NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Schlumberger Limited and its subsidiaries (Schlumberger) have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Schlumberger management, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements. All intercompany transactions and balances have been eliminated in consolidation. Operating results for the nine-month period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016. The December 31, 2015 balance sheet information has been derived from the Schlumberger 2015 audited financial statements. For further information, refer to the
Consolidated Financial Statements
and notes thereto included in the Schlumberger Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on January 27, 2016.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
. This ASU amends the existing accounting standards for revenue recognition and is based on the principle
that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration
a company expects to receive in exchange for those goods or services. Schlumberger is required to adopt this ASU on January 1,
2018, with early adoption permitted on January 1, 2017. Schlumberger does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17
, Balance Sheet Classification of Deferred Taxes
, which amends existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on the balance sheet. Schlumberger is required to adopt this ASU no later than January 1, 2017, with early adoption permitted, and the guidance may be applied either prospectively or retrospectively. Schlumberger does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. Schlumberger will adopt this ASU on January 1, 2019 and is evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
2.
Charges and Credits
Schlumberger recorded the following charges and credits during the first nine months of 2016:
Third quarter of 2016:
|
•
|
In connection with Schlumberger’s acquisition of Cameron International Corporation (“Cameron”) (see Note 4 –
Acquisition of Cameron
), Schlumberger recorded $237 million of charges consisting of the following: $149 million relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value; $11 million of facility closure costs; $46 million of employee benefits; and $31 million of other merger and integration-related costs. These amounts are classified in
Merger & integration
in the
Consolidated Statement of Income.
|
Second quarter of 2016:
|
•
|
As a result of the persistent unfavorable oil and gas industry market conditions that continued to deteriorate in the first half of 2016, and the related impact on the first half operating results and expected customer activity levels, Schlumberger determined that the carrying values of certain assets were no longer recoverable and also took certain decisions that resulted in the following impairment and other charges:
|
|
-
|
$646 million of severance costs associated with headcount reductions.
|
|
-
|
$209 million impairment of pressure pumping equipment in North America.
|
|
-
|
$165 million impairment of facilities in North America.
|
8
|
-
|
$684
million of other fixed asset impairments primarily relating to other underutilized equipment.
|
|
-
|
$616 million write-down of the carrying value of certain inventory to its net realizable value.
|
|
-
|
$198 million impairment of certain multiclient seismic data, largely related to the US Gulf of Mexico.
|
|
-
|
$55 million of other costs, primarily relating to facility closure costs.
|
The fair value of the impaired fixed assets and multiclient seismic data was estimated based on the projected present value of future cash flows that these assets are expected to generate. Such estimates included unobservable inputs that required significant judgments. Additional charges may be required in future periods should industry conditions worsen. The above items are classified in
Impairments & other
in the
Consolidated Statement of Income
.
|
•
|
In connection with Schlumberger’s acquisition of Cameron, Schlumberger recorded $335 million of charges consisting of the following: $150 million relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value; $47 million relating to employee benefits for change-in-control arrangements and retention bonuses; $45 million of transaction costs, including advisory and legal fees; $40 million of facility closure costs, and $53 million of other merger and integration-related costs. These amounts are classified in
Merger & integration
in the
Consolidated Statement of Income
.
|
The following is a summary of the charges and credits recorded during the first nine months of 2016:
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
Workforce reduction
|
$
|
646
|
|
|
$
|
63
|
|
|
$
|
583
|
|
North America pressure pumping asset impairments
|
|
209
|
|
|
|
67
|
|
|
|
142
|
|
Facilities impairments
|
|
165
|
|
|
|
58
|
|
|
|
107
|
|
Other fixed asset impairments
|
|
684
|
|
|
|
52
|
|
|
|
632
|
|
Inventory write-downs
|
|
616
|
|
|
|
49
|
|
|
|
567
|
|
Multiclient seismic data impairment
|
|
198
|
|
|
|
62
|
|
|
|
136
|
|
Other restructuring charges
|
|
55
|
|
|
|
-
|
|
|
|
55
|
|
Amortization of inventory fair value adjustment
|
|
299
|
|
|
|
90
|
|
|
|
209
|
|
Merger-related employee benefits
|
|
93
|
|
|
|
17
|
|
|
|
76
|
|
Professional fees
|
|
45
|
|
|
|
10
|
|
|
|
35
|
|
Facility closure costs
|
|
51
|
|
|
|
13
|
|
|
|
38
|
|
Other merger and integration-related
|
|
83
|
|
|
|
11
|
|
|
|
72
|
|
|
$
|
3,144
|
|
|
$
|
492
|
|
|
$
|
2,652
|
|
There were no charges or credits recorded during the first quarter of 2016.
Schlumberger recorded the following charges and credits during the first quarter of 2015:
|
•
|
As a result of the severe fall in activity in North America, combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices, Schlumberger decided to reduce its headcount during the first quarter of 2015. Schlumberger recorded a $390 million charge associated with this headcount reduction as well as an incentivized leave of absence program.
|
|
•
|
In February 2015, the Venezuelan government replaced the SICAD II exchange rate with a new foreign exchange market system known as SIMADI. The SIMADI exchange rate was approximately 192 Venezuelan
Bolivares
fuertes to the US dollar as of March 31, 2015. As a result, Schlumberger recorded a $49 million devaluation charge during the first quarter of 2015, reflecting the adoption of the SIMADI exchange rate. This
change resulted in a reduction in the US dollar reported amount of local currency denominated revenues, expenses and, consequently, income before taxes and net income in Venezuela.
|
The following is a summary of these charges, all of which were classified as
Impairments & other
in the
Consolidated Statement of Income
:
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
Workforce reduction
|
$
|
390
|
|
|
$
|
56
|
|
|
$
|
334
|
|
Currency devaluation loss in Venezuela
|
|
49
|
|
|
|
-
|
|
|
|
49
|
|
|
$
|
439
|
|
|
$
|
56
|
|
|
$
|
383
|
|
9
There were no charges or credits recorded during the second and third quarters of 2015.
3.
Earnings Per Share
The following is a reconciliation from basic earnings (loss) per share of Schlumberger to diluted earnings (loss) per share of Schlumberger:
(Stated in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Schlumberger Net Income
|
|
|
Average
Shares
Outstanding
|
|
|
Earnings per Share
|
|
|
Schlumberger Net Income
|
|
|
Average
Shares
Outstanding
|
|
|
Earnings per Share
|
|
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
176
|
|
|
|
1,392
|
|
|
$
|
0.13
|
|
|
$
|
989
|
|
|
|
1,265
|
|
|
$
|
0.78
|
|
Assumed exercise of stock options
|
|
-
|
|
|
|
4
|
|
|
|
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
Unvested restricted stock
|
|
-
|
|
|
|
5
|
|
|
|
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
Diluted
|
$
|
176
|
|
|
|
1,401
|
|
|
$
|
0.13
|
|
|
$
|
989
|
|
|
|
1,272
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Schlumberger Net Loss
|
|
|
Average
Shares
Outstanding
|
|
|
Loss per Share
|
|
|
Schlumberger Net Income
|
|
|
Average
Shares
Outstanding
|
|
|
Earnings per Share
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(1,482
|
)
|
|
$
|
1,345
|
|
|
$
|
(1.10
|
)
|
|
$
|
3,088
|
|
|
$
|
1,270
|
|
|
$
|
2.43
|
|
Assumed exercise of stock options
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
Unvested restricted stock
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
Diluted
|
$
|
(1,482
|
)
|
|
$
|
1,345
|
|
|
$
|
(1.10
|
)
|
|
$
|
3,088
|
|
|
$
|
1,278
|
|
|
$
|
2.42
|
|
The number of outstanding options to purchase shares of Schlumberger common stock that were not included in the computation of diluted earnings per share, because to do so would have had an antidilutive effect, was as follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Third Quarter
|
|
24
|
|
|
|
20
|
|
Nine Months
|
|
47
|
|
|
|
15
|
|
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:
10
(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
11
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
,
Schlum
berger 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
|
|
5.
Inventories
A summary of inventories follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
2016
|
|
|
2015
|
|
Raw materials & field materials
|
$
|
1,850
|
|
|
$
|
2,300
|
|
Work in progress
|
|
600
|
|
|
|
178
|
|
Finished goods
|
|
2,122
|
|
|
|
1,278
|
|
|
$
|
4,572
|
|
|
$
|
3,756
|
|
12
6.
Fixed Assets
A summary of fixed assets follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
2016
|
|
|
2015
|
|
Property, plant & equipment
|
$
|
39,959
|
|
|
$
|
37,120
|
|
Less: Accumulated depreciation
|
|
26,955
|
|
|
|
23,705
|
|
|
$
|
13,004
|
|
|
$
|
13,415
|
|
Depreciation expense relating to fixed assets was as follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Third Quarter
|
$
|
627
|
|
|
$
|
798
|
|
Nine Months
|
|
2,053
|
|
|
|
2,444
|
|
7.
Multiclient Seismic Data
The change in the carrying amount of multiclient seismic data for the nine months ended September 30, 2016 was as follows:
(Stated in millions)
|
|
|
|
|
|
Balance at December 31, 2015
|
$
|
1,026
|
|
Capitalized in period
|
|
497
|
|
Charged to expense
|
|
(283
|
)
|
Impairment charge (see Note 2)
|
|
(198
|
)
|
Balance at September 30, 2016
|
$
|
1,042
|
|
8.
Goodwill
The changes in the carrying amount of goodwill by reporting unit for the nine months ended September 30, 2016 were as follows:
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Characterization
|
|
|
Drilling
|
|
|
Production
|
|
|
Cameron
|
|
|
Total
|
|
Balance at December 31, 2015
|
$
|
3,798
|
|
|
$
|
8,584
|
|
|
$
|
3,223
|
|
|
$
|
-
|
|
|
$
|
15,605
|
|
Acquisition of Cameron
|
|
790
|
|
|
|
1,490
|
|
|
|
1,170
|
|
|
|
5,746
|
|
|
|
9,196
|
|
Other acquisitions
|
|
-
|
|
|
|
24
|
|
|
|
105
|
|
|
|
-
|
|
|
|
129
|
|
Reallocation
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(146
|
)
|
|
|
-
|
|
Impact of changes in exchange rates
|
|
9
|
|
|
|
13
|
|
|
|
5
|
|
|
|
-
|
|
|
|
27
|
|
Balance at September 30, 2016
|
$
|
4,743
|
|
|
$
|
10,111
|
|
|
$
|
4,503
|
|
|
$
|
5,600
|
|
|
$
|
24,957
|
|
13
9.
Intangible Assets
The gross book value, accumulated amortization and net book value of intangible assets were as follows:
|
(Stated in millions)
|
|
|
|
|
|
Sept. 30, 2016
|
|
|
Dec. 31, 2015
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Book
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Book Value
|
|
|
Amortization
|
|
|
Value
|
|
Customer relationships
|
$
|
4,879
|
|
|
$
|
806
|
|
|
$
|
4,073
|
|
|
$
|
2,489
|
|
|
$
|
645
|
|
|
$
|
1,844
|
|
Technology/technical know-how
|
|
3,614
|
|
|
|
778
|
|
|
|
2,836
|
|
|
|
1,864
|
|
|
|
653
|
|
|
|
1,211
|
|
Tradenames
|
|
2,847
|
|
|
|
432
|
|
|
|
2,415
|
|
|
|
1,625
|
|
|
|
367
|
|
|
|
1,258
|
|
Other
|
|
1,064
|
|
|
|
551
|
|
|
|
513
|
|
|
|
513
|
|
|
|
257
|
|
|
|
256
|
|
|
$
|
12,404
|
|
|
$
|
2,567
|
|
|
$
|
9,837
|
|
|
$
|
6,491
|
|
|
$
|
1,922
|
|
|
$
|
4,569
|
|
Amortization expense charged to income was as follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Third Quarter
|
$
|
156
|
|
|
$
|
88
|
|
Nine Months
|
$
|
405
|
|
|
$
|
267
|
|
Based on the net book value of intangible assets at September 30, 2016, amortization charged to income for the subsequent five years is estimated to be: remaining quarter of 2016—$166 million; 2017—$668 million; 2018—$660 million; 2019—$633 million; 2020—$596 million; and 2021—$571 million.
10.
Long-term Debt
A summary of
Long-term Debt
follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
2016
|
|
|
2015
|
|
4.00% Senior Notes due 2025
|
$
|
1,740
|
|
|
$
|
1,741
|
|
3.30% Senior Notes due 2021
|
|
1,593
|
|
|
|
1,597
|
|
3.00% Senior Notes due 2020
|
|
1,591
|
|
|
|
1,591
|
|
3.65% Senior Notes due 2023
|
|
1,490
|
|
|
|
1,496
|
|
2.35% Senior Notes due 2018
|
|
1,296
|
|
|
|
1,297
|
|
4.20% Senior Notes due 2021
|
|
1,100
|
|
|
|
1,100
|
|
2.40% Senior Notes due 2022
|
|
996
|
|
|
|
999
|
|
3.63% Senior Notes due 2022
|
|
845
|
|
|
|
845
|
|
0.63% Guaranteed Notes due 2019
|
|
668
|
|
|
|
-
|
|
1.50% Guaranteed Notes due 2019
|
|
579
|
|
|
|
566
|
|
1.90% Senior Notes due 2017
|
|
499
|
|
|
|
499
|
|
6.38% Notes due 2018
(1)
|
|
301
|
|
|
|
-
|
|
7.00% Notes due 2038
(1)
|
|
215
|
|
|
|
-
|
|
4.50% Notes due 2021
(1)
|
|
138
|
|
|
|
-
|
|
5.95% Notes due 2041
(1)
|
|
116
|
|
|
|
-
|
|
3.60% Notes due 2022
(1)
|
|
110
|
|
|
|
-
|
|
5.13% Notes due 2043
(1)
|
|
99
|
|
|
|
-
|
|
4.00% Notes due 2023
(1)
|
|
83
|
|
|
|
-
|
|
3.70% Notes due 2024
(1)
|
|
56
|
|
|
|
-
|
|
1.25% Senior Notes due 2017
|
|
-
|
|
|
|
1,000
|
|
Commercial paper borrowings
|
|
2,849
|
|
|
|
1,000
|
|
Other
|
|
1,174
|
|
|
|
711
|
|
|
$
|
17,538
|
|
|
$
|
14,442
|
|
14
(1)
Represents long-term fixed rate debt obligations assumed in connection with the acquisition of Cameron, net of amounts repurchased subsequent to the closing of the transaction.
The estimated fair value of Schlumberger’s
Long-term Debt
at September 30, 2016 and December 31, 2015, based on quoted market prices, was $18.2 billion and $14.4 billion, respectively.
Borrowings under the commercial paper program at September 30, 2016 were $3.0 billion, of which $2.8 billion was classified within
Long-term Debt
and $0.2 billion was classified within
Long-term debt – current portion
in the
Consolidated Balance Sheet
. At December 31, 2015, borrowings under the commercial paper program were $2.4 billion, of which $1.0 billion was classified within
Long-term Debt
and $1.4 billion was classified within
Long-term debt – current portion
in the
Consolidated Balance Sheet
.
11.
Derivative Instruments and Hedging Activities
Schlumberger is exposed to market risks related to fluctuations in foreign currency exchange rates and interest rates. To mitigate these risks, Schlumberger utilizes derivative instruments. Schlumberger does not enter into derivative transactions for speculative purposes.
Interest Rate Risk
Schlumberger is subject to interest rate risk on its debt and its investment portfolio. Schlumberger maintains an interest rate risk management strategy that uses a mix of variable and fixed rate debt combined with its investment portfolio and occasionally interest rate swaps to mitigate the exposure to changes in interest rates.
During the fourth quarter of 2013, Schlumberger entered into a cross currency swap for a notional amount of €0.5 billion in order to hedge changes in the fair value of Schlumberger’s €0.5 billion 1.50% Guaranteed Notes due 2019. Under the terms of this swap, Schlumberger receives interest at a fixed rate of 1.50% on the euro notional amount and pays interest at a floating rate of three-month LIBOR plus approximately 64 basis points on the US dollar notional amount.
This cross currency swap is designated as a fair value hedge of the underlying debt. This derivative instrument is marked to market with gains and losses recognized in income to largely offset the respective gains and losses recognized on changes in the fair value of the hedged debt.
At September 30, 2016, Schlumberger had fixed rate debt of $14.4 billion and variable rate debt of $6.9 billion after taking into account the effect of the swap.
Short-term investments
and
Fixed income investments
,
held to maturity
totaled $7.7 billion at September 30, 2016. The carrying value of these investments approximated fair value, which was estimated using quoted market prices for those or similar investments.
Foreign Currency Exchange Rate Risk
As a multinational company, Schlumberger conducts its business in over 85 countries. Schlumberger’s functional currency is primarily the US dollar. However, outside the United States, a significant portion of Schlumberger’s expenses is incurred in foreign currencies. Therefore, when the US dollar weakens (strengthens) in relation to the foreign currencies of the countries in which Schlumberger conducts business, the US dollar–reported expenses will increase (decrease).
Schlumberger is exposed to risks on future cash flows to the extent that the local currency is not the functional currency and expenses denominated in local currency are not equal to revenues denominated in local currency. Schlumberger is also exposed to risks on future cash flows relating to certain of its fixed rate debt that is denominated in currencies other than the functional currency. Schlumberger uses foreign currency forward contracts and foreign currency options to provide a hedge against a portion of these cash flow risks. These contracts are accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the
Consolidated Balance Sheet
and in
Accumulated other comprehensive loss.
Amounts recorded in
Accumulated other comprehensive loss
are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of hedging instruments, if any, is recorded directly to earnings.
At September 30, 2016, Schlumberger recognized a cumulative net $16 million loss in
Accumulated other comprehensive loss
relating to revaluation of foreign currency forward contracts and foreign currency options designated as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next 12 months.
15
Schlumberger is exposed to changes in
the fair value of assets and liabilities
that
are denominated in currencies other than the functional currency. While Schlumberger uses foreign currency forward contracts and foreign currency options to economically hedge this exposure as it relates to c
ertain currencies, these contracts are not designated as hedges for accounting purposes. Instead, the fair value of the contracts is recorded on the
Consolidated Balance Sheet,
and changes in the fair value are recognized in the
Consolidated Statement of
Income
as are changes in fair value of the hedged item.
At September 30, 2016, contracts were outstanding for the US dollar equivalent of $4.6 billion in various foreign currencies, of which $0.7 billion related to hedges of debt denominated in currencies other than the functional currency.
The fair values of outstanding derivative instruments were as follows:
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivatives
|
|
|
Consolidated Balance Sheet Classification
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
8
|
|
|
$
|
4
|
|
|
Other current assets
|
Foreign exchange contracts
|
|
-
|
|
|
|
6
|
|
|
Other Assets
|
|
$
|
8
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
40
|
|
|
$
|
15
|
|
|
Other current assets
|
Foreign exchange contracts
|
|
1
|
|
|
|
-
|
|
|
Other Assets
|
|
$
|
49
|
|
|
$
|
25
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
23
|
|
|
$
|
37
|
|
|
Accounts payable and accrued liabilities
|
Foreign exchange contracts
|
|
1
|
|
|
|
3
|
|
|
Other Liabilities
|
Cross currency swap
|
|
32
|
|
|
|
22
|
|
|
Other Liabilities
|
|
$
|
56
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
38
|
|
|
$
|
25
|
|
|
Accounts payable and accrued liabilities
|
Foreign exchange contracts
|
|
1
|
|
|
|
-
|
|
|
Other Liabilities
|
|
$
|
95
|
|
|
$
|
87
|
|
|
|
The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market or that can be derived from, or corroborated by, observable data.
The effect of derivative instruments designated as fair value hedges and those not designated as hedges on the
Consolidated Statement of Income
was as follows:
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income
|
|
|
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Consolidated
Statement
of Income Classification
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap
|
$
|
5
|
|
|
$
|
(2
|
)
|
|
$
|
9
|
|
|
$
|
(53
|
)
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
(28
|
)
|
|
$
|
(48
|
)
|
|
$
|
(166
|
)
|
|
$
|
(109
|
)
|
|
Cost of service/sales
|
16
12.
Income Taxes
A reconciliation of the US statutory federal tax rate (35%) to the consolidated effective income tax rate follows:
|
Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
US federal statutory rate
|
|
35
|
%
|
|
|
35
|
%
|
|
State tax
|
|
2
|
|
|
|
-
|
|
|
Non-US income taxed at different rates
|
|
(22
|
)
|
|
|
(12
|
)
|
|
Charges and credits (See Note 2)
|
|
(1
|
)
|
|
|
1
|
|
|
Other
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
15
|
%
|
|
|
22
|
%
|
|
The components of net deferred tax assets (liabilities) were as follows:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
2016
|
|
|
2015
|
|
Postretirement benefits
|
$
|
260
|
|
|
$
|
266
|
|
Intangible assets
|
|
(3,171
|
)
|
|
|
(1,418
|
)
|
Investments in non-US subsidiaries
|
|
(149
|
)
|
|
|
(152
|
)
|
Fixed assets, net
|
|
(150
|
)
|
|
|
(176
|
)
|
Inventories
|
|
262
|
|
|
|
159
|
|
Other, net
|
|
717
|
|
|
|
454
|
|
|
$
|
(2,231
|
)
|
|
$
|
(867
|
)
|
The above deferred tax balances at September 30, 2016 and December 31, 2015 were net of valuation allowances relating to net operating losses in certain countries of $170 million and $162 million, respectively.
13.
Contingencies
Schlumberger and its subsidiaries are party to various legal proceedings from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. Management believes that the probability of a material loss with respect to any currently pending legal proceedings is remote. However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of any of these proceedings.
14.
Segment Information
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2016
|
|
|
Third Quarter 2015
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
Before
|
|
|
Revenue
|
|
|
Taxes
|
|
|
Revenue
|
|
|
Taxes
|
|
Reservoir Characterization
|
$
|
1,689
|
|
|
$
|
322
|
|
|
$
|
2,380
|
|
|
$
|
616
|
|
Drilling
|
|
2,021
|
|
|
|
218
|
|
|
|
3,219
|
|
|
|
594
|
|
Production
|
|
2,083
|
|
|
|
98
|
|
|
|
2,915
|
|
|
|
327
|
|
Cameron
|
|
1,341
|
|
|
|
215
|
|
|
|
-
|
|
|
|
-
|
|
Eliminations & other
|
|
(115
|
)
|
|
|
(38
|
)
|
|
|
(42
|
)
|
|
|
(16
|
)
|
Pretax operating income
|
|
|
|
|
|
815
|
|
|
|
|
|
|
|
1,521
|
|
Corporate & other
(1)
|
|
|
|
|
|
(267
|
)
|
|
|
|
|
|
|
(198
|
)
|
Interest income
(2)
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
8
|
|
Interest expense
(3)
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
(78
|
)
|
Charges and credits
(4)
|
|
|
|
|
|
(237
|
)
|
|
|
|
|
|
|
-
|
|
|
$
|
7,019
|
|
|
$
|
200
|
|
|
$
|
8,472
|
|
|
$
|
1,253
|
|
17
(1)
Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangibl
e assets
(including intangible asset amortization expense resulting from the acquisition of Cameron)
, certain centrally managed initiatives and other nonoperating items.
(2
)
Interest income excludes amounts which are included in the segments’ income ($7 million in 2016; $5 million in 2015).
(3)
Interest expense excludes amounts which are included in the segments’ income ($14 million in 2016; $8 million in 2015).
(4)
See Note 2 –
Charges and Credits
.
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months 2016
|
|
|
Nine Months 2015
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
Before
|
|
|
Revenue
|
|
|
Taxes
|
|
|
Revenue
|
|
|
Taxes
|
|
Reservoir Characterization
|
$
|
5,044
|
|
|
$
|
913
|
|
|
$
|
7,545
|
|
|
$
|
1,944
|
|
Drilling
|
|
6,548
|
|
|
|
760
|
|
|
|
10,610
|
|
|
|
2,044
|
|
Production
|
|
6,529
|
|
|
|
396
|
|
|
|
9,679
|
|
|
|
1,268
|
|
Cameron
|
|
2,865
|
|
|
|
465
|
|
|
|
-
|
|
|
|
-
|
|
Eliminations & other
|
|
(283
|
)
|
|
|
(72
|
)
|
|
|
(103
|
)
|
|
|
(34
|
)
|
Pretax operating income
|
|
|
|
|
|
2,462
|
|
|
|
|
|
|
|
5,222
|
|
Corporate & other
(1)
|
|
|
|
|
|
(679
|
)
|
|
|
|
|
|
|
(587
|
)
|
Interest income
(2)
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
22
|
|
Interest expense
(3)
|
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
(234
|
)
|
Charges and credits
(4)
|
|
|
|
|
|
(3,144
|
)
|
|
|
|
|
|
|
(439
|
)
|
|
$
|
20,703
|
|
|
$
|
(1,691
|
)
|
|
$
|
27,731
|
|
|
$
|
3,984
|
|
(1)
Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets (including intangible asset amortization expense resulting from the acquisition of Cameron), certain centrally managed initiatives and other nonoperating items.
(2
)
Interest income excludes amounts which are included in the segments’ income ($20 million in 2016; $16 million in 2015).
(3)
Interest expense excludes amounts which are included in the segments’ income ($40 million in 2016; $20 million in 2015).
(4)
See Note 2 –
Charges and Credits
.
15.
Pension and Other Postretirement Benefit Plans
Net pension cost for the Schlumberger pension plans included the following components:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
US
|
|
|
Int'l
|
|
|
US
|
|
|
Int'l
|
|
|
US
|
|
|
Int'l
|
|
|
US
|
|
|
Int'l
|
|
|
Service cost
|
$
|
16
|
|
|
$
|
27
|
|
|
$
|
22
|
|
|
$
|
30
|
|
|
$
|
47
|
|
|
$
|
83
|
|
|
$
|
65
|
|
|
$
|
128
|
|
|
Interest cost
|
|
44
|
|
|
|
78
|
|
|
|
42
|
|
|
|
75
|
|
|
|
133
|
|
|
|
235
|
|
|
|
127
|
|
|
|
224
|
|
|
Expected return on plan assets
|
|
(60
|
)
|
|
|
(128
|
)
|
|
|
(57
|
)
|
|
|
(125
|
)
|
|
|
(178
|
)
|
|
|
(391
|
)
|
|
|
(172
|
)
|
|
|
(381
|
)
|
|
Amortization of prior service cost
|
|
3
|
|
|
|
30
|
|
|
|
3
|
|
|
|
30
|
|
|
|
9
|
|
|
|
91
|
|
|
|
9
|
|
|
|
91
|
|
|
Amortization of net loss
|
|
20
|
|
|
|
20
|
|
|
|
30
|
|
|
|
54
|
|
|
|
60
|
|
|
|
59
|
|
|
|
92
|
|
|
|
128
|
|
|
|
$
|
23
|
|
|
$
|
27
|
|
|
$
|
40
|
|
|
$
|
64
|
|
|
$
|
71
|
|
|
$
|
77
|
|
|
$
|
121
|
|
|
$
|
190
|
|
|
18
The net periodic benefit cost for the Schlumberger US postretirement medical plan included the following components:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
$
|
8
|
|
|
$
|
11
|
|
|
$
|
23
|
|
|
$
|
32
|
|
Interest cost
|
|
11
|
|
|
|
12
|
|
|
|
35
|
|
|
|
36
|
|
Expected return on plan assets
|
|
(14
|
)
|
|
|
(13
|
)
|
|
|
(43
|
)
|
|
|
(39
|
)
|
Amortization of prior service credit
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Amortization of net loss
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
5
|
|
|
$
|
(9
|
)
|
|
$
|
15
|
|
16.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss
consists of the following:
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
|
Currency
|
|
|
Loss on
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Translation
|
|
|
Marketable
|
|
|
Cash Flow
|
|
|
Postretirement
|
|
|
|
|
|
|
Adjustments
|
|
|
Securities
|
|
|
Hedges
|
|
|
Benefit Plans
|
|
|
Total
|
|
Balance, January 1, 2016
|
$
|
(2,053
|
)
|
|
$
|
-
|
|
|
$
|
(39
|
)
|
|
$
|
(2,466
|
)
|
|
$
|
(4,558
|
)
|
Other comprehensive gain (loss) before reclassifications
|
|
(26
|
)
|
|
|
(2
|
)
|
|
|
(86
|
)
|
|
|
-
|
|
|
|
(114
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
-
|
|
|
|
-
|
|
|
|
109
|
|
|
|
195
|
|
|
|
304
|
|
Income taxes
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Net other comprehensive (loss) income
|
|
(26
|
)
|
|
|
(2
|
)
|
|
|
23
|
|
|
|
175
|
|
|
|
170
|
|
Balance, September 30, 2016
|
$
|
(2,079
|
)
|
|
$
|
(2
|
)
|
|
$
|
(16
|
)
|
|
$
|
(2,291
|
)
|
|
$
|
(4,388
|
)
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
|
Currency
|
|
|
Gain/(Loss) on
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Translation
|
|
|
Marketable
|
|
|
Cash Flow
|
|
|
Postretirement
|
|
|
|
|
|
|
Adjustments
|
|
|
Securities
|
|
|
Hedges
|
|
|
Benefit Plans
|
|
|
Total
|
|
Balance, January 1, 2015
|
$
|
(1,531
|
)
|
|
$
|
10
|
|
|
$
|
(96
|
)
|
|
$
|
(2,589
|
)
|
|
$
|
(4,206
|
)
|
Other comprehensive loss before reclassifications
|
|
(260
|
)
|
|
|
(36
|
)
|
|
|
(123
|
)
|
|
|
-
|
|
|
|
(419
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
-
|
|
|
|
-
|
|
|
|
161
|
|
|
|
306
|
|
|
|
467
|
|
Income taxes
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
(35
|
)
|
Net other comprehensive (loss) income
|
|
(260
|
)
|
|
|
(36
|
)
|
|
|
38
|
|
|
|
271
|
|
|
|
13
|
|
Balance, September 30, 2015
|
$
|
(1,791
|
)
|
|
$
|
(26
|
)
|
|
$
|
(58
|
)
|
|
$
|
(2,318
|
)
|
|
$
|
(4,193
|
)
|
19