Schlumberger 2011 Annual Report - page 60

portion or all of the deferred tax asset will not be realized in the future, Schlumberger provides a corresponding
valuation allowance against deferred tax assets.
Schlumberger’s tax filings are subject to regular audit by the tax authorities in most of the 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. Schlumberger recognizes the impact of a tax position in its financial statements if
that position is more likely than not of being sustained on audit, based on the technical merits of the position. 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 and are updated in light of changes in facts and
circumstances. However, due to the uncertain and complex application of tax regulations, it is possible that the
ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such
an event, Schlumberger will record additional tax expense or tax benefit in the year in which such resolution occurs.
Schlumberger generally does not provide income taxes relating to undistributed earnings, as the earnings either
would not be taxable when remitted or are considered to be indefinitely reinvested.
Concentration of Credit Risk
Schlumberger’s assets that are exposed to concentrations of credit risk consist primarily of cash, short-term
investments, fixed income investments held to maturity, receivables from clients and derivative financial instruments.
Schlumberger places its cash, short-term investments and fixed income investments held to maturity with financial
institutions and corporations, and limits the amount of credit exposure with any one of them. Schlumberger regularly
evaluates the creditworthiness of the issuers in which it invests. The receivables from clients are spread over many
countries and customers. Schlumberger maintains an allowance for uncollectible accounts receivable based on
expected collectibility and performs ongoing credit evaluations of its customers’ financial condition. By using
derivative financial instruments to hedge exposure to changes in exchange rates and commodity prices, Schlumberger
exposes itself to some credit risk. Schlumberger minimizes this credit risk by entering into transactions with high-
quality counterparties, limiting the exposure to each counterparty and monitoring the financial condition of its
Research & Engineering
All research and engineering expenditures are expensed as incurred.
Earnings per Share
Basic earnings per share of Schlumberger from continuing operations is calculated by dividing income from
continuing operation attributable to Schlumberger by the weighted average number of common shares outstanding
during the year. Diluted earnings per share is calculated by first adding back to net income the interest expense on any
outstanding convertible debentures and then dividing this adjusted income from continuing operations attributable to
Schlumberger by the sum of (i) unvested restricted stock units; and (ii) the weighted average number of common
shares outstanding assuming dilution. The weighted average number of common shares outstanding assuming dilution
assumes (a) that all stock options which are in the money are exercised at the beginning of the period and that the
proceeds are used by Schlumberger to purchase shares at the average market price for the period, and (b) the
conversion of any outstanding convertible debentures.
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