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
period in which such resolution occurs.
Pension and Postretirement Benefits
Schlumberger’s pension and postretirement benefit obligations are described in detail in Note 18 to the
Consolidated
Financial Statements
. The obligations and related costs are calculated using actuarial concepts, which include critical
assumptions related to the discount rate, expected return on plan assets and medical cost trend rates. These
assumptions are important elements of expense and/or liability measurement and are updated on an annual basis,
or upon the occurrence of significant events.
The discount rate Schlumberger uses reflects the prevailing market rate of a portfolio of high-quality debt
instruments with maturities matching the expected timing of the payment of the benefit obligations. The following
summarizes the discount rates utilized by Schlumberger for its various pension and postretirement benefit plans:
k
The discount rate utilized to determine the liability for Schlumberger’s United States pension plans and
postretirement medical plans was 5.50% at December 31, 2010 and 6.00% at December 31, 2009.
k
The weighted-average discount rate utilized to determine the liability for Schlumberger’s international
pension plans was 5.47% at December 31, 2010 and 5.89% at December 31, 2009.
k
The weighted-average discount rate utilized to determine expense for Schlumberger’s United States pension
plans and postretirement medical plans decreased from 6.94% in 2009 to 6.00% in 2010.
k
The weighted-average discount rate utilized to determine expense for Schlumberger’s international pension
plans was decreased from 6.81% in 2009 to 5.89% in 2010.
A higher discount rate decreases the present value of benefit obligations and decreases expense.
The expected rate of return for our retirement benefit plans represents the average rate of return expected to be
earned on plan assets over the period that benefits included in the benefit obligation are expected to be paid. The
expected rate of return for Schlumberger’s United States pension plans has been determined based upon expectations
regarding future rates of return for the investment portfolio, with consideration given to the distribution of investments
by asset class and historical rates of return for each individual asset class. The expected rate of return on plan assets for
the United States pension plans was 8.50% in both 2010 and 2009. The weighted average expected rate of return on plan
assets for the international plans was 8.00% in 2010 and 8.35% in 2009. A lower expected rate of return would increase
pension expense.
Schlumberger’s medical cost trend rate assumptions are developed based on historical cost data, the near-term
outlook and an assessment of likely long-term trends. The overall medical cost trend rate assumption utilized to
determine both the 2010 postretirement medical expense as well as the postretirement medical liability as of
December 31, 2010 was 8% graded to 5% over the next six years.
The following illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for
the United States and international pension plans:
Change in Assumption
Effect on 2010
Pretax Pension
Expense
Effect on
Dec. 31, 2010
Liability
(Stated in millions)
25 basis point decrease in discount rate
+$18
+$261
25 basis point increase in discount rate
-$17
-$246
25 basis point decrease in expected return on plan assets
+$13
–
25 basis point increase in expected return on plan assets
-$13
–
32
Part II, Item 7
