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Print friendly pdf of Form 10-K Part II |
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Item 8 Notes to Consolidated Financial Statements
4. Charges - Continuing Operations
Schlumberger recorded the following charges/credits in continuing operations:
In December 2003, a pretax gain of $32 million ($20 million after-tax, $0.03 per share - diluted) resulting from the sale of the Hanover Compressor note. The pretax gain is classified in Interest and other income in the Consolidated Statement of Income.
In December 2003, a pretax and after-tax charge of $81 million ($0.13 per share - diluted) relating to the write-down to fair market value of Schlumberger's investment in Hanover Compressor common stock. The write-down was required by SFAS 115 as the decline in the market value of the stock is "other than temporary" and is classified in Cost of goods sold and services in the Consolidated Statement of Income.
In September 2003, a pretax multiclient library impairment charge of $398 million ($205 million, $0.34 per share - diluted, after a tax credit of $106 million and a minority interest of $88 million), following an evaluation of current and expected future conditions in the seismic sector, a pretax seismic vessel impairment charge of $54 million ($38 million, $0.06 per share - diluted, after a minority interest credit of $16 million) and a $31 million pretax and after-tax gain ($0.05 per share - diluted) on the sale of a drilling rig. The pretax amounts are classified in Cost of goods sold and services in the Consolidated Statement of Income.
Between June 12 and July 22, 2003 subsidiaries of Schlumberger launched and concluded tender offers to acquire three series of outstanding European bonds; $1.3 billion of principal was repurchased for a total cost of $1.5 billion, which included the premium, and issuing and tender costs. The total charge on the tenders was $168 million, of which $81.5 million was recorded in the second quarter of 2003, when the first tender closed, with the balance of $86.3 million recorded in the third quarter of 2003.
The total of the above 2003 charges was $440 million. A summary is as follows:
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| Gain on sale of Hanover Compressor note |
$ |
(32 |
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| Write-down of Hanover Compressor stock |
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81 |
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| Multiclient seismic library impairment |
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398 |
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| Seismic vessel impairment |
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54 |
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| Gain on sale of rig |
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(31 |
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| Bond repurchase premium and costs |
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168 |
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| Charges before tax and Minority interest |
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638 |
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| Tax |
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(94 |
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| Minority interest |
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(104 |
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$ |
440 |
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In
December 2002, a net charge of $3,081 million ($5.30 per share). On December
10, 2002, Schlumberger announced that the Board of Directors had approved
an updated strategy for its SchlumbergerSema business segment. The new strategic
plan outlook, current business values and the reorganization of SchlumbergerSema
constitute significant events that required an impairment analysis to be
performed in accordance with FAS 142. SchlumbergerSema was 'valued' on a
stand-alone basis; each reporting unit within SchlumbergerSema was valued
using a discounted cash flow analysis based on a long-term forecast prepared
by SchlumbergerSema management with the assistance of a third party valuation
expert. The implied multiples yielded by the discounted cash flow analysis
were compared to observed trading multiples of comparable companies and
recent transactions in the IT services industry to assess the fair value
of the reporting units. The fair value was below the book value. As a result,
goodwill was written down to its estimated fair value based on Schlumberger's
valuation. The impairment of goodwill mainly reflects the current difficulties
of the telecommunications industry and the severely depressed market values
of the IT companies serving SchlumbergerSema's sector. Certain intangible
assets were also identified and written down as part of this process.
Schlumberger recorded severance, facility and other costs in an effort to reduce costs
at SchlumbergerSema and WesternGeco. These costs related to expenses that
offer no future benefit to the ongoing operations of these businesses. During
the fourth quarter, Schlumberger also recorded an impairment charge, to
reflect a change in the business projections of the WesternGeco business,
related to capitalized multiclient seismic library costs, a deferred tax
valuation allowance and other costs.
The total of the above 2002 charges was $3,168 million. A summary, including
the gain on the sale of drilling rigs of $87 million, is as follows:
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| Goodwill impairment |
$2,638 |
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| Intangibles impairment |
147 |
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| SchlumbergerSema severance & other |
97 |
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| WesternGeco severance & other |
117 |
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| Multiclient seismic library impairment |
184 |
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| Other |
42 |
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| Charges before tax and minority interest |
3,225 |
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| Tax1 |
33 |
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| Minority interest |
(90 |
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3,168 |
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| Gain on sale of drilling rigs |
(87 |
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$3,081 |
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1. Includes deferred tax valuation allowance of $94 million.
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The above charges before tax and minority interest and the gain on sale of drilling
rigs are recorded in Cost of goods sold & services.
In March 2002, a charge of $29 million (pretax $30 million and minority interest
credit of $1 million; $0.05 per share - diluted) related to the financial/economic
crisis in Argentina where in January, the government eliminated all US dollar
contracts and converted US dollar denominated accounts receivable into pesos.
As a result, Schlumberger's currency exposure increased significantly. With
currency devaluation, an exchange loss (net of hedging) on net assets, primarily
customer receivables, was incurred. In addition, a provision was recorded
for downsizing facilities and headcount. The small SchlumbergerSema exposure
in Argentina was also provided for. The pretax change is classified in Cost
of goods sold and services in the Consolidated Statement of Income.
In December 2001, a pretax credit of $119 million (net - $5 million after-tax
and minority interest, $0.01 per share - diluted), consisting primarily
of the following:
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A credit of $223 million ($117 million after-tax) from the sale
of the former Resource Management Services North American Water division.
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A pretax charge of $43 million ($37 million after-tax)
for employee termination costs, principally in Europe and the US,
related to Oilfield Services and SchlumbergerSema in response to the
prevailing business conditions.
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A tax charge for reorganization costs of $29 million.
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A further pretax charge of $28 million ($20 million after-tax) related
to the second quarter estimated loss on the divestiture of certain
Resource Management Services businesses following the actual closing
in the fourth quarter.
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A $33 million pretax asset write-down ($23 million after-tax and
minority interest) for technological impairment related to certain
Land seismic assets in the newly formed joint venture.
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In
September 2001, a pretax credit of $42 million (after-tax $3 million) representing
the gain on the sale of the worldwide gas compression business, partially
offset by an impairment charge relating to the expected disposition of certain
activities. The proceeds from the sale of the worldwide gas compression
business included $274 million in cash, a $150 million long-term subordinated
note and newly issued Hanover Compressor Company shares with a value of
$173 million. The shares have a three year marketability restriction. As
part of the transaction, Schlumberger agreed that the financing of a certain
joint venture project (PIGAP II) would be non-recourse to the buyer and
would be executed prior to December 31, 2002. Accordingly, Schlumberger
was obligated with respect to the financing to guarantee 30% (approximately
$80 million) until the project was completed in late 2002. If as of December
31, 2002 refinancing had not become non-recourse to the buyer or the project
has not achieved substantial completion, the buyer has an option to put
its interest in such joint venture back to Schlumberger. The gain on the
sale of this joint venture was deferred and recognized in 2003.
In June 2001, a charge of $280 million ($0.48 per share - diluted) for the
estimated impairment charge from the disposition of certain Resource Management
Services businesses (Electricity and Water outside North America and worldwide
Gas businesses). This charge included the write-off of goodwill ($139 million)
and cumulative translation adjustment ($79 million).
In March 2001, a charge of $25 million ($0.04 per share - diluted) for in-process
research and development related to the Bull CP8 acquisition.
The above 2001 pretax amounts are recorded: an aggregated $119 million charge
in Cost of goods sold and services, a $25 million charge in Research
& engineering and a $10 million credit in Minority interest.
An analysis of the December 2002 pretax severance and facility charges is as
follows:
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Severance |
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Facilities
Amount |
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Amount |
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People |
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Charges |
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$ |
94.5 |
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3,492 |
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$ |
42.8 |
| Paid in December 2002 |
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32.9 |
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1,643 |
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6.6 |
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| Balance December 31, 2002 |
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61.6 |
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1,849 |
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36.2 |
| Paid/reversed in 2003 |
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60.6 |
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1,841 |
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25.1 |
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| Balance December 31, 2003 |
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$ |
1.0 |
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8 |
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$ |
11.1 |
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At
December 31, 2003, the Severance balance of $1.0 million is classified as
Accounts Payable and Accrued Liabilities and the Facilities balance
of $11.1 million is classified in Liabilities held for sale on the
Consolidated Balance Sheet.
The December 2001 charge included severance costs of $41 million (775 people)
which have been paid.
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Go to Part II, Item 8, Notes: 5. Acquisitions |
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