(Stated in millions, except exchange ratio and per share amounts)
Number of shares of Smith common stock outstanding as of the acquisition date
248
Number of Smith unvested restricted stock units outstanding as of the acquisition date
4
252
Multiplied by the exchange ratio
0.6966
Equivalent Schlumberger shares of common stock issued
176
Schlumberger closing stock price on August 27, 2010
$ 55.76
Common stock equity consideration
$ 9,812
Fair value of Schlumberger equivalent stock options issued
$ 16
Total fair value of the consideration transferred
$ 9,828
Certain amounts reflect rounding adjustments
Preliminary Allocation of Consideration Transferred to Net Assets Acquired
The following amounts represent the preliminary estimates of the fair value of identifiable 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 will be finalized as soon as
possible, but no later than one year from the acquisition date.
(Stated in millions)
Cash
$ 399
Accounts receivable
1,831
Inventory
(1)
2,013
Fixed assets
2,017
Intangible assets:
Tradenames (weighted-average life of 25 years)
1,560
Technology (weighted-average life of 16 years)
1,170
Customer relationships (weighted average life of 23 years)
1,360
Other assets
429
Accounts payable and accrued liabilities
(1,460)
Long-term debt
(2)
(2,141)
Deferred taxes
(3)
(1,936)
Other liabilities
(528)
sub-total
$ 4,714
Less:
Investment in M-I SWACO
(4)
(1,429)
Noncontrolling interests
(111)
Total identifiable net assets
$ 3,174
Gain on investment in M-I SWACO
(4)
(1,238)
Goodwill
(5)
7,892
Total consideration transferred
$ 9,828
(1) Schlumberger recorded an adjustment of approximately $155 million to write-up the acquired inventory to its estimated fair value. Schlumberger’s
cost of revenue reflected this increased valuation as this inventory was sold. Accordingly, Schlumberger’s margins were temporarily reduced in the
initial periods subsequent to the merger.
(2) In connection with the merger, Schlumberger assumed all of the debt obligations of Smith including its long-term fixed rate notes consisting of the
following: $220 million 6.75% Senior Notes due 2011, $300 million 8.625% Senior Notes due 2014, $275 million 6.00% Senior Notes due 2016 and
$700 million 9.75% Senior Notes due 2019. Schlumberger recorded a $417 million adjustment to increase the carrying amount of these notes to
their estimated fair value. This adjustment will be 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. Included in the provisions for deferred taxes are amounts
relating to the outside basis difference associated with shares in certain Smith non-US subsidiaries for which no taxes have previously been
provided. Schlumberger expects to reverse the outside basis difference primarily through the reorganization of those subsidiaries as well as
through repatriating earnings in lieu of permanently reinvesting them. In this regard, Schlumberger is in the process of assessing certain factors
that impact the ultimate amount of deferred taxes to be recorded. The amount of deferred taxes recorded will likely be revised after this
assessment is completed. Any revision to the amount of deferred taxes recorded will impact the amount of goodwill recorded.
49
Part II, Item 8
