Schlumberger 2011 Annual Report - page 66

(1) Schlumberger recorded an adjustment of approximately $155 million to write-up the acquired inventory to its
estimated fair value. Schlumberger’s cost of revenue reflected this increased valuation as this inventory was sold.
Accordingly, Schlumberger’s margins were temporarily reduced in the initial periods subsequent to the
(2) In connection with the acquisition, Schlumberger assumed all of the debt obligations of Smith, including its long-
term fixed rate notes consisting of the following: $220 million 6.75% Senior Notes due 2011, $300 million 8.625%
Senior Notes due 2014, $275 million 6.00% Senior Notes due 2016 and $700 million 9.75% Senior Notes due 2019.
Schlumberger recorded a $417 million adjustment to increase the carrying amount of these notes to their
estimated fair value. This adjustment was being amortized as a reduction of interest expense over the remaining
term of the respective obligations up until such notes were repurchased in the fourth quarter of 2010 and the first
quarter of 2011.
(3) In connection with the acquisition accounting, Schlumberger provided deferred taxes related to, among other
items, the estimated fair value adjustments for acquired inventory, intangible assets and assumed debt
obligations. Included in the provisions for deferred taxes are amounts relating to the outside basis difference
associated with shares in certain Smith non-US subsidiaries for which no taxes have previously been provided.
Schlumberger expects to reverse the outside basis difference primarily through the reorganization of those
subsidiaries as well as through repatriating earnings in lieu of permanently reinvesting them.
(4) Prior to the completion of the acquisition, Smith and Schlumberger operated M-I SWACO, a drilling fluids joint
venture that was 40% owned by Schlumberger and 60% owned by Smith. Effective at the closing of the transaction,
M-I SWACO became owned 100% by Schlumberger. As a result of obtaining control of this joint venture,
Schlumberger was required under generally accepted accounting principles to remeasure its previously held
equity interest in the joint venture at its acquisition-date fair value and recognize the resulting pretax gain of $1.3
billion ($1.2 billion after-tax) in earnings. This gain is classified as
Gain on Investment in M-I SWACO
in the
Consolidated Statement of Income
Prior to acquiring Smith, Schlumberger recorded income relating to this venture using the equity method of
accounting. Schlumberger’s equity income from this joint venture was $78 million in 2010 (representing the
period from January 1, 2010 to August 27, 2010), and $131 million in 2009. Schlumberger received cash
distributions from the joint venture of $50 million in 2010 and $106 million in 2009.
(5) The goodwill recognized is primarily attributable to expected synergies that will result from combining the
operations of Schlumberger and Smith as well as intangible assets that do not qualify for separate recognition.
Approximately $0.2 billion of the goodwill is deductible for income tax purposes.
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