(4) Prior to the completion of the merger, Smith and Schlumberger operated M-I SWACO, a drilling fluids joint venture that was 40% owned by
Schlumberger and 60% owned by Smith. Effective at the closing of the merger, M-I SWACO is now owned 100% by Schlumberger. As a result of
obtaining control of this joint venture, Schlumberger was required under generally accepted accounting principles to remeasure its previously
held equity interest in the joint venture at its merger-date fair value and recognize the resulting pretax gain of $1.3 billion ($1.2 billion after-tax)
in earnings. This gain is classified as
Gain on Investment in M-I SWACO
in the
Consolidated Statement of Income
.
Prior to acquiring Smith, Schlumberger recorded income relating to this venture using the equity method of accounting. The carrying value of
Schlumberger’s investment in the joint venture on December 31, 2009 was $1.4 billion, and was included within
Investments in Affiliated
Companies
on the
Consolidated Balance Sheet
. Schlumberger’s equity income from this joint venture was $78 million in 2010 (representing the
period from January 1, 2010 to August 27, 2010), $131 million in 2009 and $210 million in 2008. Schlumberger received cash distributions from the
joint venture of $50 million in 2010, $106 million in 2009 and $57 million in 2008.
(5) The goodwill recognized is primarily attributable to expected synergies that will result from combining the operations of Schlumberger and Smith
as well as intangible assets that do not qualify for separate recognition. Approximately $0.2 billion of the goodwill is deductible for income tax
purposes.
Acquisition of Geoservices
On April 23, 2010, Schlumberger completed the acquisition of Geoservices, a privately owned oilfield services
company specializing in mud logging, slickline and production surveillance operations, for $915 million in cash.
The purchase price has been allocated to the net assets acquired upon their estimated fair values as follows:
(Stated in millions)
Cash
$ 26
Other assets
184
Fixed assets
90
Goodwill
599
Intangible assets
377
Long-term debt
(145)
Deferred tax liabilities
(64)
Other liabilities
(152)
$ 915
The long-term debt was repaid at the time of closing.
Intangible assets recorded in connection with this transaction, which primarily relate to customer relationships, will
be amortized over a weighted average period of approximately 17 years. The amount allocated to goodwill represents the
excess of the purchase price over the fair value of the net assets acquired and is not tax deductible for income tax
purposes.
Other Acquisitions
Schlumberger has made other acquisitions and minority investments, none of which were significant on an individual
basis, for cash payments, net of cash acquired, of $212 million during 2010, $514 million during 2009, and $345 million
during 2008.
Supplemental Pro Forma Data
Smith’s results of operations have been included in Schlumberger’s financial statements for periods subsequent to
the effective date of the merger. Smith contributed revenues of $3.3 billion and net income of $160 million (including the
recurring effects of purchase accounting) to Schlumberger for the period from the closing of the merger through
December 31, 2010. The following unaudited supplemental pro forma data (“pro forma data”) presents consolidated
information as if the merger with Smith and the acquisition of Geoservices had been completed on January 1, 2009:
2010 2009
(Stated in millions, except per share data)
Revenue
$33,468 $31,182
Net income
$ 3,376 $ 3,271
Net income attributable to Schlumberger
$ 3,370 $ 3,244
Diluted earnings per share
$ 2.44 $ 2.34
50
Part II, Item 8
