Acquisition of Cameron

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Acquisition of Cameron

4.   Acquisition of Cameron

On April 1, 2016, Schlumberger acquired all of the outstanding shares of Cameron, a leading provider of flow equipment products, systems and services to the oil and gas industry worldwide. The acquisition is expected to create technology-driven growth by integrating Schlumberger reservoir and well technologies with Cameron wellhead and surface equipment, flow control and processing technology. The combination of the two complementary technology portfolios provides the industry’s most comprehensive range of products and services, from exploration to production and integrated pore-to-pipeline solutions that optimize hydrocarbon recovery to deliver reservoir performance.

Under the terms of the merger agreement, Cameron became a wholly-owned subsidiary of Schlumberger.  Each share of Cameron common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive 0.716 shares of Schlumberger stock and $14.44 in cash.

Calculation of Consideration Transferred

The following details the fair value of the consideration transferred to effect the acquisition of Cameron:

(stated in millions, except exchange ratio and per share amounts)
Equity consideration:
Number of shares of Cameron stock outstanding	192
Exchange ratio	0.716
Schlumberger shares of common stock issued		138
Schlumberger closing stock share price on April 1, 2016	$	72.12
Equity consideration			$	9,924
Cash consideration:
Number of shares of Cameron stock outstanding	192
Cash consideration per Cameron share	$	14.44
Cash consideration				2,776
Other:
Fair value of replacement equity awards			103
Total fair value of the consideration transferred			$	12,803

Certain amounts reflect rounding adjustments

Preliminary Allocation of Consideration Transferred to Net Assets Acquired

The following amounts represents the preliminary estimates of the fair value of assets acquired and liabilities assumed in the merger.  The final determination of fair value for certain assets and liabilities will be completed as soon as the information necessary to complete the analysis is obtained.  These amounts, which may differ materially from these preliminary estimates, will be finalized as soon as practicable, but no later than one year from the acquisition date.

(Stated in millions)
Cash	$	785
Short-term investments		1,448
Accounts receivable		1,691
Inventories (1)		2,422
Fixed assets		1,342
Intangible assets:
Customer relationships (weighted-average life of 25 years)		2,371
Technology/Technical know-how (weighted-average life of 16 years)		1,736
Tradenames (weighted-average life of 25 years)		1,225
Other assets		633
Accounts payable and accrued liabilities		(2,594	)
Long-term debt (2)		(3,018	)
Deferred taxes (3)		(1,691	)
Other liabilities		(621	)
Sub-total	$	5,729
Less:
Investment in OneSubsea (4)		(2,065	)
Noncontrolling interests		(57	)
Total identifiable net assets	$	3,607
Goodwill (5)		9,196
Total consideration transferred	$	12,803

⁽¹⁾Schlumberger recorded an adjustment of $299 million to write-up the acquired inventory to its estimated fair value.  Schlumberger’s cost of sales reflected this increased valuation as this inventory was sold.  

⁽²⁾In connection with the merger, Schlumberger assumed all of the debt obligations of Cameron, including their $2.75 billion of fixed rate notes.  Schlumberger recorded a $244 million adjustment to increase the carrying amount of these notes to their estimated fair value.  This adjustment is being amortized as a reduction of interest expense over the remaining term of the respective obligations.

⁽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.

⁽⁴⁾Prior to the completion of the merger, Cameron and Schlumberger operated OneSubsea, a joint venture that manufactured and developed products, systems and services for the subsea oil and gas market, which was 40% owned by Schlumberger and 60% owned by Cameron.  OneSubsea is now owned 100% by Schlumberger.  As a result of obtaining control of this joint venture, Schlumberger was required to remeasure its previously held equity interest in the joint venture to its acquisition-date fair value. Schlumberger determined that the estimated fair value of its previously held equity interest approximated its carrying value.  Accordingly, Schlumberger did not recognize any gain or loss on this transaction.

⁽⁵⁾The goodwill recognized is primarily attributable to expected synergies that will result from combining the operations of Schlumberger and Cameron, as well as intangible assets which do not qualify for separate recognition.  The amount of goodwill that is deductible for income tax purposes is not significant.  

Supplemental Pro Forma Financial Information

Cameron’s results of operations have been included in Schlumberger’s financial statements for periods subsequent to the closing of the acquisition on April 1, 2016.  Businesses acquired from Cameron contributed revenues of approximately $3 billion and pretax operating income of $0.5 billion for the period from April 1, 2016 through September 30, 2016.  

The following supplemental pro forma results of operations assume that Cameron had been acquired as of January 1, 2015.  The supplemental pro forma financial information was prepared based on the historical financial information of Schlumberger and Cameron and has been adjusted to give effect to pro forma adjustments that are both directly attributable to the transaction and factually supportable.  The pro forma amounts reflect certain adjustments to amortization expense, interest expense and income taxes resulting from purchase accounting.  The pro forma results for the three months ended September 30, 2016 reflect adjustments to exclude after-tax merger and integration costs of $73 million and after-tax charges relating to the amortization of the inventory fair value adjustment of $104 million.  The pro forma results for the nine months ended September 30, 2016 reflect adjustments to exclude after-tax merger and integration costs of $221 million and after-tax charges relating to the amortization of the inventory fair value adjustment of $209 million. As required by generally accepted accounting principles, the pro forma results for the three months ended September 30, 2015 have been adjusted to include $73 million of after-tax merger and integration charges.  The pro forma results for the nine months ended September 30, 2015 have been adjusted to include after-tax adjustments for merger and integration costs of $221 million and the after-tax charges relating to the amortization of the inventory fair value adjustment of $209 million.

The supplemental pro forma financial information presented below does not include any anticipated cost savings or the expected realization of other synergies associated with this transaction.  Accordingly, this supplemental pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations of the combined company would have been had the acquisition occurred on January 1, 2015, nor is it indicative of future results of operations.

			(Stated in millions, except per share amounts)
	Third Quarter				Nine Months
	2016		2015		2016			2015
Revenue	$	7,019	$	10,694	$	22,331		$	34,473
Net income (loss) attributable to Schlumberger	$	353	$	1,103	$	(1,028	)	$	2,987
Diluted earnings (loss) per share	$	0.25	$	0.78	$	(0.74	)	$	2.10