Business Segments

In the fourth quarter of 2014, following the divestiture of our compression businesses, the Company’s operations were reorganized into four reportable segments: Subsea, Surface, Drilling, and Valves & Measurement (V&M), based on the guidelines of ASC 280, Segment Reporting (ASC 280). Within our four reportable segments, Surface, Drilling, and V&M are comprised of a single operating segment and the fourth reportable segment, Subsea, is an aggregation of two operating segments, OneSubsea and Custom Process Systems (CPS).

We determined our operating segments based on how our chief executive officer (who is our chief operating decision maker) evaluates financial information, allocates resources and assesses the performance of each operating segment. In addition, each operating segment is managed by a segment president.

With respect to the OneSubsea and CPS operating segments, we determined that aggregation of these two operating segments into the Subsea reportable segment was appropriate because aggregation was consistent with the objectives and basic principles of ASC 280 and these operating segments met all of the criteria for aggregation set forth in ASC 280. On a long-term basis, these segments are expected to demonstrate similar economic characteristics, in terms of gross margin and income before interest, income taxes and depreciation and amortization. Both segments perform construction projects and offer similar or complementary products and services for the same or similar customers active in subsea oil and gas production. In some instances, OneSubsea and CPS work together to provide complementary or an integrated offering of products and services to the same customer for the same project. The CPS operating segment’s revenues were approximately five percent of the Company’s consolidated revenues for the years ended December 31, 2015 and 2014.

The Subsea segment includes the operations of OneSubsea, a business jointly owned by Cameron (60%) and Schlumberger (40%). The Subsea segment delivers integrated solutions, products, systems and services to the subsea oil and gas market, including integrated subsea production systems involving wellheads, subsea trees, manifolds and flowline connectors, subsea processing systems for the enhanced recovery of hydrocarbons, control systems, connectors and services designed to maximize reservoir recovery and extend the life of each field.

The Surface segment provides onshore and offshore platform wellhead systems and processing solutions, including valves, chokes, actuators, Christmas trees and aftermarket services to oil and gas operators. Rental equipment and artificial lift technologies are also provided, as well as products and services involving shale gas production.

One of the major services provided by the Surface segment is CAMSHALE™ Production Solutions, which specializes in shale gas production. In this process, intense pressure from fracing fluid (usually a mixture of water and sand) is used to crack surrounding shale. Once the fractures are made, the water is removed from the well bore and the sand is left behind to hold the fractures open. Oil and natural gas then moves out of the fractures, into the well bore, and up to the surface.

The Drilling segment provides drilling equipment and aftermarket services to shipyards, drilling contractors, exploration & production operators and rental tool companies. Products fall into two broad categories: pressure control equipment and rotary drilling equipment and are designed for either onshore or offshore applications. Such products include drilling equipment packages, blowout preventers (BOPs), BOP control systems, connectors, riser systems, valve and choke manifold systems, top drives, mud pumps, pipe handling equipment, rig designs and rig kits.

The V&M segment businesses serve portions of the upstream, midstream and downstream markets. These businesses provide valves and measurement systems that are primarily used to control, direct and measure the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. Products include gate valves, butterfly valves, Orbit® brand rising stem ball valves, double block and bleed valves, plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and services as well as measurement equipment products such as totalizers, turbine meters, flow computers, chart recorders, ultrasonic flow meters and sampling systems.

The Company’s primary customers are oil and gas majors, national oil companies, independent producers, engineering and construction companies, drilling contractors, rental companies, geothermal energy and independent power producers, pipeline operators, major chemical, petrochemical and refining companies, natural gas processing and transmission companies, compression leasing companies, durable goods manufacturers, utilities and air separation companies.

The Company markets its equipment through a worldwide network of sales and marketing employees supported by agents and distributors in selected international locations. Due to the extremely technical nature of many of the products, the marketing effort is further supported by a staff of engineering employees.

The Company expenses all research and product development and enhancement costs as incurred, or if incurred in connection with a product ordered by a customer, when the revenue associated with the product is recognized. For the years ended December 31, 2015, 2014 and 2013, research and product development expenditures, including amounts incurred on projects designed to enhance or add to its existing product offerings, totaled approximately $140 million, $128 million and $83 million, respectively. The Subsea segment accounted for 52%, 58% and 44% of each respective year’s total costs.

Summary financial data by segment follows:



	Year Ended December 31,
(dollars in millions)	2015			2014			2013

Revenues:
Subsea	$	2,753		$	3,067		$	2,813
Surface	1,957			2,411			2,077
Drilling	2,708			3,049			2,327
V&M	1,548			2,125			2,105
Elimination of intersegment revenues	(184		)	(271		)	(184		)
Consolidated revenues	$	8,782		$	10,381		$	9,138

Depreciation and amortization:
Subsea	$	87		$	113		$	85
Surface	135			126			106
Drilling	67			60			60
V&M	53			49			47
Consolidated depreciation and amortization	$	342		$	348		$	298

Segment operating income before interest and income taxes:
Subsea	$	407		$	207		$	152
Surface	264			427			367
Drilling	528			474			311
V&M	177			393			414
Elimination of intersegment earnings	(36		)	(74		)	(35		)
Segment operating income before interest and income taxes	1,340			1,427			1,209
Corporate items:
Corporate expenses	(108		)	(145		)	(162		)
Interest, net	(138		)	(129		)	(100		)
Other costs	(773		)	(73		)	(92		)
Consolidated income from continuing operations before income taxes	$	321		$	1,080		$	855

Capital expenditures:
Subsea	$	60		$	70		$	80
Surface	109			125			156
Drilling	44			38			111
V&M	36			49			58
Corporate	36			96			102
Discontinued operations	—			7			13
Consolidated capital expenditures	$	285		$	385		$	520

Total assets:
Subsea	$	4,735		$	5,571		$	5,897
Surface	2,667			2,756			2,705
Drilling	2,394			3,011			3,076
V&M	1,540			1,633			1,765
Corporate	1,025			581			844
Discontinued operations	—			217			616
Elimination of intersegment investments	(861		)	(877		)	(654		)
Consolidated total assets	$	11,500		$	12,892		$	14,249

For internal management reporting, and therefore in the above segment information, “Corporate items” include governance expenses associated with the Company’s corporate office, as well as all of the Company’s interest income, interest expense, certain litigation expense managed by the Company’s General Counsel, foreign currency gains and losses from certain derivative and intercompany lending activities managed by the Company’s centralized Treasury function, all of the Company’s pension settlement costs, asset impairment and restructuring expenses, acquisition-related costs and various other unusual or one-time costs that are not considered a component of segment operating income. Consolidated interest income and expense are treated as a corporate item because cash equivalents, short-term investments and debt, including location, type, currency, etc., are managed on a worldwide basis by the Corporate Treasury Department.

Customer revenue by shipping location and long-lived assets by country were as follows:



	Year Ended December 31,
(dollars in millions)	2015		2014		2013

Revenues:
United States	$	4,609	$	4,689	$	4,311
United Kingdom	1,200		964		822
Norway	776		952		684
Other foreign countries	2,197		3,776		3,321
Total revenues	$	8,782	$	10,381	$	9,138



	December 31,
(dollars in millions)	2015		2014		2013

Long-lived assets:
United States	$	1,703	$	2,367	$	2,670
United Kingdom	221		219		197
Norway	1,314		1,627		1,953
Other foreign countries	825		940		1,046
Total long-lived assets	$	4,063	$	5,153	$	5,866