Schlumberger 2012 Annual Report - page 46

determined that estimated future revenues, which involve significant judgment on the part of Schlumberger, would not
be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumberger’s estimated
future cash flows could result in impairment charges in a future period. For purposes of performing the annual
impairment test of the multiclient library, future cash flows are analyzed primarily based on two pools of surveys:
United States and non-United States. The United States and non-United States pools were determined to be the most
appropriate level at which to perform the impairment review based upon a number of factors including (i) various
macroeconomic factors that 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.
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. The goodwill relating to each of Schlumberger’s reporting units is tested for impairment
annually as well as when an event, or change in circumstances, indicates an impairment may have occurred.
Under generally accepted accounting principles, Schlumberger has the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than not
that the fair value of one of its reporting units is greater than its carrying amount. If, after assessing the totality of
events or circumstances, Schlumberger determines it is more likely than not that the fair value of a reporting unit is
greater than its carrying amount, then there is no need to perform any further testing. However, if Schlumberger
concludes otherwise, then it is required to perform the first step of a two-step impairment test by calculating the fair
value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. 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.
Schlumberger has the option to bypass the qualitative assessment for any reporting unit in any period and proceed
directly to performing the first step of the two-step goodwill impairment test.
For purposes of performing the impairment test for goodwill, Schlumberger’s reporting units are its three Groups:
Reservoir Characterization, Drilling and Production. Schlumberger elected to perform the qualitative assessment
described above for purposes of its annual goodwill impairment test. Based on this assessment, Schlumberger
concluded that it was more likely than not that the fair value of each of its reporting units was greater than its carrying
amount. Accordingly, no further testing was required.
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 conducts business in more than 100 tax jurisdictions, a number of which have tax laws that are not
fully defined and are evolving. Schlumberger’s tax filings are subject to regular audits by the tax authorities. These
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