market surveys and (ii) the focus of the sales force and related costs. Certain larger
surveys, which are typically prefunded by customers, are analyzed for impairment on a survey by survey basis.
Allowance for Doubtful Accounts
Schlumberger maintains an allowance for doubtful accounts in order to record accounts receivable at their net
realizable value. Judgment is involved in recording and making adjustments to this reserve. Allowances have been
recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other
collection issues such as disputed invoices. Depending on how such potential issues are resolved, or if the financial
condition of Schlumberger customers were to deteriorate resulting in an impairment of their ability to make payments,
adjustments to the allowance may be required.
Inventory Reserves
Inventory is recorded at the lower of cost or net realizable value. Schlumberger maintains a reserve for excess and
obsolete inventory. This requires management to make assumptions about future demand and market conditions. If
actual future demand or market conditions are less favorable than those projected by management, additional
provisions for excess or obsolete inventory may be required.
Goodwill, Intangible Assets and Long-Lived Assets
Schlumberger records the excess of purchase price over the fair value of the tangible and identifiable intangible
assets acquired as goodwill. Goodwill is tested for impairment annually as well as when an event or change in
circumstance indicates an impairment may have occurred. Goodwill is tested for impairment by comparing the fair value
of Schlumberger’s individual reporting units to their carrying amount to determine if there is a potential goodwill
impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the
extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.
For purposes of performing the impairment test for goodwill, Schlumberger’s reporting units are primarily the
geographic areas comprising the Oilfield Services segment in addition to the WesternGeco, M-I SWACO, Smith Oilfield
and Distribution segments. Schlumberger estimates the fair value of these reporting units using a discounted cash flow
analysis and/or applying various market multiples. Determining the fair value of a reporting unit is a matter of judgment
and often involves the use of significant estimates and assumptions. Schlumberger’s estimate of the fair value of each of
its reporting units comprising Oilfield Services as well as its WesternGeco reporting unit were substantially in excess of
their respective carrying values at the time of their annual goodwill impairment tests for 2010. Due to the fact that the
M-I SWACO, Smith Oilfield and Distribution reporting units were acquired on August 27, 2010, just prior to their annual
goodwill impairment tests, the fair value of these reporting units approximated their carrying value.
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the
carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the
assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an
impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The
determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates
on the part of management. If there is a material change in economic conditions or other circumstances influencing the
estimate of future cash flows or fair value, Schlumberger could be required to recognize impairment charges in the
future. Schlumberger evaluates the remaining useful life of its intangible assets on a periodic basis to determine
whether events and circumstances warrant a revision to the remaining estimated amortization period.
Income Taxes
Schlumberger’s tax filings are subject to regular audit by the tax authorities in most of the over 100 jurisdictions in
which it conducts business. These audits may result in assessments for additional taxes which are resolved with the
authorities or, potentially, through the courts. Tax liabilities are recorded based on estimates of additional taxes which
will be due upon the conclusion of these audits. Estimates of these tax liabilities are made based upon prior experience
Part II, Item 7
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