3. Charges and Credits

Schlumberger recorded the following charges and credits in continuing operations during 2012, 2011 and 2010:

2012

—

Schlumberger recorded the following merger and integration-related charges in connection with its 2010 acquisitions of Smith International, Inc. (“Smith”) and Geoservices (see Note 4 – Acquisitions).


(Stated in millions)
	Pretax		Tax		Net
First quarter	$	14	$	1	$	13
Second quarter		22		1		21
Third quarter		32		4		28
Fourth quarter		60		10		50

	$	128	$	16	$	112

—

During the fourth quarter, Schlumberger recorded a pretax charge of $33 million ($27 million after-tax) relating to severance in connection with an initiative to rationalize global overhead costs.

The following is a summary of these charges:


	(Stated in millions)
	Pretax		Tax		Net		Consolidated Statement of Income Classification
Merger-related integration costs	$	128	$	16	$	112	Merger & integration
Workforce reduction		33		6		27	Restructuring & other

	$	161	$	22	$	139

2011

—

Schlumberger recorded the following merger and integration-related charges in connection with its acquisitions of Smith and Geoservices.


(Stated in millions)
	Pretax		Tax		Net
First quarter	$	33	$	5	$	28
Second quarter		32		8		24
Third quarter		26		3		23
Fourth quarter		22		2		20


	$	113	$	18	$	95

—

During the fourth quarter, Schlumberger was able to physically assess the status of its assets in Libya. This assessment resulted in Schlumberger recording a pretax and after-tax charge of $60 million relating to certain assets that were no longer recoverable as a result of the political unrest in Libya.

—

During the second quarter, Schlumberger made a $50 million grant to the Schlumberger Foundation to support the Foundation’s Faculty for the Future program, which supports talented women scientists from the developing world by helping them pursue advanced graduate studies in scientific disciplines at leading universities worldwide. As a result, Schlumberger recorded a $50 million charge ($40 million after-tax).

The following is a summary of these charges:


(Stated in millions)
	Pretax		Tax		Net		Consolidated Statement of Income Classification
Merger-related integration costs	$	113	$	18	$	95	Merger & integration
Donation to the Schlumberger Foundation		50		10		40	General & administrative
Write-off of assets in Libya		60		–		60	Cost of revenue

	$	223	$	28	$	195

2010

Fourth quarter of 2010:

—

In connection with the acquisition of Smith, Schlumberger recorded the following pretax charges: $115 million ($73 million after-tax) relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value, $17 million ($16 million after-tax) of professional and other fees and $15 million ($11 million after-tax) relating to employee benefits.

—

Schlumberger repurchased the following debt:


(Stated in millions)
	Carrying Value
6.50% Notes due 2012	$	297
6.75% Senior Notes due 2011	$	123
9.75% Senior Notes due 2019	$	212
6.00% Senior Notes due 2016	$	102
8.625% Senior Notes due 2014	$	88

As a result of these transactions, Schlumberger incurred pretax charges of $32 million ($20 million after-tax).

Third quarter of 2010:

—

As a result of the decision to rationalize support costs across the organization as well as to restructure the North America land operations to provide greater operating efficiency, Schlumberger recorded a pretax charge of $90 million ($77 million after-tax).

—

Following the successful introduction of UniQ, a new generation single-sensor land acquisition system, Schlumberger recorded a $78 million pretax charge ($71 million after-tax) related to the impairment of WesternGeco’s first generation Q-Land system assets.

—

A pretax and after-tax charge of $63 million primarily relating to the early termination of a vessel lease associated with WesternGeco’s electromagnetic service offering as well as related assets, including a $30 million impairment related to an equity-method investment.

—

In connection with the acquisition of Smith, Schlumberger recorded the following pretax charges: $56 million ($55 million after-tax) of merger-related transaction costs including advisory and legal fees, $38 million ($32 million after-tax) relating to employee benefits for change in control payments and retention bonuses and $38 million ($24 million after-tax) relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value.

—

$40 million pretax charge ($36 million after-tax) for the early termination of rig contracts and workforce reductions in Mexico due to the slowdown of project activity.

—

Schlumberger repurchased $352 million of its 6.50% Notes due 2012 and, as a result, incurred a pretax charge of $28 million ($18 million after-tax).

—

Schlumberger recorded a pretax gain of $1.27 billion ($1.24 billion after-tax) as a result of remeasuring its previously held 40% equity interest in the M-I SWACO joint venture. Refer to Note 4 – Acquisitions for further details.

First quarter of 2010:

—

Schlumberger incurred $35 million of pretax and after-tax merger-related costs in connection with the Smith and Geoservices acquisitions. These costs primarily consisted of advisory and legal fees.

—

During March 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law in the United States. Among other things, the PPACA eliminated the tax deductibility of retiree prescription drug benefits to the extent of the Medicare Part D subsidy that companies, such as Schlumberger, receive. As a result of this change in law, Schlumberger recorded a $40 million charge to adjust its deferred tax assets to reflect the loss of this future tax deduction.

The following is a summary of 2010 charges and credits:


					(Stated in millions)
	Pretax			Tax			Net			Consolidated Statement of Income Classification
Restructuring and Merger-related Charges:
Severance and other	$	90		$	13		$	77		Restructuring & other
Impairment relating to WesternGeco’s first generation Q-Land acquisition system		78			7			71		Restructuring & other
Other WesternGeco-related charges		63			–			63		Restructuring & other
Professional fees and other		107			1			106		Merger & integration
Merger-related employee benefits		54			10			44		Merger & integration
Inventory fair value adjustments		153			56			97		Cost of revenue
Mexico restructuring		40			4			36		Restructuring & other
Repurchase of bonds		60			23			37		Restructuring & other

Total restructuring and merger-related charges		645			114			531

Gain on investment in M-I SWACO		(1,270	)		(32	)		(1,238	)	Gain on Investment in M-I SWACO
Impact of elimination of tax deduction related to Medicare Part D subsidy		–			(40	)		40		Taxes on income

	$	(625	)	$	42		$	(667	)