SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_]Confidential, for Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SCHLUMBERGER LIMITED
(Name of Registrant as Specified In Its Certificate)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[_]$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Schlumberger
NOTICE OF
ANNUAL GENERAL MEETING OF STOCKHOLDERS
AND
PROXY STATEMENT
APRIL 10, 2002
Please sign your proxy card and return it in the enclosed
envelope so that you may be represented at the Meeting.
Schlumberger Limited
153 East 53 Street, 57th Floor Schlumberger
New York, New York 10022-4624
--------------
42, rue Saint-Dominique
75007 Paris, France
--------------
Parkstraat 83
2514 JG The Hague
The Netherlands
NOTICE OF ANNUAL GENERAL MEETING OF STOCKHOLDERS
To Be Held April 10, 2002
March 6, 2002
The Annual General Meeting of Stockholders of Schlumberger Limited
(Schlumberger N.V.) will be held at the Avila Beach Hotel, Penstraat 130,
Willemstad, Curacao, Netherlands Antilles, on Wednesday, April 10, 2002 at 10:30
in the morning (Curacao time), for the following purposes:
1. To elect 11 directors.
2. To report on the course of business during the year ended December 31,
2001, to adopt and approve the Company's Consolidated Balance Sheet as at
December 31, 2001, its Consolidated Statement of Income for the year ended
December 31, 2001, and the declaration of dividends by the Board of
Directors as reflected in the Company's 2001 Annual Report to Stockholders.
3. To approve the appointment of PricewaterhouseCoopers LLP as independent
public accountants to audit the accounts of the Company for 2002.
Action will also be taken upon such other matters as may come properly before
the meeting.
The close of business on February 21, 2002 has been fixed as the record
date for the meeting. All holders of common stock of record at the close of
business on that date are entitled to vote at the meeting.
By order of the Board of Directors,
James L. Gunderson
Secretary
PROXY STATEMENT
March 6, 2002
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Schlumberger Limited (Schlumberger N.V.) (the
"Company") of proxies to be voted at the 2002 Annual General Meeting of
Stockholders. The approximate mailing date of this proxy statement is March 6,
2002. Business at the meeting is conducted in accordance with the procedures
determined by the Chairman of the meeting and is generally limited to matters
properly brought before the meeting by or at the direction of the Board of
Directors or by a stockholder in accordance with specified requirements
requiring advance notice and disclosure of relevant information.
The Schlumberger 2001 Annual Report to Stockholders is included in this
package as a separate document. The Company's Consolidated Balance Sheet as at
December 31, 2001, its Consolidated Statement of Income for the year ended
December 31, 2001 and the supplemental financial information with respect to
dividends included in the Annual Report are incorporated by reference as part of
this proxy soliciting material.
The Company will bear the cost of furnishing proxy material to all
stockholders and of soliciting proxies by mail and telephone. D. F. King & Co.,
Inc. has been retained by the Company to assist in the solicitation of proxies
for a fee estimated at $10,000 plus reasonable expenses. The Company will
reimburse brokerage firms, fiduciaries and custodians for their reasonable
expenses in forwarding the solicitation material to the beneficial owners.
Voting Procedure
Each stockholder of record at the close of business on February 21, 2002
is entitled to one vote for each share registered in the stockholder's name. On
that date there were ___,___,___ outstanding shares of common stock of
Schlumberger, excluding __,___,___ shares held in treasury.
Fifty percent of the outstanding shares, exclusive of shares held in
treasury, must be present in person or by proxy to constitute a quorum for the
holding of the meeting. Abstentions and broker non-votes are counted for
determining the presence of a quorum but are not counted as votes cast in the
tabulation of votes on any matter brought before the meeting.
Shares cannot be voted at the meeting unless the owner of record is
present in person or is represented by proxy. Schlumberger is incorporated in
the Netherlands Antilles and, as required by Netherlands Antilles law, meetings
of stockholders must be held in the Netherlands Antilles. The enclosed proxy
card is a means by which a stockholder may authorize the voting of shares at the
meeting. It may be revoked at any time by written notice to the Secretary of the
Company before it is voted. If it is not revoked, the shares represented will be
voted in accordance with the proxy.
1
1. Election of Directors
It is intended to fix the number of directors at 11 and to elect a Board
of Directors of 11 members, each to hold office until the next Annual General
Meeting of Stockholders and until a director's successor is elected and
qualified or until a director's death, resignation or removal. Each of the
nominees, except Jamie S. Gorelick, Andrew Gould and Adrian Lajous, is now a
director and was previously elected by the stockholders. Don Ackerman, a
director since 1982, Victor Grijalva, a director since 1998, John Mayo, a
director since 2001 and Yoshihiko Wakumoto, a director since 1990 are not
standing for reelection. Unless instructed otherwise, the proxies will be voted
for the election of the 11 nominees named below. If any nominee is unable or
unwilling to serve, proxies may be voted for another person designated by the
Board of Directors. The Board knows of no reason why any nominee will be unable
or unwilling to serve if elected.
A majority of the votes cast is required to elect each of the nominees
for director.
The Board of Directors Recommends a Vote FOR All Nominees.
The Board of Directors' nominees for election to the Board, together with
information furnished by them with respect to their business experience, and
other information regarding them, are set forth below:
Director
Nominee, Age and Five-Year Business Experience Since
---------------------------------------------- -----
D. EUAN BAIRD, 64; Chairman and Chief Executive Officer since October 1986. (1)........................... 1986
JOHN DEUTCH, 63; Institute Professor, Massachusetts Institute of Technology, Cambridge, Massachusetts
since January 1997; Director of U.S. Central Intelligence May 1995 to December 1996; Director of
Schlumberger Limited, May 1987 to 1993. (2)............................................................ 1997
JAMIE S. GORELICK, 51; Vice Chair of Fannie Mae, the largest source of financing for U.S. home
mortgages, since May 1997; Deputy General of the United States, March 1993 to
April 1997, both in Washington D.C. (3)................................................................ ----
ANDREW GOULD, 55; Executive Vice President Oilfield Services since January 1999, Executive Vice
President Oilfield Products, February 1998 to January 1999; President, Wireline & Testing,
October 1993 to February 1998.......................................................................... ----
ADRIAN LAJOUS, 58; Senior Energy Advisor, McKinsey & Company, Houston, Texas, since January 2001;
Special Advisor to the President of Mexico (international oil matters), January 2000 to November 2000;
Director and CEO, Pemex, Mexico's national oil company from 1990 to 1999. (4).......................... ----
ANDRE LEVY-LANG, 64; Independent Investor since November 1999; Chairman of the Executive Board of
Paribas, an international banking group, May 1998 to August 1999; Chairman of the Board of Management
of Compagnie Financiere de Paribas from June 1990 until May 1998, Paris. (5). ......................... 1992
WILLIAM T. McCORMICK, JR., 57; Chairman and Chief Executive Officer, CMS Energy Corp., a diversified
energy company, Dearborn, Michigan. (6)................................................................ 1990
DIDIER PRIMAT, 57; President, Primwest Holding N.V., an investment management company, Curacao, N.A.(7). 1988
NICOLAS SEYDOUX, 62; Chairman and Chief Executive Officer, Gaumont, a French film-making enterprise,
Paris. (7)............................................................................................. 1982
LINDA GILLESPIE STUNTZ, 47; Partner, law firm of Stuntz, Davis & Staffier P.C., since February 1995;
Partner, law firm of Van Ness Feldman, P.C., March 1993 to February 1995, both in Washington, D.C.(8). 1993
SVEN ULLRING, 66; Independent Adviser since June 2000; President and Chief Executive Officer, Det Norske
Veritas, provider of safety, quality and reliability services to maritime, offshore and other
industries from July 1985 through May 2000, Hovik, Norway. (9)......................................... 1990
(1) Mr. Baird is a director of Scottish Power, a company which supplies gas,
electricity and water services in the United Kingdom and Western United States;
Societe Generale Group, an international banking group; and AREVA, a nuclear
power and connectors company, and a trustee of Haven Capital Management Trust.
(2) Mr. Deutch is a director of Citigroup, a banking and insurance organization;
CMS Energy Corp., a diversified energy company; Cummins Engine Company, Inc., a
manufacturer of diesel engines and components; ARIAD Pharmaceuticals, which is
engaged in the discovery of novel pharmaceuticals; and Raytheon Corporation, an
electronics manufacturer. Mr. Deutch's adult son, Paul Deutch, is employed by a
unit of Schlumberger. The employment of Mr. Deutch's son was not influenced by
John Deutch's position as a director of the Company.
(3) Ms. Gorelick is a director of United Technologies Corporation, a company
which provides high technology products and services to the aerospace industry
where she serves on its Audit, Finance and Public Issues Review Committees, and
serves on the Harvard Board of Overseers, the John D. and Catherine T. MacArthur
Foundation, the Boards of America's Promise and the Carnegie Endowment for
International Peace, and is a member of the Council on Foreign Relations and the
Central Intelligence Agency's National Security Advisory Panel
(4) Mr. Lajous is President of Petrometrica, an energy consulting company,
Mexico City; President of Oxford Institute for Energy Studies, Oxford, U.K.; and
Senior Energy Advisor at Morgan Stanley, London.
2
(5) Mr. Levy-Lang is a director and member of the Compensation Committee of AGF,
a French insurance company and a director of Dexia, a Belgian financial services
company.
(6) Mr. McCormick is Chairman of Consumers Energy, a utility company; and a
director of Bank One, Inc., a regional bank holding company, and Rockwell
Automation Inc., a diversified producer of, among others, electronic, industrial
automation and avionics products.
(7) Mr. Primat and Mr. Seydoux are cousins.
(8) Mrs. Stuntz is a director of American Electric Power Company, Inc., an
electric and power holding company, where she is Chairman of its Finance
Committee and is a member of its Executive, Public Policy, and Directors
Committees; and a director of the Electricity Innovation Institute, a nonprofit
public benefit corporation engaged in research and technologies related to
electricity production, transmission, distribution and utilization.
(9) Mr. Ullring is Chairman of the Supervisory Board of Norsk Hydro, an energy,
fertilizer and metals company; Chairman of the Supervisory Board of Storebrand,
an insurance company; and Chairman of the Board of the Environmental Forum, all
in Oslo, Norway; and a member of the Board of Keppel Corporation, a real estate
development, shipbuilding and telecommunications company in Singapore.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to
persons known by the Company to be the beneficial owner of 5% or more of the
Common Stock.
Beneficial Ownership
of Common Stock
--------------------------------
Number of Percentage
Name and Address Shares of Class
- ---------------- --------------------------------
FMR Corp. (1) 43,972,478 7.638%
85 Devonshire Street Boston
Massachusetts 02109
(1) Based on a Statement on Schedule 13G dated February 14, 2002. Such
filing indicates that FMR Corp. has sole voting power with respect to
3,016,417 shares and sole dispositive power with respect to 43,972,478
shares. FMR Corp. is the parent of Fidelity Management & Research
Company, investment adviser to the Fidelity group of investment
companies. The filing indicates that the Common Stock was acquired in
the ordinary course of business and not for the purpose of influencing
control of the Company.
The following lists the shares of Schlumberger Common Stock
beneficially owned as of January 31, 2002 by all directors and nominees, by each
of the named executive officers, and by the directors and officers as a group.
Except as footnoted, each individual has sole voting and investment power over
the shares listed by that individual's name. As of January 31, 2002, no nominee
for director owned more than 1% of the outstanding shares of the Company's
Common Stock, except Mr. Primat who owned 4.09%. All 23 directors and executive
officers as a group owned 4.33% of the outstanding shares of the Company at
January 31, 2002.
Name Shares
---- ------
Don E. Ackerman 2,500
D. Euan Baird 2,403,404 (1)
Pierre Bismuth 202,092 (2)
John Deutch 4,100 (3)
Maurice Dijols 104,073 (4)
Jaime S. Gorelick 0
Andrew Gould 329,918 (5)
Victor E. Grijalva 786,288 (6)
Adrian Lajous 0 (7)
Andre Levy-Lang 4,500
Jack Liu 207,955
John C. Mayo 2,500
William T. McCormick, Jr. 10,500
Irwin Pfister 340,740 (8)
Didier Primat 23,557,628 (9)
Nicolas Seydoux 252,024 (10)
Linda Gillespie Stuntz 5,800 (11)
Sven Ullring 3,905
Yoshihiko Wakumoto 2,500
All directors and executive officers as a group (23 persons) 24,939,904 (12)
____________
3
(1) Includes 699,955 shares held in a revocable grantor trust and 1,703,449
shares which may be acquired by Mr. Baird within 60 days through the
exercise of stock options.
(2) Includes 58,177 shares held in a revocable grantor trust; 135,089 shares
which may be acquired by Mr. Bismuth within 60 days through the exercise
of stock options; and 4,800 shares in which he shares voting and
investment power.
(3) Includes 600 shares owned by Mr. Deutch's wife, as to which he disclaims
beneficial ownership.
(4) Includes 89,524 shares which may be acquired by Mr. Dijols within 60 days
through the exercise of stock options.
(5) Includes 294,918 shares which may be acquired by Mr. Gould within 60 days
through the exercise of stock options.
(6) Includes 670,389 shares which may be acquired by Mr. Grijalva within 60
days through the exercise of stock options.
(7) Excludes 300 shares held in a family trust as to which Mr. Lajous does not
have voting or investment powers.
(8) Includes 321,950 shares which may be acquired by Mr. Pfister within 60
days through the exercise of stock options.
(9) Includes 560,000 shares as to which Mr. Primat shares investment power and
5,999,008 shares held for account of the minor children of Mr. Primat as
to which he has joint voting and investment power.
(10) Includes 15,364 shares owned by Mr. Seydoux's wife as to which he shares
voting and investment power.
(11) Includes 3,000 shares as to which Mrs. Stuntz shares voting power and 300
shares owned by a minor child in a trust for which Mrs. Stuntz serves as
trustee.
(12) Includes 3,824,123 shares which may be acquired by executive officers as a
group because they have the right to acquire such shares within 60 days
through the exercise of stock options.
Board and Committees
Schlumberger has an Audit, a Compensation, a Finance, a Nominating and
a Technology Committee.
The Audit Committee is comprised of four independent directors. It
assists the Board in fulfilling its responsibilities to oversee the Company's
financial reporting process and monitors the integrity of the Company's
financial statements and the independence and performance of the Company's
auditors. The Audit Committee recommends for appointment by the Board of
Directors, subject to approval by the stockholders, a firm of independent
certified public accountants whose duty is to examine the Schlumberger
consolidated financial statements. Mrs. Stuntz is Chair of the Audit Committee,
and Messrs. Levy-Lang, Mayo and Primat are the other members.
The Compensation Committee reviews and approves the compensation of the
officers of the Company, advises on compensation and benefits matters and
administers the Company's stock option plans. Mr. McCormick is Chair of the
Compensation Committee. Messrs. Ackerman, Seydoux and Ullring are the other
members.
The Finance Committee advises on various matters, including dividend
and financial policies and the investment and reinvestment of funds. The Finance
Committee periodically reviews the administration of the Schlumberger employee
benefit plans and those of its subsidiaries. Mr. Levy-Lang is Chair of the
Finance Committee and Messrs. Ackerman, Baird, Grijalva and Wakumoto are the
other members.
The Nominating Committee recommends to the Board the number and names
of persons to be proposed by the Board for election as directors at the annual
general meetings of stockholders. It may also recommend to the Board persons to
be appointed by the Board or to be elected by the stockholders to fill any
vacancies which occur on the Board. Mr. Seydoux is Chair of the Nominating
Committee, and Mrs. Stuntz, Messrs. Baird, Deutch and McCormick are the other
members. The Nominating Committee will consider nominees recommended by
stockholders who may submit nominations to Chair, Nominating Committee, care of
the Secretary, Schlumberger Limited, 153 East 53 Street, 57th Floor, New York,
New York 10022-4624.
The Technology Committee advises the Board and senior management on
various matters including the quality and relevance of programs dealing with
scientific research, development, information and manufacturing technology and
also advises on research strategy and university relationships. Mr. Deutch is
Chair of the Technology Committee and Mr. Levy-Lang is also a member.
During 2001 the Board of Directors held five meetings. The Audit
Committee met four times; the Compensation Committee met four times; the Finance
Committee met once; the Nominating Committee met five times; and the Technology
Committee met twice. All incumbent director nominees attended at
4
least 83% of the aggregate of the meetings of the Board and of the committees of
the Board on which such directors served.
Directors who are employees of Schlumberger do not receive compensation for
serving on the Board or on committees of the Board. Board members who are not
employees receive annual fees of $40,000 each, annual stock awards of 500 shares
of Schlumberger common stock and additional annual fees of $10,000 as members of
each of the committees on which they serve, except that the Chair of each
Committee receives an annual fee of $20,000, rather than the $10,000 annual fee
for committee service.
Audit Committee Report
The Audit Committee is comprised of four independent directors and operates
under a written charter reviewed annually by the Board of Directors. The Audit
Committee assists the Board in fulfilling its responsibilities to oversee the
Company's financial reporting process and monitors the integrity of the
Company's financial statements and the independence and performance of the
Company's auditors. In this context, we have reviewed and discussed the
Company's financial statements with Company management and the independent
auditors, PricewaterhouseCoopers LLP, including matters raised by the
independent auditors pursuant to Statement on Auditing Standards No. 61
(Communication with Audit Committees). The Audit Committee has reviewed and
discussed such other matters as we deemed appropriate.
The Company's independent auditors provided the Audit Committee with
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and we discussed the
PricewaterhouseCoopers' independence with them.
We have considered whether the provision of services by
PricewaterhouseCoopers LLP not related to the audit of the Company's financial
statements and to the review of the Company's interim financial statements is
compatible with maintaining PricewaterhouseCoopers' independence.
Based on the foregoing review and discussion, and relying on the
representation of Company management and the independent auditors' report to the
Audit Committee, the Audit Committee recommended that the Board of Directors
include the audited financial statements in the Company's Annual Report on Form
10-K for the year ended December 31, 2001 filed with the Securities and Exchange
Commission.
SUBMITTED BY THE AUDIT COMMITTEE OF THE SCHLUMBERGER
BOARD OF DIRECTORS
A. Levy-Lang D. Primat
J. Mayo L. Stuntz, Chair
5
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows the compensation paid by the Company and its
subsidiaries to the Chief Executive Officer, the next four most highly
compensated executive officers as of December 31, 2001, and to one other person
who served as an executive officer during the year but who was not an executive
officer as of December 31, 2001 (the "named officers") for the fiscal years
ending December 31, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------
Annual Compensation Awards
------------------- -------
Securities All
Underlying Other
Name and Principal Position Year Salary ($)(2) Bonus ($)(2) Options (#)(3) Compensation ($)(4)
- --------------------------- ---- ------------- ------------ -------------- -------------------
D. E. Baird ................................ 2001 1,500,000 2,000,000 0 210,000
Chairman and 2000 1,500,000 1,500,000 0 175,000
Chief Executive Officer 1999 1,500,000 1,000,000 0 105,000
- ------------------------------------------------------------------------------------------------------------------------------------
A. Gould ................................... 2001 800,000 1,120,000 100,000 95,704
Executive Vice President, 2000 507,000 567,200 200,000 53,922
Oilfield Services 1999 589,102 310,915 54,950 36,691
- ------------------------------------------------------------------------------------------------------------------------------------
I. Pfister ................................. 2001 575,000 675,000 100,000 50,750
Executive Vice President, 2000 500,000 150,000 100,000 44,800
SchlumbergerSema 1999 500,000 290,000 54,949 39,719
- ------------------------------------------------------------------------------------------------------------------------------------
J. Liu ..................................... 2001 450,000 245,000 0 44,100
Executive Vice President 2000 400,000 180,000 100,000 39,550
Finance and Chief Financial Officer 1999 400,000 165,000 54,949 22,250
- ------------------------------------------------------------------------------------------------------------------------------------
M. Dijols (1) .............................. 2001 356,827 281,093 20,000 47,013
Former Vice President,
Information Technology
- ------------------------------------------------------------------------------------------------------------------------------------
P. Bismuth ................................. 2001 350,000 210,000 20,000 37,240
Vice President, Personnel
1) Mr. Dijols was Vice President Information Technology from May 1, 2001
until September 17, 2001 and is now President EUA, SchlumbergerSema.
2) Salary and bonus amounts include cash compensation earned and received
and any amounts deferred under the Schlumberger Restoration Savings
Plan.
3) The Company has granted no stock appreciation rights or restricted stock.
4) The 2001 amounts disclosed in this column include:
(a) Company contributions to Schlumberger Profit Sharing Plans
(b) Company contributions to the International Staff Profit
Sharing Plan
(c) Company unfunded credits to the Schlumberger Supplementary
Benefit Plan
(d) Company unfunded matching credits to the Schlumberger
Restoration Savings Plan
(a)($) (b)($) (c)($) (d)($)
------ ------ ------ ------
Mr. Baird ................ 11,900 N/A 113,200 84,900
Mr. Gould ................ 11,900 N/A 47,888 35,916
Mr. Pfister .............. 11,900 N/A 22,200 16,650
Mr. Liu .................. 11,900 N/A 18,400 13,800
Mr. Dijols ............... 13,600 13,946 12,167 7,300
Mr. Bismuth .............. 11,900 N/A 14,480 10,860
The Company's matching credits under the Schlumberger Restoration Savings
Plan are vested one-third at three years of service, two-thirds at four
years, fully at five years or upon reaching the earliest of age 60, death
or change of control. The amounts credited under the Schlumberger
Restoration Savings Plan will be paid upon termination or retirement,
death, disability, or change in control.
6
Stock Option Grants Table
The following table sets forth certain information concerning options
granted during 2001 to the named officers. Shown are hypothetical gains that
could be realized for the respective options, based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the options were
granted over the ten-year term of the options. Any amount realized upon exercise
of the options will depend upon the market price of Schlumberger common stock at
the time the option is exercised relative to the exercise price of the option.
There is no assurance that the amounts reflected in this table will be realized.
Option Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------------------
% of Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Securities Granted to Exercise Stock Price Appreciation
Underlying Options Employees in Price Expiration for Option Term
----------------------------
Name Granted (#) (1) Fiscal Year ($/SH)(2) Date 5%($) 10%($)
- ---- ------------------ ------------- ------------- ------------ ------------- -------------
D. E. Baird .... 0 ---- ---- ---- ---- ----
A. Gould ....... 100,000 2.43 62.375 4/18/11 $3,922,730 $9,940,969
I. Pfister ..... 100,000 2.43 62.375 4/18/11 $3,922,730 $9,940,969
J. Liu ......... 0 ---- ---- ---- ---- ----
M. Dijols ...... 20,000 0.49 62.375 4/18/11 $ 784,546 $1,988,194
P. Bismuth ..... 20,000 0.49 62.375 4/18/11 $ 784,546 $1,988,194
- ------------
(1) The Company has not granted any stock appreciation rights. Options listed
above become exercisable in installments of 20% each year following the
date of grant. All outstanding stock options become fully exercisable prior
to liquidation or dissolution of the Company or prior to any
reorganization, merger or consolidation of the Company where the Company is
not the surviving corporation unless such merger, reorganization or
consolidation provides for the assumption of such stock options.
(2) The exercise price of the options is equal to the average of the high and
the low per share prices of the common stock on the options' dates of grant
and may be paid in cash or by tendering shares of common stock. Applicable
tax obligations may be paid in cash or by the withholding of shares of
common stock.
Stock Option Exercises and
December 31, 2001 Stock Option Value Table
The following table shows certain information concerning options
exercised during 2001 by the named officers and the number and value of
unexercised options at December 31, 2001. Schlumberger has not granted stock
appreciation rights. The values of unexercised in-the-money stock options at
December 31, 2001 as shown below are presented pursuant to Securities and
Exchange Commission rules. Any amount realized upon exercise of stock options
will depend upon the market price of Schlumberger common stock at the time the
stock option is exercised. There is no assurance that the values of unexercised
in-the-money options reflected in this table will be realized.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options at FY-End (#) at FY-End ($) (2)
Acquired on Value Realized Exercisable / Exercisable /
Name Exercises (#) ($) (1) Unexercisable Unexercisable
- ---- ------------- ------------- ------------------- -----------------
D. E. Baird .............. 0 __ 1,703,449/ 34,479,556/
109,900 0.00
A. Gould ................. 0 __ 283,928/ 3,976,843/
323,742 333,228
I. Pfister ............... 0 __ 310,960/ 4,287,425/
240,443 333,208
7
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options at FY-End (#) at FY-End ($) (2)
Acquired on Value Realized Exercisable / Exercisable /
Name Exercises (#) ($) (1) Unexercisable Unexercisable
- ---- ------------- ------------- ------------------- -----------------
J. Liu .................... 0 __ 180,555/ 2,393,031/
139,344 333,218
M. Dijols ................. 10,990 393,519 85,128/ 451,019/
74,770 133,271
P. Bismuth ................ 0 __ 135,089/ 1,530,732/
87,960 $0.00
- ---------------------
(1) Market value of stock on date of exercise less exercise price.
(2) Closing price of stock on December 31, 2001 ($54.95) less exercise price.
Pension Plans
Schlumberger and certain of its subsidiaries maintain pension plans for
employees, including executive officers, providing for lifetime pensions upon
retirement after a specified number of years of service. Employees may
participate in one or more pension plans in the course of their careers with the
Company or its subsidiaries, in which case they become entitled to a pension
from each plan based upon the benefits accrued during the years of service
related to each plan. These plans are funded on an actuarial basis through cash
contributions made by the Company or its subsidiaries. Certain of the plans also
permit or require contributions by employees.
Benefits under the international staff pension plans of the Company and
certain of its subsidiaries are based on a participant's pensionable salary
(generally, base salary plus incentive) for each year in which the employee
participates in the plans and the employee's length of service with the Company
or the subsidiary. Since January 1, 1993, the benefit earned has been 3.2% of
pensionable salary for each year of service. Benefits are payable upon normal
retirement age, at or after age 55, or upon early retirement. Estimated annual
benefits from these plans payable upon retirement are: $37,052 for Mr. Baird,
$124,237 for Mr. Gould, $61,612 for Mr. Liu, $43,167 for Mr. Dijols and $36,580
for Mr. Bismuth.
Benefits under the U.S. tax qualified pension plans of the Company and
certain of its subsidiaries are based on an employee's admissible compensation
(generally, base salary plus incentive) for each year in which an employee
participates in the U.S. plans and the employee's length of service with the
Company or the subsidiary. From January 1, 1989, the benefit earned has been
1.5% of admissible compensation for service prior to the employee's completion
of 15 years of active service and 2% of admissible compensation for service
after completion of 15 years of active service. The Company has adopted a
supplementary benefit plan for eligible employees, including executive officers.
Amounts under the supplementary plan are accrued under an unfunded arrangement
to pay each individual the additional amount which would have been payable under
the plans if the amount had not been subject to limitations imposed by law on
maximum annual benefit payments and on annual compensation recognized to compute
plan benefits. Estimated annual benefits from the plans payable upon retirement
(assuming retirement at age 65) are: $43,292 for Mr. Dijols and, assuming
admissible compensation continues at the December 31, 2001 levels, estimated
annual benefits payable from the U.S. plans and the supplementary benefit plan
are: $715,795 for Mr. Baird; $318,441 for Mr. Gould; $213,241 for Mr. Pfister;
$206,603 for Mr. Liu and $196,849 for Mr. Bismuth.
8
Corporate Performance Graph
The following graph compares the yearly percentage change in the
cumulative total stockholder return on Schlumberger common stock, assuming
reinvestment of dividends on the last day of the month of payment into common
stock of Schlumberger, with the cumulative total return on the published
Standard & Poor's 500 Stock Index and the cumulative total return on Value
Line's Oilfield Services Industry Group over the preceding five-year period. The
following graph is presented pursuant to Securities and Exchange Commission
rules. Schlumberger believes that while total stockholder return is an important
corporate performance indicator, it is subject to the vagaries of the market. In
addition to the creation of stockholder value, the Schlumberger executive
compensation program is based on financial and strategic results and the other
factors set forth and discussed in the Compensation Committee Report beginning
on page 9.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG SCHLUMBERGER LIMITED, S&P 500 INDEX AND VALUE LINE'S OILFIELD
SERVICES INDUSTRY INDEX
[GRAPH]
Value Line
Oilfield Services
Schlumberger Ltd. S&P 500 Industry Index
----------------- ------- -----------------
12/31/96 $100 $100 $100
12/31/97 163 133 155
12/31/98 95 171 75
12/31/99 130 208 111
12/31/00 187 189 154
12/31/01 130 166 109
Assumes $100 invested on December 31, 1996 in Schlumberger Limited
stock, in the S&P 500 Index and in Value Line's 2001 Oilfield Services Industry
Index. Reflects reinvestment of dividends on the last day of the month of
payment and annual reweighting of the Industry Peer Index portfolio.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board is composed entirely of outside
Directors who review and approve compensation programs applicable to executive
officers. Specific awards for these officers are approved by the Committee.
Three programs continue to provide the core compensation vehicles for
executive officers:
- Base Salaries
- Annual Cash Incentive Awards
- Stock Option Grants
9
Base salaries are reviewed annually for competitiveness against a
database of comparator company information provided by outside compensation
consultants. The companies in the database are from industry segments in which
Schlumberger competes: Oilfield Services and Information Technology with
SchlumbergerSema. The companies in the database change slightly from year to
year due to mergers and acquisitions as well as the normal movement of companies
into and out of the database at their own volition.
The comparator companies used for compensation purposes are different
from those in the Corporate Performance Graph (the Value Line Oilfield Services
Industry Index).
While executive officer base salaries are reviewed annually to analyze
their position versus the competitive market, they are adjusted less frequently.
Except for significant changes in responsibility, an executive officer's base
salary may be increased every three to five years and then by a significant
amount. This has allowed the Company to focus primarily on variable compensation
during periods of low inflation.
Mr. Gould's base salary was increased to $800,000 based on increased
corporate responsibilities. Mr. Pfister's base salary was increased to $600,000
in April 2001, when he became Executive Vice President of SchlumbergerSema
following the acquisition of Sema plc by the Company. Mr. Liu's base salary was
increased to $450,000 to position him competitively in the market.
Annual cash incentive awards for each executive officer are payable
early in the calendar (fiscal) year and reflect performance against targets or
objectives established in the preceding year.
Incentive awards for executive officers are calculated as a percentage
of the base salary paid for the completed calendar year. The percent varies
among executive officer positions to reflect the different levels of impact on
Company results. For 2001, the incentive award ranges were:
0 to 100% for Mr. Baird
0 to 100% for Messrs. Gould and Pfister
0 to 75% for Mr. Liu
0 to 60% for Mr. Bismuth
With exceptional results incentive ranges can be exceeded.
One half of the incentive for each executive officer is a function of
performance against financial targets for the Company (Messrs. Baird, Liu and
Bismuth) or the business sector for which the executive officer is responsible
(Messrs. Gould and Pfister). In 2001, the Company and the business sector
targets were based on net income goals.
The second half of the incentive relates to performance against various
objectives of each executive officer. Objectives may be strategic or personal
and may relate solely to the completed fiscal year or be interim measures
against longer-term objectives. The evaluation of the achievement of objectives
is discretionary and subject to approval of the Committee.
Mr. Gould's cash compensation is in the top quartile of the comparator
market based on the strong financial performance of the oilfield services sector
in 2001. Mr. Pfister's cash compensation is in the third quartile of the
comparator market. His objectives were the acquisition of Sema plc and its
integration with Test and Transactions and the remaining businesses of the
Resource Management Services Group. Mr. Liu's and Mr. Bismuth's results are
based on financial goals established for the Company and specific functional and
personal objectives. Mr. Liu's and Mr. Bismuth's compensation places them in the
top half of the comparator companies.
10
Stock option grants are awarded on a general basis to eligible
employees on an 18-month to two-year cycle. Grants are awarded on a
discretionary basis to professional, managerial and technical employees who
demonstrate exceptional performance in their current positions, as well as the
likelihood of continuing high quality performance in the future. In addition,
grants are awarded between general reviews to recognize promotions, substantial
changes in responsibility, significant individual or team achievements, and
under special circumstances. In 2001, following the acquisition of Sema plc,
eligible SchlumbergerSema employees were recognized with a stock option grant.
Of the named executive officers, Messrs. Gould, Pfister and Bismuth
were awarded stock option grants in 2001.
The stock option grants awarded by the Company are normally uniform in
their terms for executive officers as well as for other optionees: 10-year term;
vesting of 20% each year following the date of grant; and option price equal to
fair market value on the date of grant. The Company occasionally awards grants
with different vesting schedules in particular circumstances. The Company does
not utilize below-market options, stock appreciation rights, phantom stock,
restricted stock, performance units or reload options.
Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation expenses in excess of $1,000,000 per individual. The
Committee does not believe that the cash compensation payable in excess of this
amount for fiscal year 2001 will result in any material loss of tax deduction.
Therefore, the Committee has elected not to follow the provisions of Section
162(m) with regard to cash compensation. The Company's stock option plans are
believed to be in compliance with the provisions of Section 162(m).
Bases for the Compensation of the Chief Executive Officer
As in past years, the same companies used for comparison purposes to
review base salaries of other executive officers (and managerial employees
throughout Schlumberger) are analyzed to review the base salary of the Chief
Executive Officer. The approximately 50 companies in the data base are from
broad industry segments in which Schlumberger operates.
The Chief Executive Officer's salary remained at $1,500,000 during
2001.
The annual incentive range for Mr. Baird was 100% of base salary in
2001. One-half of this award was measured against net income targets for the
Company. These targets were exceeded, so payment on the financial portion of the
incentive award is greater than 50% of base salary.
The second half of the award reflects the Committee's evaluation of Mr.
Baird's excellent performance against strategic objectives established early in
2001 for the calendar year. These objectives were a combination of acquisitions,
divestitures, and integration of new businesses. Disclosure of specific measures
applied to evaluate achievement of Mr. Baird's objectives could adversely affect
the Company's competitive position.
The total cash incentive awarded Mr. Baird for 2001 performance was
$2,000,000. In combination with base salary, this places him in the top quartile
of comparator market data.
Mr. Baird has no employment agreement with the Company.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE SCHLUMBERGER
BOARD OF DIRECTORS
Don E. Ackerman Nicolas Seydoux
William T. McCormick, Jr., Chair Sven Ullring
11
2. Financial Statements
The Company's Consolidated Balance Sheet as at December 31, 2001, its
Consolidated Statement of Income for the year ended December 31, 2001, as
audited by PricewaterhouseCoopers LLP, and the amount of dividends declared by
the Board of Directors during 2001 are submitted to the stockholders pursuant to
the Schlumberger Deed of Incorporation.
A majority of the votes cast is required for the adoption and approval
of the financial results as set forth in the financial statements and of the
declaration of dividends by the Board of Directors as reflected in the 2001
Annual Report to Stockholders.
The Board of Directors Recommends a Vote FOR Item 2.
3. Appointment of Auditors
PricewaterhouseCoopers LLP have been selected by the Board of Directors
as independent public accountants to audit the accounts of the Company for the
year 2002. The Schlumberger by-laws provide that the selection of auditors is
subject to approval by the stockholders, and a majority of the votes cast is
required for such approval. A representative of PricewaterhouseCoopers LLP will
attend the 2002 Annual General Meeting and will have the opportunity to make a
statement and respond to questions.
Fees Paid to PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP has billed the Company and its subsidiaries
fees and out-of-pocket expenses as set forth in the table below for (i) the
audit of the Company's 2001 annual financial statements and reviews of quarterly
financial statements, (ii) financial information systems design and
implementation work rendered in 2001 and (iii) all other services rendered in
2001.
Financial Information
Systems Design and
Audit Fees Implementation Fees All Other Fees
---------- ------------------- --------------
Fiscal year 2001 $6,305,000 $1,385,000 $7,255,000
The Board of Directors Recommends a Vote FOR Item 3.
Stockholder Proposals for 2003 Annual General Meeting
In order for a stockholder proposal to be considered for inclusion in
the proxy statement for the 2003 Annual General Meeting of Stockholders, written
proposals must be received by the Secretary of the Company, 153 East 53 Street,
57th Floor, New York, New York 10022-4624, no later than November 6, 2002.
Pursuant to the rules under the Securities Exchange Act of 1934, the Company may
use discretionary authority to vote with respect to stockholder proposals
presented in person at the 2003 Annual General Meeting if the stockholder making
the proposal has not given notice to the Company by January 20, 2003.
Other Matters
Stockholders may obtain a copy of Form 10-K filed with the Securities
and Exchange Commission without charge by writing to the Secretary of the
Company at 153 East 53 Street, 57th Floor, New York, New York 10022-4624.
12
The Board of Directors knows of no other matter to be presented at the
Meeting. If any additional matter should be presented properly, it is intended
that the enclosed proxy will be voted in accordance with the discretion of the
persons named in the proxy.
Please sign, date, and return the accompanying proxy in the enclosed
envelope at your earliest convenience.
By order of the Board of Directors,
James L. Gunderson
Secretary
New York, N.Y.
March 6, 2002
13
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Stated in thousands except per share amounts)
Year Ended December 31, 2001 2000 1999
- ----------------------- ----------------- ----------------- ------------------
Revenue
Operating $ 13,745,806 $ 9,611,462 $ 8,394,947
Interest and other income 242,258 423,255 356,758
----------------- ----------------- ------------------
13,988,064 10,034,717 8,751,705
----------------- ----------------- ------------------
Expenses
Cost of goods sold and services 10,641,768 7,514,621 6,877,635
Research & engineering 704,336 540,698 522,240
Marketing 447,265 316,816 313,871
General 683,613 425,820 363,695
Interest 384,896 276,081 192,954
----------------- ----------------- ------------------
12,861,878 9,074,036 8,270,395
----------------- ----------------- ------------------
Income from continuing operations before
taxes and minority interest 1,126,186 960,681 481,310
Taxes on income 575,424 228,248 140,772
----------------- ----------------- ------------------
Income from continuing operations
before minority interest 550,762 732,433 340,538
Minority interest (28,545) 2,163 (11,204)
----------------- ----------------- ------------------
Income from continuing operations 522,217 734,596 329,334
Discontinued operations, net of tax - - 37,360
----------------- ----------------- ------------------
Net Income $ 522,217 $ 734,596 $ 366,694
================= ================= ==================
Basic earnings per share:
Continuing operations $ 0.91 $ 1.29 $ 0.60
Discontinued operations - - 0.07
----------------- ----------------- ------------------
$ 0.91 $ 1.29 $ 0.67
================= ================= ==================
Diluted earnings per share:
Continuing operations $ 0.91 $ 1.27 $ 0.58
Discontinued operations - - 0.07
----------------- ----------------- ------------------
$ 0.91 $ 1.27 $ 0.65
================= ================= ==================
Average shares outstanding 574,328 570,028 548,680
Average shares outstanding
assuming dilution 580,214 580,076 563,789
See the Notes to Consolidated Financial Statements
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Stated in thousands)
December 31, 2001 2000
- ------------ ----------------- -----------------
ASSETS
- ------
Current Assets
Cash $ 177,704 $ 160,718
Short-term investments 1,439,997 2,879,432
Receivables less allowance for doubtful accounts
(2001 - $145,268; 2000 - $106,503) 4,028,450 2,768,848
Inventories 1,204,263 1,111,585
Deferred taxes 321,767 259,184
Other current assets 532,709 313,444
----------------- -----------------
7,704,890 7,493,211
Long-term Investments, held to maturity 576,000 1,547,132
Investments in Affiliated Companies 820,806 654,516
Fixed Assets less accumulated depreciation 4,827,879 4,394,514
Multiclient Seismic Data 1,028,954 975,775
Goodwill 6,260,969 1,575,710
Intangible Assets 811,349 140,717
Deferred Taxes 126,057 271,059
Other Assets 169,463 120,097
----------------- -----------------
$ 22,326,367 $ 17,172,731
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable and accrued liabilities $ 4,506,634 $ 2,910,725
Estimated liability for taxes on income 587,328 379,916
Dividend payable 108,642 108,043
Long-term debt - current portion 31,990 36,201
Bank & short-term loans 983,191 556,020
----------------- -----------------
6,217,785 3,990,905
Long-term Debt 6,215,709 3,573,047
Postretirement Benefits 504,797 476,380
Other Liabilities 372,696 231,870
----------------- -----------------
13,310,987 8,272,202
----------------- -----------------
Minority Interest 636,899 605,313
----------------- -----------------
Stockholders' Equity
Common Stock 2,045,437 1,963,905
Income retained for use in the business 8,314,766 8,223,476
Treasury stock at cost (1,694,884) (1,752,961)
Accumulated other comprehensive income (286,838) (139,204)
----------------- -----------------
8,378,481 8,295,216
----------------- -----------------
----------------- -----------------
$ 22,326,367 $ 17,172,731
================= =================
See the Notes to Consolidated Financial Statements
2
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Stated in thousands)
Year Ended December 31, 2001 2000 1999
----------------- ------------------ ------------------
Cash flows from operating activities:
Net income $ 522,217 $ 734,596 $ 366,694
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization /1/ 1,896,119 1,270,754 1,150,344
Charges and gains on sale of businesses 271,174 2,706 128,508
Derivatives marked to market (49,569) - -
Earnings of companies carried at equity,
less dividends received (2001 - $ -;
2000 - $ -; 1999 - $3,401) (61,715) (39,805) (13,904)
Deferred Taxes 14,216 7,686 (18,519)
Discontinued operations - - 213,676
Provision for losses on accounts receivable 56,619 32,301 37,943
Change in operating assets and liabilities:
(Increase) decrease in receivables (907,535) (364,130) 265,588
(Increase) decrease in inventories (259,290) (194,640) 53,790
(Increase) decrease in other current assets (8,048) (38,656) 5,022
Increase (decrease) in accounts payable
and accrued liabilities 204,751 493,104 (181,731)
Increase (decrease) in estimated liability
for taxes on income 12,626 (12,069) (69,338)
Decrease (Increase) in other assets 17,739 (63,793) (43,166)
Other - net (141,132) (182,729) (190,601)
----------------- ------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,568,172 1,645,325 1,704,306
----------------- ------------------ ------------------
Cash flows from investing activities:
Purchases of fixed assets (2,052,635) (1,323,015) (792,001)
Multiclient seismic data capitalized (416,188) (222,934) (226,907)
Sales/retirements of fixed assets & other 30,824 149,494 68,005
Acquisition of Sema plc (4,778,498) - -
Other businesses acquired (452,951) (1,075,446) (135,338)
Sales of businesses 902,953 154,843 -
Increase (decrease) in investments 2,430,911 551,619 (295,075)
Sale of financial instruments - - 203,572
Drilling fluids joint venture - - (325,000)
Discontinued operations - - (291,953)
----------------- ------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (4,335,584) (1,765,439) (1,794,697)
----------------- ------------------ ------------------
Cash flows from financing activities:
Dividends paid (430,328) (426,465) (410,494)
Proceeds from employee stock purchase plan 78,965 69,089 70,765
Proceeds from exercise of stock options 42,795 160,281 103,084
Proceeds from exercise of stock warrants - - 449,625
Proceeds from issuance of long-term debt 4,815,028 956,641 1,062,935
Payment of principal on long-term debt (2,092,670) (724,911) (916,242)
Net increase (decrease) in short-term debt 370,608 113,608 (242,014)
----------------- ------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,784,398 148,243 117,659
----------------- ------------------ ------------------
Net increase in cash 16,986 28,129 27,268
Cash, beginning of year 160,718 132,589 105,321
----------------- ------------------ ------------------
CASH, END OF YEAR $ 177,704 $ 160,718 $ 132,589
================= ================== ==================
/1/ Includes multiclient seismic data costs.
See the Notes to Consolidated Financial Statements
3
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollar amounts stated in thousands)
Accumulated Other
Common Stock Comprehensive Income
------------------------------------------------- ----------------------
Issued In Treasury Retained Marked to Translation Comprehensive
------------------------ ------------------------
Shares Amount Shares Amount Income Market Adjustment Income
------------------------ ------------------------ ------------ ---------- ----------- -------------
Balance, January 1, 1999 665,701,858 $ 1,539,408 (119,567,982 $(2,221,308) $ 8,882,455 $ - $ (81,480) $ 996,051
==========
Translation adjustment (55,678) (55,678)
Sales to optionees less
shares exchanged 28,100 41,931 3,291,288 61,153
Employee stock purchase plan 1,324,848 70,765
Net income 366,694 366,694
Dividends declared ($0.75
per share) (414,210)
Sedco Forex spin-off (918,327)
Exercise of stock warrants 168,082 15,153,018 281,543
------------------------ ------------------------ ------------ ---------- ---------- ----------
Balance, December 31, 1999 667,054,806 1,820,186 (101,123,676) (1,878,612) 7,916,612 - (137,158) $ 311,016
==========
Translation adjustment (28,487) (28,487)
Sales of businesses 26,441 26,441
Sales to optionees less
shares exchanged 30,987 61,224 5,331,268 99,057
Employee stock purchase plan 42,495 1,431,309 26,594
Net income 734,596 734,596
Dividends declared ($0.75
per share) (427,732)
Tax benefit on stock options 40,000
------------------------ ------------------------ ------------ ---------- ---------- ----------
Balance, December 31, 2000 667,085,793 1,963,905 (94,361,099) (1,752,961) 8,223,476 - (139,204) $ 732,550
==========
Translation adjustment (171,930) (171,930)
RMS disposition 73,865 73,865
Derivatives marked to market (49,569) (49,569)
Sales to optionees less
shares exchanged 8,385 17,130 1,399,686 25,420
Shares granted to Directors 156 4,800 89
Employee stock purchase plan 46,397 1,752,833 32,568
Net income 522,217 522,217
Dividends declared ($0.75
per share) (430,927)
Tax benefit on stock options 17,849
------------------------ ------------------------ ------------ ---------- ----------- -----------
Balance, December 31, 2001 667,094,178 $ 2,045,437 (91,203,780)$(1,694,884) $ 8,314,766 $ (49,569) $ (237,269) $ 374,583
======================== ======================== ============ ========== =========== ===========
See the Notes to Consolidated Financial Statements
4
Notes To Consolidated Financial Statements
- ------------------------------------------
Summary of Accounting Policies
- ------------------------------
The Consolidated Financial Statements of Schlumberger Limited and its
subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America. Refer to page XX for a
description of Schlumberger's businesses.
DISCONTINUED OPERATIONS
On December 31, 1999, Schlumberger completed the spin-off of its offshore
contract drilling business, Sedco Forex, to its stockholders and the subsequent
merger of Sedco Forex and Transocean Offshore Inc., which changed its name to
Transocean Sedco Forex Inc. following the merger. The results for the Sedco
Forex operations spun off by Schlumberger are reported as Discontinued
Operations in the Consolidated Statement of Income.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of majority-owned
subsidiaries. Significant 20% - 50% owned companies are carried on the equity
method and classified in Investments in Affiliated Companies. The pro rata share
of Schlumberger after-tax earnings is included in Interest and Other Income. All
inter-company accounts and transactions have been eliminated.
RECLASSIFICATIONS
Certain items from prior years have been reclassified to conform to the current
year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Significant
estimates include estimates of total cost under percentage of completion
contracts, useful life of identifiable intangibles, inventory reserves, pension
and postretirement actuarial assumptions and allowance for bad debt. While
actual results could differ from these estimates, management believes that the
estimates are reasonable.
REVENUE RECOGNITION
Product and Services Revenue
Schlumberger's products and services are generally sold based upon purchase
orders or contracts with the customer that include fixed or determinable prices
and that do not include right of return or other similar provisions or other
significant post delivery obligations. Revenue is recognized for products upon
delivery, customer acceptance and when title passes. Revenue is recognized when
services are rendered and collectibility is reasonably assured.
Certain revenues are recognized on a time and materials basis, or on a
percentage of completion basis, depending on the contract, as services are
provided. Revenue from time and material service contracts are recognized as the
services are provided. Revenue from fixed price contracts is recognized over the
contract term based on the percentage of the cost of services provided during
the period compared to the total estimated cost of services to be provided over
the entire contract. Losses on contracts are recognized during the period in
which the loss first becomes probable and reasonably estimated.
5
Software Revenue
Revenue derived from the sale of licenses for its software, maintenance and
related services may include installation, consulting and training services.
If services are not essential to the functionality of the software, the revenue
for each element of the contract is recognized separately based on its
respective vendor specific objective evidence of fair value when all of the
following conditions are met: a signed contract is obtained, delivery has
occurred, fee is fixed and determinable and collectibility is probable.
If an ongoing vendor obligation exists under the license arrangement, or if any
uncertainties with regard to customer acceptance are significant, revenue for
the related element is deferred based on its vendor specific objective evidence
of fair value. Vendor specific objective evidence of fair value is determined as
being the price for the element when sold separately. If vendor specific
objective evidence of fair value does not exist for all undelivered elements,
all revenue is deferred until sufficient evidence exists or all elements have
been delivered.
TRANSLATION OF NON-US CURRENCIES
Oilfield Services' functional currency is primarily the US dollar.
SchlumbergerSema functional currencies are primarily local currencies. All
assets and liabilities recorded in functional currencies other than US dollars
are translated at current exchange rates. The resulting adjustments are charged
or credited directly to the Stockholders' Equity section of the Consolidated
Balance Sheet. Revenue and expenses are translated at the weighted-average
exchange rates for the period. All realized and unrealized transaction gains and
losses are included in income in the period in which they occur. Schlumberger
policy is to hedge against unrealized gains and losses on a monthly basis.
Included in the 2001 results were transaction losses of $7 million, compared
with losses of $4 million and $12 million in 2000 and 1999, respectively.
Currency exchange contracts are entered into as a hedge against the effect of
future settlement of assets and liabilities denominated in other than the
functional currency of the individual businesses. Gains or losses on the
contracts are recognized when the currency exchange rates fluctuate, and the
resulting charge or credit partially offsets the unrealized currency gains or
losses on those assets and liabilities. On December 31, 2001, contracts were
outstanding for the US dollar equivalent of $851 million in various foreign
currencies. These contracts mature on various dates in 2002.
INVESTMENTS
Both short-term and long-term investments, held to maturity comprise primarily
eurodollar time deposits, certificates of deposit and commercial paper,
euronotes and eurobonds, substantially all denominated in US dollars. They are
stated at cost plus accrued interest, which approximates market. Substantially
all the investments designated as held to maturity that were purchased and
matured during the year had original maturities of less than three months.
Short-term investments that are designated as trading are stated at market. The
unrealized gains/losses on such securities on December 31, 2001 were not
significant.
For purposes of the Consolidated Statement of Cash Flows, Schlumberger does not
consider short-term investments to be cash equivalents as they generally have
original maturities in excess of three months.
INVENTORIES
Inventories are stated at average cost or at market, whichever is lower.
Inventory consists of materials, supplies and finished goods.
6
GOODWILL AND INTANGIBLE ASSETS
Goodwill is amortized on a straight-line basis over 5 to 40 years. Accumulated
goodwill amortization was $645 million and $563 million on December 31, 2001 and
2000, respectively. Intangible assets consist primarily of assembled workforce,
technology, software and patents. Intangible assets are amortized over periods
ranging from 3 to 10 years. Accumulated intangible assets amortization at
December 31, 2001 and 2000 was $123 million and $35 million, respectively.
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost less accumulated depreciation, which is provided
for by charges to income over the estimated useful lives of the assets using the
straight-line method. Fixed assets include the manufacturing cost (average cost)
of oilfield technical equipment manufactured or assembled by subsidiaries of
Schlumberger. Expenditures for renewals, replacements and improvements are
capitalized. Maintenance and repairs are charged to operating expenses as
incurred. Upon sale or other disposition, the applicable amounts of asset cost
and accumulated depreciation are removed from the accounts and the net amount,
less proceeds from disposal, is charged or credited to income.
MULTICLIENT SEISMIC DATA
Schlumberger capitalizes the cost of obtaining multiclient surveys. Such costs
are charged to Cost of goods sold and services based on a percentage of
estimated total revenue that Schlumberger expects to receive from the sales of
such data. The carrying value of individual surveys is periodically reviewed and
adjustments to the value are made based upon the revised estimated revenues for
the surveys.
CAPITALIZED INTEREST
Schlumberger capitalizes interest expense during the new construction or upgrade
of qualifying assets. No interest expense was capitalized in 2001 and 2000.
Interest expense capitalized in 1999 was $5 million.
IMPAIRMENT OF LONG-LIVED ASSETS
Schlumberger reviews the carrying value of its long-lived assets, including
goodwill and intangible assets, whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may no longer be
appropriate. Schlumberger assesses recoverability of the carrying value of the
asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value.
TAXES ON INCOME
Schlumberger and its subsidiaries compute taxes on income in accordance with the
tax rules and regulations of the many taxing authorities where the income is
earned. The income tax rates imposed by these taxing authorities vary
substantially. Taxable income may differ from pretax income for financial
accounting purposes. To the extent that differences are due to revenue or
expense items reported in one period for tax purposes and in another period for
financial accounting purposes, an appropriate provision for deferred income
taxes is made.
Approximately $4 billion of consolidated income retained for use in the business
on December 31, 2001 represented undistributed earnings of consolidated
subsidiaries and the pro rata Schlumberger share of 20%-50% owned companies. No
provision is made for deferred income taxes on those earnings considered to be
indefinitely reinvested or earnings that would not be taxed when remitted.
7
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the average
number of common shares outstanding during the year. Diluted earnings per share
is calculated by dividing net income by the average number of common shares
outstanding assuming dilution, the calculation of which assumes that all stock
options and warrants which are in the money are exercised at the beginning of
the period and the proceeds used, by Schlumberger, to purchase shares at the
average market price for the period. The following is a reconciliation from
basic earnings per share to diluted earnings per share from continuing
operations for each of the last three years:
(Stated in thousands except per share amounts)
Income from Average
Continuing Shares Earnings
Operations Outstanding Per Share
------------- ------------- ------------
2001
Basic $ 522,217 574,328 $ 0.91
============
Effects of dilution:
Options 5,886
------------- -------------
Diluted $ 522,217 580,214 $ 0.91
============= ============= ============
2000
Basic $ 734,596 570,028 $ 1.29
============
Effects of dilution:
Options 10,048
------------- -------------
Diluted $ 734,596 580,076 $ 1.27
============= ============= ============
1999
Basic $ 329,334 548,680 $ 0.60
============
Effects of dilution:
Options 7,916
Warrants 7,193
------------- -------------
Diluted $ 329,334 563,789 $ 0.58
============= ============= ============
RESEARCH & ENGINEERING
All research and engineering expenditures are expensed as incurred, including
costs relating to patents or rights that may result from such expenditures.
Included in 2001 expenditures was a charge of $25 million for in-process R&D
related to the Bull CP8 acquisition.
NEW ACCOUNTING STANDARDS
In June 2001, SFAS 141 (Business Combinations) and SFAS 142 (Goodwill and Other
Intangible Assets) were issued. SFAS 141 has been adopted by Schlumberger for
acquisitions subsequent to June 30, 2001. SFAS 142 will be adopted by
Schlumberger commencing January 1, 2002. As required by SFAS 142, Schlumberger
will undertake a review for impairment in 2002. The preliminary findings of an
independent valuation indicated there will be no impairment writedown in 2002.
8
Amortization of goodwill and other intangibles included in Schlumberger's
results are as follows:
(Stated in millions)
Pretax
-----------------------------------------
2001 2000 1999
----------- ------------ ------------
Goodwill $ 270 $ 96 $ 85
Work force 22 - -
Other Intangibles 55 5 -
----------- ------------ ------------
$ 347 $ 101 $ 85
=========== ============ ============
With the adoption of SFAS 142, the equivalent amount of amortization for other
intangibles is estimated to be $70 million in 2002. Amortization of goodwill and
work force ceases.
In June 2001, SFAS 143 (Accounting for Asset Retirement Obligations) was issued.
SFAS 143 will be adopted by Schlumberger commencing January 1, 2003.
Schlumberger does not believe that the implementation of this standard will have
any material effect on its financial position and results of operations.
In August 2001, SFAS 144 (Accounting for Impairment or Disposal of Long-Lived
Assets) was issued. SFAS 144 will be adopted by Schlumberger commencing January
1, 2002. Schlumberger does not believe that the implementation of this standard
will have any material effect on its financial position and results of
operations.
In November, the FASB EITF staff issued announcement Topic D-103, "Income
Statement Characterization of Reimbursements Received for "Out-of-Pocket"". As a
result, customer reimbursements, including those relating to travel and other
out-of-pocket expenses, and other similar third-party costs, will be required to
be included as Revenues effective January 1, 2002, and an equivalent amount of
reimbursable expenses will be included in expenses. The adoption of this
announcement will not have an effect on net income.
Charges - continuing operations
- -------------------------------
Schlumberger recorded the following charges/credits in continuing operations:
In March 2001, a charge of $25 million for in-process R&D related to the Bull
CP8 acquisition.
In June 2001, a charge of $280 million ($0.48 per share - diluted) for the
estimated impairment charge from the disposition of certain Resource Management
Services businesses.
In September 2001, a pretax credit of $42 million (after tax $3 million)
representing the gain on the sale of the worldwide gas compression business,
partially offset by an impairment charge relating to the expected disposition of
certain activities. The proceeds from the sale of the worldwide gas compression
business included $274 million in cash, a $150 million long-term subordinated
note and newly issued Hanover Compressor Company shares with a value of $173
million. The shares have a three year marketability restriction. As part of the
transaction, Schlumberger agreed that the financing of a certain joint venture
project would be non-recourse to the buyer and would be executed prior to
December 31, 2002. Accordingly, Schlumberger is obligated with respect to the
financing to guarantee 30% (approximately $80 million) until the project is
completed in late 2002. If as of December 31, 2002 refinancing has not become
non-recourse to the buyer or the project has not achieved substantial
completion, the buyer has an option to put its interest in such joint venture
back to Schlumberger. The gain on the sale of this joint venture has been
deferred.
In December 2001, a pretax credit of $119 million (net - $5 million after tax
and minority interest, $0.01 per share - diluted), consisting primarily of the
following:
9
. A credit of $223 million ($117 million after tax) from the sale of the
former Resource Management Services North American Water division.
. A pretax charge of $43 million ($37 million after tax) for employee
termination costs, principally in Europe and the US, related to Oilfield
Services and SchlumbergerSema in response to current business conditions.
. A tax charge for reorganization costs of $29 million.
. A further pretax charge of $28 million ($20 million after tax) related to
the second quarter estimated loss on the divestiture of certain Resource
Management Services businesses following the actual closing in the fourth
quarter.
. A $33 million pretax asset writedown ($23 after tax and minority
interest) following a recent determination of technological impairment
related to certain Land seismic assets in the newly formed joint venture.
The above 2001 pretax amounts are recorded: an aggregated $119 million charge in
Cost of goods sold and services, a $25 million charge in Research & engineering
and a $10 million credit in Minority interest.
In December 2000, a pretax charge of $84 million offset by a pretax gain of $82
million (net - $3 million after tax and minority interest, $0.00 per share -
diluted), consisting of the following:
. A charge of $29 million ($25 million after tax) related primarily to the
write down of certain inventory and severance costs in the Semiconductor
Solutions business due to weak market conditions.
. A charge of $55 million ($39 million after tax and minority interest)
related to the creation of the WesternGeco seismic joint venture,
including asset impairments and severance costs for Schlumberger's
existing Geco-Prakla business.
. A credit of $82 million ($61 million after tax) resulting from the gain
on the sale of two Gas Services businesses in Europe. Revenue and
operating net results for these divested activities were $110 million and
a $740,000 loss, respectively, in 2000 (10 months) and $163 million and
$2.7 million profit, respectively in 1999.
The pretax gain on the sale of the Gas Services businesses is included in
Interest & Other Income. The pretax Semiconductor Solutions and WesternGeco
charges are included in Cost of goods sold and services. A $9 million credit is
included in Minority Interest relating to the WesternGeco charges.
In March 1999, a pretax charge of $147 million partially offset by a pretax gain
of $103 million (net - $58 million after tax, $0.10 per share - diluted),
consisting of the following:
. A charge of $118 million ($118 million after tax) related to the
downsizing of its global Oilfield Services activities, including $108
million of severance costs and $10 million for asset impairments.
. A charge of $29 million ($20 million after tax) related to Resource
Management Services and Test & Transactions, consisting principally of
$16 million of severance costs at several Resource Management Services
facilities resulting from a downturn in business and $5 million of asset
write-downs.
. A credit of $103 million ($80 million after tax) from the gain on the
sale of financial instruments received in connection with the 1998 sale
of the Retail Petroleum Systems business.
10
The pretax gain on the sale of financial instruments is included in Interest &
other income. The pretax charge of $147 million is classified in Cost of goods
sold and services.
In December 1999, a pretax charge of $77 million ($71 million after tax),
classified in Cost of goods sold and services, consisting primarily of the
following:
. A charge of $31 million ($26 million after tax) including $23 million of
asset impairments and $8 million of severance costs related to reductions
in the marine seismic fleet due to depressed market conditions.
. A charge of $38 million ($37 million after tax) including $33 million of
asset impairments and $5 million of severance costs related to the
restructuring of its land drilling activity following the spin-off of its
offshore drilling business to stockholders.
The December 2001 charge included severance costs of $41 million (775 people) of
which $9 million (318 people) had been paid at December 31, 2001. The remaining
severance costs are expected to be paid before June 30, 2002. The December 2000
charges included severance costs of $9 million (380 people) which have been
paid.
Discontinued Operations
- -----------------------
On December 31, 1999, Schlumberger completed the spin-off of its offshore
contract drilling business, Sedco Forex, to its stockholders and the subsequent
merger of Sedco Forex and Transocean Offshore Inc., which changed its name to
Transocean Sedco Forex Inc. following the merger. The spin-off was approved by
stockholders on December 10, 1999.
Upon completion of the merger, Schlumberger stockholders held approximately 52%
of the ordinary shares of Transocean Sedco Forex Inc., and Transocean Offshore
Inc. shareholders held the remaining 48%. Schlumberger retained no ownership in
the combined company.
In the spin-off, Schlumberger stockholders received one share of Sedco Forex for
each share of Schlumberger owned on the record date of December 20, 1999. In the
merger, each Sedco Forex share was exchanged for 0.1936 ordinary share of
Transocean Sedco Forex Inc. Stockholders received cash in lieu of fractional
shares.
Results for the Sedco Forex operations spun off by Schlumberger for this
transaction are reported as discontinued operations in the Consolidated
Statement of Income.
Discontinued Operations on the Consolidated Statement of Income includes the
operating results of the spun-off Sedco Forex business and the following
charges:
. In December 1999, an after-tax charge of $50 million ($0.09 per share -
diluted) for costs directly associated with the spin-off.
. In March 1999, an after-tax charge of $33 million ($0.06 per share -
diluted) for severance costs ($13 million) and legal claims.
As a result of the spin-off, Schlumberger Income Retained for Use in the
Business was reduced by $918 million representing the spun-off net assets of
Sedco Forex ($1.23 billion) less payments received in settlement of intercompany
balances between Schlumberger and Sedco Forex ($313 million). The net assets
spun off included $1.3 billion of fixed assets.
Pursuant to Accounting Principles Board Opinion (APB) No. 30, Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, the revenue and expenses of Sedco Forex have been excluded from
the respective captions in the Consolidated Statement of Income. The net
operating results of Sedco Forex have been reported, net of applicable income
taxes, as Discontinued Operations.
11
Summarized 1999 financial information for the discontinued operations, is as
follows:
(Stated in millions)
1999
------------
Operating Revenue $ 648
Income before taxes $ 29
Income after taxes $ 37
Acquisition of Sema plc
- -----------------------
On February 12, 2001, Schlumberger announced that it had reached an agreement
with the board of directors of Sema plc on the terms of a recommended offer for
the entire issued and to be issued share capital of Sema plc.
On March 8, 2001, a wholly owned subsidiary of Schlumberger acquired, through
market purchases, approximately 20% of the issued share capital of Sema at a
cost of $1 billion.
On April 6, 2001, the offer for the shares of Sema plc was declared
unconditional in all respects. The aggregate consideration for the acquisition
of 100% of the issued Sema shares was $5.15 billion (including expenses of the
transaction) which was financed from existing cash resources and borrowings
under a $3 billion credit facility.
On October 3, 2001, wholly owned subsidiaries of Schlumberger issued $1.9
billion European bonds (Euro 1.4 billion and (pound)425 million). The average
rate of these bonds is 5.9% with maturity from 2008 through 2032. The proceeds
from the issues were used to repay short-term bank loans originally taken out by
those subsidiaries to finance the acquisition of Sema plc.
The acquisition was accounted for using the purchase method of accounting and
the goodwill and identifiable intangibles aggregated $5.19 billion which are
being amortized on a straight line basis. Goodwill and identifiable intangibles
are currently amortized on a straight line basis over a composite life of 18
years.
The aggregate value of goodwill and identifiable intangibles comprised the
following:
(Dollars in billions)
Cost (including expenses) $ 5.15
Purchase accounting adjustments /1/ 0.34
Net tangible assets acquired (0.30)
----------
$ 5.19
==========
1. Purchase accounting adjustments consisted primarily of severance costs
($84 million - 1781 people), facility reductions ($33 million), pension
plan adjustments ($136 million) and tax restructuring costs ($50
million). At December 31, 2001, $26 million (593 people) of the
severance costs had been paid. The remaining severance costs are
expected to be paid before June 30, 2002.
For financial reporting purposes, Schlumberger included the results of
operations of Sema in its consolidated accounts commencing April 1, 2001. If
Sema had been included in the consolidated financial statements of Schlumberger
from January 1, consolidated revenue for the twelve months ended December 31,
2001 would have increased by $538 million (unaudited) to $14.3 billion
(unaudited) and consolidated net income would have decreased by approximately
$140 million (unaudited), to $382 million (unaudited), related primarily to
increased interest expense and amortization of intangibles, and
12
lower interest income. On a proforma basis, Schlumberger 2000 operating revenue
and net income would have been $12 billion (unaudited) and $300 million
(unaudited), respectively.
Sema is an IT services company (with approximately 22,000 employees at the date
of acquisition) that provides its customers with design, implementation,
operations and management of information systems and IT-related consulting
services. Among the industry sectors which Sema serves, Sema has increasingly
focused on the telecommunications and finance sectors, and provides a range of
its own software products specifically designed for these sectors in addition to
its IT services. Sema's customers include a wide variety of businesses and
governmental departments around the world. Sema's services and product offerings
include systems integration and consulting; software products for the
telecommunications, energy, transport and finance sectors; and outsourcing.
Other Acquisitions
- ------------------
During 2001, subsidiaries of Schlumberger acquired the following:
. In March, Bull CP8, a market leader in microprocessor-based smart cards
and associated systems applications for the banking, mobile
communications and network security industries. The acquisition price was
$313 million in cash. Assets acquired included identifiable intangibles
(primarily patents) of $136 million and goodwill of $140 million.
In-process R&D, which aggregated $25 million, was charged to expense in
the first quarter.
. In June, Infosynergi ASA, a Norwegian based company specializing in
customer information and billing systems integration. The acquisition
price was $29 million in cash. Assets acquired included goodwill of $29
million.
. In September, Sensor Highways Limited, a UK based market leader in the
design, manufacture and deployment of a new generation of fiber optic
sensors specializing in real-time data solutions to the oil and gas,
process and power distribution industries. The acquisition price was $100
million, consisting of $70 million in cash and $30 million in notes.
Assets acquired included identifiable intangibles of $48 million and
goodwill of $50 million.
. In September, Phoenix Petroleum Services, a UK based leader in providing
tools, technologies and techniques for optimizing production in
artificially lifted wells, particularly those using submersible pumps.
The acquisition price was $33 million in cash. Assets acquired included
goodwill of $26 million.
These acquisitions were accounted for using the purchase method of accounting.
During 2000, subsidiaries of Schlumberger acquired the following:
. In January, Telweb Inc., an Internet access company based in Quebec,
Canada. The purchase price was $28 million and the assets acquired
included goodwill of $28 million.
. In April, Operational Services, Inc., which provides a systematic
approach to production management though efficient systems and processes.
The purchase price was $13 million and the assets acquired included
goodwill of $13 million.
. In May, substantially all of the assets of CellNet Data Systems, Inc., a
provider of telemetry services for the development and deployment of
large-scale automatic metering reading systems. The acquisition was
handled through Chapter 11 procedure and was approved by the bankruptcy
court. The purchase price was $209 million and there was no goodwill
arising on the acquisition.
. In October, Data Marine Systems Limited, a global provider of
telecommunications services for transmitting data from remote locations.
The purchase price was $83 million and the assets acquired included
goodwill of $75 million.
13
. In November, a 70% interest in the Convergent Group, a provider of
business consulting, software engineering, system integration and project
management services. The purchase price was $263 million and the assets
acquired included goodwill of $214 million.
. In November, a 70% interest in WesternGeco, a new venture which combined
the Schlumberger surface seismic business, Geco-Prakla, and the Western
Geophysical seismic unit of Baker Hughes Incorporated. The purchase price
was $720 million which comprised $500 million in cash and a 30% interest,
valued at $220 million, in Geco-Prakla. There was no goodwill arising on
the acquisition.
These acquisitions were accounted for using the purchase method of accounting.
Unaudited APB 16 proforma results pertaining to the above acquisitions are not
presented as the impact was not significant.
During 1999, subsidiaries of Schlumberger acquired Merak, a market leader in
petroleum software solutions; Secure Oil Tools, a leader in multilateral
completions; and substantially all of the assets of Panther Software
Corporation, a provider of hardware and software products and services for
managing large volumes of seismic data. These acquisitions were accounted for
using the purchase method of accounting and the total goodwill arising on the
acquisitions was $106 million.
In the third quarter of 1999, the Omnes joint venture, created in 1995 between
Schlumberger and Cable & Wireless, was restructured into two separate business
units. Under the agreement, equal ownership and access to products, technology
and intellectual property was given to both parent companies. Schlumberger
retained ownership of the Omnes name. Omnes is now a fully operational company
within Oilfield Services.
Investments in Affiliated Companies
- -----------------------------------
In the third quarter of 1999, Schlumberger and Smith International Inc. entered
into an agreement whereby their drilling fluids operations were combined to form
a joint venture. Under the terms of the agreement, Schlumberger contributed its
non-US drilling fluids business and a total of $325 million to the joint
venture. Schlumberger owns a 40% interest in the joint venture and records
income using the equity method of accounting. Schlumberger's investment on
December 31, 2001 and 2000 was $573 million and $461 million, respectively.
Schlumberger's equity income from this joint venture in 2001 was $51 million and
$33 million in 2000.
Investments
- -----------
The Consolidated Balance Sheet reflects the Schlumberger investment portfolio
separated between current and long term, based on maturity. Except for $146
million of investments which are considered trading on December 31, 2001 ($139
million in 2000), under normal circumstances it is the intent of Schlumberger to
hold the investments until maturity.
Long-term investments mature as follows: $123 million in 2003, $173 million in
2004 and $280 million in 2005.
On December 31, 2001, there were no interest rate swap arrangements outstanding
related to investments. Interest rate swap arrangements had no material effect
on consolidated interest income.
Securitization
- --------------
In September 2000, a wholly-owned subsidiary of Schlumberger entered into an
agreement to sell, on an ongoing basis, up to $220 million of an undivided
interest in its accounts receivable and subsequently amended up to $350 million.
The amount of receivables sold under this agreement totaled $176 million at
December 31, 2001. Costs of the program, which primarily consist of the
purchasers' financing and administrative costs, were not significant.
14
Schlumberger continues to service the receivables and maintains an allowance for
doubtful accounts based upon the expected collectibility of all Schlumberger
accounts receivable, including the portion of receivables sold. Unless extended
by amendment, the agreement expires in September 2002.
Fixed Assets
- ------------
A summary of fixed assets follows:
(Stated in millions)
December 31, 2001 2000
----------- ------------
Land $ 82 $ 80
Building & Improvements 1,050 1,081
Machinery & Equipment 10,047 9,661
----------- ------------
Total cost 11,179 10,822
Less accumulated depreciation 6,351 6,427
----------- ------------
$ 4,828 $ 4,395
=========== ============
The estimated useful lives of Buildings & Improvements are primarily 30 to 40
years. For Machinery & Equipment, 13% is being depreciated over 16 to 25 years,
14% over 10 to 15 years and 73% over 2 to 9 years.
Long-term Debt
- --------------
A summary of long-term debt by currency follows:
(Stated in millions)
December 31, 2001 2000
----------- -----------
US dollar $ 3,194 $ 2,969
Euro 1,565 214
UK pound 1,201 170
Canadian dollar 129 73
Japanese yen 107 132
Other 20 15
----------- -----------
$ 6,216 $ 3,573
=========== ===========
During December 2001, the principal US subsidiary of Schlumberger initiated a US
commercial paper program. At December 31, 2001, commercial paper borrowings
totaled $335 million with a weighted average interest rate of 2.04%. Commercial
paper borrowings are supported by a revolving credit agreement with the
principal US subsidiary.
At December 31, 2001, the Euro borrowings included $747 million of 7 year bonds
at 5.25% and $441 million of 10 year bonds at 5.875% issued by a principal
subsidiary in France. The aggregate fair market value at December 31, 2001
approximated the stated value.
At December 31, 2001, the UK pound borrowings included $362 million of 7 year
bonds at 6.25% and $253 million of 31 year bonds at 6.50% issued by a principal
subsidiary in the UK. The aggregate fair market value at December 31, 2001 was
$642 million.
The remainder of the long-term debt is at variable interest rates; the
weighted-average interest rate of the debt outstanding on December 31, 2001 was
3.19%. Such rates are reset every six months or sooner. The carrying value of
long-term debt on December 31, 2001 approximates the aggregate fair market
value.
15
Long-term debt on December 31, 2001, is due as follows: $3,129 million in 2003,
$571 million in 2004, $485 million in 2005, $138 million in 2006 and $1,893
million thereafter.
On December 31, 2001, interest rate swap arrangements outstanding were: pay
fixed/receive floating on US dollar debt of $800 million; pay fixed/receive
floating on Japanese yen debt of $84 million. These arrangements mature at
various dates to December 2009. Interest rate swap arrangements increased
consolidated interest expense in 2001 by $16 million.
Lines of Credit
- ---------------
On December 31, 2001, wholly owned subsidiaries of Schlumberger had separate
lines of credit agreements aggregating $7.7 billion with commercial banks, of
which $7.1 billion was committed and $2.5 billion was available and unused.
Interest rates and other terms of borrowing under these lines of credit vary
from country to country. Commercial paper borrowings are classified as long-term
debt to the extent of the available and unused committed facilities maturing in
more than one year because of the ability under these credit agreements and the
intent to maintain these obligations for longer than one year. In January 2002,
Schlumberger and its subsidiaries replaced $2.5 billion of revolving credit
agreements and $1.8 billion of term loans with three new revolving credit
agreements totaling $4.6 billion, of which $3.6 billion matures in January 2007
and $1 billion matures in January 2003. Schlumberger plans to use these new
revolving credit facilities to backup borrowings under its commercial paper
programs in the United States and Europe and therefore expects these facilities
to remain largely undrawn. At January 31, 2002, $3.7 billion of these new
facilities was available unused.
Derivative Instruments and Hedging Activities
- ---------------------------------------------
Commencing January 1, 2001, Schlumberger adopted SFAS 133 (Accounting for
Derivative Instruments and Hedging Activities). Schlumberger uses derivative
instruments such as interest rate swaps, currency swaps, forward currency
contracts and foreign currency options. Forward currency contracts provide a
hedge against currency fluctuations on assets/liabilities denominated in other
than a functional currency. Options are usually entered into as a hedge against
currency variations on firm commitments generally involving the construction of
long-lived assets.
Schlumberger maintains a foreign-currency risk management strategy that uses
derivative instruments to protect its interests from unanticipated fluctuations
in earnings and cash flows caused by volatility in currency exchange rates.
Movements in foreign currency exchange rates pose a risk to Schlumberger's
operations as exchange rate changes may affect profitability and cash flow.
Schlumberger uses foreign currency forward exchange contracts, swaps and
options. Schlumberger also maintains an interest rate risk management strategy
that uses fixed rate debt and derivatives to minimize significant, unanticipated
earnings fluctuations caused by interest rate volatility.
Schlumberger's specific goals are (1) to manage interest rate sensitivity by
modifying the repricing or maturity characteristics of certain of its debt and
(2) to lower (where possible) the cost of borrowed funds.
By using derivative financial instruments to hedge exposure to changes in
exchange rates and interest rates, Schlumberger exposes itself to credit risk
and market risk. Schlumberger minimizes the credit risk by entering into
transactions with high-quality counterparties, limiting the exposure to each
counterparty and monitoring the financial condition of its counterparties.
Market risk is managed through the setting and monitoring of parameters that
limit the types and degree of market risk which are acceptable.
At December 31, 2001, Schlumberger recognized a net $49.5 million charge in
Stockholders' Equity relating to derivative instruments and hedging activities.
This charge was primarily due to the change in the fair market value of
Schlumberger's US interest rate swaps as a result of declining interest rates.
The effect on Stockholders' Equity as of the date of adoption, January 1, 2001,
was not significant.
16
Capital Stock
- -------------
Schlumberger is authorized to issue 1,500,000,000 shares of common stock, par
value $0.01 per share, of which 575,890,398 and 572,724,694 shares were
outstanding on December 31, 2001 and 2000, respectively. Schlumberger is also
authorized to issue 200,000,000 shares of cumulative preferred stock, par value
$0.01 per share, which may be issued in series with terms and conditions
determined by the Board of Directors. No shares of preferred stock have been
issued. Holders of common stock and preferred stock are entitled to one vote for
each share of stock held.
In January 1993, Schlumberger acquired the remaining 50% interest in the Dowell
Schlumberger group of companies. The purchase price included a warrant, expiring
in 7.5 years and valued at $100 million, to purchase 15,153,018 shares of
Schlumberger common stock at an exercise price of $29.672 per share. The warrant
was exercised by Dow Chemical on December 16, 1999.
Stock Compensation Plans
- ------------------------
As of December 31, 2001, Schlumberger had two types of stock-based compensation
plans, which are described below. Schlumberger applies APB Opinion 25 and
related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans and its stock
purchase plan. Had compensation cost for the stock-based Schlumberger plans been
determined based on the fair value at the grant dates for awards under those
plans, consistent with the method of SFAS 123, Schlumberger net income and
earnings per share would have been the pro forma amounts indicated below:
(Stated in millions except per share amounts)
2001 2000 1999
------------ ------------- -----------
Net income
As reported $ 522 $ 735 $ 367
Pro forma $ 386 $ 633 $ 268
Basic earnings per share
As reported $ 0.91 $ 1.29 $ 0.67
Pro forma $ 0.67 $ 1.11 $ 0.49
Diluted earnings per share
As reported $ 0.91 $ 1.27 $ 0.65
Pro forma $ 0.67 $ 1.09 $ 0.48
STOCK OPTION PLANS
During 2001, 2000, 1999 and in prior years, officers and key employees were
granted stock options under Schlumberger stock option plans. For all of the
stock options granted, the exercise price of each option equals the market price
of Schlumberger stock on the date of grant; an option's maximum term is ten
years, and options generally vest in 20% increments over five years.
As required by SFAS 123, the fair value of each grant is estimated on the date
of grant using the multiple option Black-Scholes option-pricing model with the
following weighted-average assumptions used for 2001, 2000 and 1999: dividend of
$0.75; expected volatility of 32-35% for 2001 grants, 27-33% for 2000 grants and
25-29% for 1999 grants; risk-free interest rates for the 2001 grants of 4.91%
for officers and 3.87%-5.01% for the 2001 grants to all other employees;
risk-free interest rates for the 2000 grants of 5.75%-6.84% for officers and
5.69%-6.72% for the 2000 grants to all other employees; risk-free interest rates
for the 1999 grants of 4.92%-5.29% for officers and 4.80%-6.25% for the 1999
grants to all other employees; and expected option lives of 5.51 years for
officers and 5.02 years for other employees for 2001 grants, expected option
lives of 7.16 years for officers and 5.49 years for other employees for 2000
grants, 7.14 years for officers and 5.28 years for other employees for 1999
grants.
17
A summary of the status of the Schlumberger stock option plans as of December
31, 2001, 2000 and 1999, and changes during the years ending on those dates is
presented below:
2001 2000 1999/1/
--------------------------- ---------------------------- ----------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Fixed Options Shares price Shares price Shares price
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 31,208,321 $ 54.43 31,613,924 $ 46.25 30,310,579 $ 42.50
Granted 4,110,468 $ 61.55 5,643,500 $ 79.64 6,012,168 $ 54.04
Exercised (1,444,588) $ 31.88 (5,447,870) $ 30.76 (3,634,790) $ 28.68
Forfeited (1,037,861) $ 71.27 (601,233) $ 62.03 (1,074,033) $ 52.50
-------------- ------------- -------------
Outstanding at year-end 32,836,340 $ 55.80 31,208,321 $ 54.54 31,613,924 $ 46.25
============== ============= =============
Options exercisable at
year-end 19,724,680 16,277,868 16,396,821
Weighted-average fair
value of options granted
during the year $ 21.51 $ 30.03 $ 17.72
/1/ Shares and exercise price have been restated to reflect adjustments made as
a result of the spin-off of Sedco Forex, in accordance with EITF Issue 90-9,
Changes to Fixed Employee Stock Option Plans as Result of Equity
Restructuring.
18
The following table summarizes information concerning currently outstanding and
exercisable options by three ranges of exercise prices on December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------
Weighted- Weighted- Weighted-
Number average average Number average
Range of outstanding remaining exercise exercisable exercise
exercise prices as of 12/31/01 contractual life price as of 12/31/01 price
- -------------------------------------------------------------------------------------------------------------
$ 3.831 - $22.073 162,795 3.62 $18.573 162,795 $18.573
$24.142 - $30.710 7,270,886 2.64 $27.808 7,270,886 $27.808
$30.795 - $44.843 4,465,540 4.71 $39.253 4,114,998 $38.778
$46.075 - $65.330 9,917,581 7.95 $56.857 2,744,519 $53.966
$71.315 - $82.348 11,019,538 7.26 $80.582 5,431,482 $80.974
-------------- --------------
32,836,340 6.08 $55.803 19,724,680 $48.300
============== ==============
EMPLOYEE STOCK PURCHASE PLAN
Under the Schlumberger Discounted Stock Purchase Plan, Schlumberger is
authorized to issue up to 22,012,245 shares of common stock to its employees.
Under the terms of the Plan, employees can choose each year to have up to 10% of
their annual earnings withheld to purchase Schlumberger common stock. The
purchase price of the stock is 85% of the lower of its beginning or end of the
Plan year market price. Under the Plan, Schlumberger sold 1,752,833, 1,431,309
and 1,324,848 shares to employees in 2001, 2000 and 1999, respectively.
Compensation cost has been computed for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes model with the
following assumptions for 2001, 2000 and 1999: Dividend of $0.75; expected life
of one year; expected volatility of 36% for 2001, 38% for 2000 and 40% for 1999;
and risk-free interest rates of 3.03% for 2001, 5.71% for 2000 and 5.33% for
1999. The weighted-average fair value of those purchase rights granted in 2001,
2000 and 1999, was $15.540, $23.141 and $19.829, respectively.
Income Tax Expense
- ------------------
Schlumberger and its subsidiaries operate in more than 100 taxing jurisdictions
where statutory tax rates generally vary from 0% to 50%.
In 2001, pretax book income in the US included gains from business divestitures
aggregating approximately $360 million; outside the US, pretax book income
includes losses on business divestitures of approximately $300 million. Pretax
book income from continuing operations subject to US and non-US income taxes for
each of the three years ended December 31, was as follows:
(Stated in millions)
2001 2000 1999
--------- ---------- ----------
United States $ 714 $ 51 $ (172)
Outside United States 412 910 653
-------- --------- ---------
Pretax income $ 1,126 $ 961 $ 481
======== ========= =========
Schlumberger had net deductible temporary differences of $1.0 billion on
December 31, 2001, $1.0 billion on December 31, 2000 and $1.1 billion on
December 31, 1999. Temporary differences at December 31, 2001 pertain to
postretirement medical benefits ($0.5 billion), employee benefits ($0.2
billion), and fixed assets, inventory and other ($0.2 billion).
19
The components of consolidated income tax expense from continuing operations
were as follows:
(Stated in millions)
2001 2000 1999
----------- ----------- -----------
Current:
United States - Federal $ 337 $ 21 $ (74)
United States - State 44 4 (7)
Outside United States 193 194 206
----------- ----------- -----------
$ 574 $ 219 $ 125
----------- ----------- -----------
Deferred:
United States - Federal $ 5 $ (3) $ 14
United States - State 3 (2) 1
Outside United States (7) 14 1
----------- ----------- -----------
$ 1 $ 9 $ 16
----------- ----------- -----------
Consolidated taxes on income $ 575 $ 228 $ 141
=========== =========== ===========
Effective tax rate 51% 24% 30%
=========== =========== ===========
During 2001, Schlumberger recorded several charges/credits in continuing
operations as more fully described on page XXX. Excluding these charges/credits,
the consolidated effective tax rate would have been 32%. Excluding the
charges/credits and amortization of goodwill/intangibles, the consolidated
effective tax rate would have been 27%. The variation from the US statutory
federal tax rate (35%) and 27% was due primarily to a substantial proportion of
operations in countries where taxation on income is lower than in the US.
For 2000 and 1999, the variations from the US statutory federal tax rate (35%)
and Schlumberger effective tax rates were due to several factors, including a
substantial proportion of operations in countries where taxation on income is
lower than in the US partially offset by the effect of permanent book/tax
differences in the US, such as goodwill amortization.
Leases and Lease Commitments
- ----------------------------
Total rental expense was $390 million in 2001, $287 million in 2000 and $303
million in 1999. Future minimum rental commitments under noncancelable leases
for years ending December 31 are: $173 million in 2002; $152 million in 2003;
$141 million in 2004; $108 million in 2005; and $108 million in 2006. For the
ensuing three five-year periods, these commitments decrease from $300 million to
$76 million. The minimum rentals over the remaining terms of the leases
aggregate to $32 million.
Contingencies
- -------------
The Consolidated Balance Sheet includes accruals for the estimated future costs
associated with certain environmental remediation activities related to the past
use or disposal of hazardous materials. Substantially all such costs relate to
divested operations and to facilities or locations that are no longer in
operation. Due to a number of uncertainties, including uncertainty of timing,
the scope of remediation, future technology, regulatory changes and other
factors, it is possible that the ultimate remediation costs may exceed the
amounts estimated. However, in the opinion of management, such additional costs
are not expected to be material relative to consolidated liquidity, financial
position or future results of operations.
In addition, Schlumberger and its subsidiaries are party to various other legal
proceedings. Although the ultimate disposition of these proceedings is not
presently determinable, in the opinion of Schlumberger any liability that might
ensue would not be material in relation to the consolidated liquidity, financial
position or future results of operations.
20
Schlumberger' s financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and receivables from
clients. Schlumberger places its cash and cash equivalents with financial
institutions and corporations, and limits the amount of credit exposure with any
one of them. Schlumberger actively evaluates the creditworthiness of the issuers
in which it invests. The receivables from clients are concentrated within a few
significant industries and geographies.
Segment Information
- -------------------
Schlumberger operates two reportable segments: Oilfield Services (OFS) and
SchlumbergerSema (SLSEMA).
The Oilfield Services segment falls into four clearly defined economic and
geographical areas and is evaluated on the following basis: First, North America
(NAM) is a major self-contained market. Second, Latin America (LAM) comprises
regional markets that share a common dependence on the United States. Third,
Europe (ECA) is another major self-contained market that includes the CIS and
West Africa, whose economy is increasingly linked to that of Europe. Fourth,
Other Eastern includes the remainder of the Eastern Hemisphere, which consists
of many countries at different stages of economic development that share a
common dependence on the oil and gas industry. The Oilfield Services segment
provides virtually all exploration and production services required during the
life of an oil and gas reservoir. Schlumberger believes that all the
products/services are interrelated and expects similar performance from each.
The SchlumbergerSema segment is a leading information technology services
company providing domain expertise and global capabilities delivered on a local
basis. The company has proven capabilities delivering consulting, systems
integration, managed services and products serving the telecommunications,
energy & utilities, finance, transport, public sector markets and oil and gas
markets.
21
Financial information for the years ended December 31, 2001, 2000 and 1999, by
segment, is as follows:
------------------------------------------------------------------------------------------------------
Other Total Elims/
2001 NAM LAM ECA Eastern Elims OFS SLSEMA Other/(1)/ Other Consolidated
------------------------------------------------------------------------------------------------------
Revenue $ 3,655 $ 1,479 $ 2,139 $ 2,105 $ 395 $ 9,773 $ 3,045 $ 997 $ (69) $ 13,746
======================================================================================================
Segment Income $ 551 $ 163 $ 266 $ 392 $ (84) $ 1,288 $ 30 $ 30 $(303) $ 1,045
Minority Interest - - - - 35 35 5 1 (3) 38
Income Tax Expense /(2)/ 329 42 83 69 13 536 (7) (3) (114) 412
------------------------------------------------------------------------------------------------------
Segment Income before tax
and MI $ 880 $ 205 $ 349 $ 461 $ (36) $ 1,859 $ 28 $ 28 $(420) $ 1,495
=========================================================================================
Interest Income $ 5 154
=========
Interest Expense $ (5) (380)
=========
Charges (143)
-------------
Pretax Income $ 1,126
======================================================================================================
Segment Assets $ 3,086 $ 1,606 $ 2,206 $ 1,751 $ 2,691 $11,340 $ 8,254 $ 367 $ - $ 19,961
Corporate Assets 2,365
-------------
Total Assets $ 22,326
======================================================================================================
Depreciation/Amortization/(3)/ $ 610 $ 164 $ 278 $ 260 $ 42 $ 1,354 $ 131 $ 56 $ 355 $ 1,896
======================================================================================================
Capital Expenditures /(3)/ $ 999 $ 238 $ 317 $ 395 $ 211 $ 2,160 $ 231 $ 49 $ 29 $ 2,469
------------------------------------------------------------------------------------------------------
/(1)/ Includes Semiconductor Solutions and the divested Resource Management
Systems businesses.
/(2)/ 2001 income tax expense excludes $163 million related to the Charges.
/(3)/ Includes multiclient seismic data costs.
------------------------------------------------------------------------------------------------------
Other Total Elims/
2000 NAM LAM ECA Eastern Elims OFS SLSEMA Other/(1)/ Other Consolidated
------------------------------------------------------------------------------------------------------
Revenue $ 2,413 $ 1,151 $ 1,603 $ 1,646 $ 333 $ 7,146 $ 1,049 $ 1,475 $ (59) $ 9,611
======================================================================================================
Segment Income $ 235 $ 64 $ 153 $ 281 $ 36 $ 769 $ 28 $ 51 $(133) $ 715
Minority Interest - - - - (1) (1) 6 1 0 6
Income Tax Expense /(2)/ 145 22 56 29 42 294 (22) 9 (63) 218
------------------------------------------------------------------------------------------------------
Segment Income before tax
and MI $ 380 $ 86 $ 209 $ 310 $ 77 $ 1,062 $ 12 $ 61 $(196) $ 939
=========================================================================================
Interest Income $ 5 297
=========
Interest Expense $ (3) (273)
=========
Charges (2)
-------------
Pretax Income $ 961
======================================================================================================
Segment Assets $ 2,984 $ 1,305 $ 1,689 $ 1,475 $ 1,884 $ 9,337 $ 1,339 $ 1,170 $ - $ 11,846
Corporate Assets 5,327
-------------
Total Assets $ 17,173
======================================================================================================
Depreciation/Amortization/(3)/ $ 403 $ 187 $ 221 $ 229 $ 12 $ 1,052 $ 28 $ 78 $ 113 $ 1,271
======================================================================================================
Capital Expenditures /(3)/ $ 608 $ 212 $ 259 $ 261 $ 23 $ 1,363 $ 42 $ 133 $ 8 $ 1,546
------------------------------------------------------------------------------------------------------
/(1)/ Includes Semiconductor Solutions and the divested Resource Management
Systems businesses.
/(2)/ 2000 income tax expense excludes $10 million related to the Charges.
/(3)/ Includes multiclient seismic data costs.
22
--------------------------------------------------------------------------------------------------
Other Total Elims/
1999 NAM LAM ECA Eastern Elims OFS SLSEMA Other/(1)/ Other Consolidated
--------------------------------------------------------------------------------------------------
Revenue $1,649 $ 947 $ 1,514 $ 1,561 $ 265 $ 5,936 $ 851 $1,640 $ (32) $ 8,395
==================================================================================================
Segment Income $ 84 $ - $ 83 $ 237 $ 39 $ 442 $ 41 $ 48 $ (117) $ 414
Minority Interest - - - - - - 9 2 - 11
Income Tax Expense /(2)/ 40 20 42 56 15 174 13 (8) (47) 132
--------------------------------------------------------------------------------------------------
Segment Income before tax and MI $ 124 $ 20 $ 125 $ 293 $ 54 $ 616 $ 63 $ 42 $ (164) $ 557
======================================================================================
Interest Income $ 7 228
=======
Interest Expense $ (6) $ (1) $ (2) (184)
================ =========
Charges (120)
----------
Pretax Income $ 481
==================================================================================================
Segment Assets $1,787 $ 992 $ 1,414 $ 1,299 $1,954 $ 7,446 $ 655 $1,298 $ - $ 9,399
Corporate Assets 5,682
----------
Total Assets $15,081
==================================================================================================
Depreciation/Amortization /(3)/ $ 316 $ 156 $ 226 $ 236 $ 16 $ 950 $ 35 $ 68 $ 97 $ 1,150
==================================================================================================
Capital Expenditures /(3)/ $ 322 $ 189 $ 161 $ 183 $ 68 $ 923 $ 29 $ 57 $ 10 $ 1,019
--------------------------------------------------------------------------------------------------
(1) Includes Semiconductor Solutions and the divested Resource Management
Systems businesses.
(2) 1999 income tax expense excludes $8 million related to the Charges.
(3) Includes multiclient seismic data costs.
23
Corporate assets largely comprise short-term and long-term investments.
During the three years ended December 31, 2001, no single customer exceeded 10%
of consolidated revenue.
The accounting policies of the segments are the same as those described in
Summary of Accounting Policies.
Oilfield Services' net income eliminations include: certain headquarters
administrative costs which are not allocated geographically, manufacturing and
certain other operations, and costs maintained at the Oilfield Services level.
In 2001, eliminations includes WesternGeco minority interest expense of $35
million.
Elims/Other principally comprises the amortization of goodwill and other
intangibles ($347 million in 2001), as well as nonoperating expenses, such as
certain intersegment charges and interest expense (except as shown above), which
are not included in segment operating income.
Schlumberger did not have revenue from third-party customers in its country of
domicile during the last three years. In each of the three years, only revenue
in the US exceeded 10% of consolidated revenue. Revenue in the US in 2001, 2000
and 1999 was $5.1 billion, $3.5 billion and $2.5 billion, respectively.
Pension and Other Benefit Plans
- -------------------------------
US PENSION PLANS
Schlumberger and its US subsidiary sponsor several defined benefit pension plans
that cover substantially all employees. The benefits are based on years of
service and compensation on a career-average pay basis. These plans are fully
funded with a trustee in respect to past and current service. Charges to expense
are based upon costs computed by independent actuaries. The funding policy is to
annually contribute amounts that are allowable for federal income tax purposes.
These contributions are intended to provide for benefits earned to date and
those expected to be earned in the future.
The assumed discount rate, compensation increases and return on plan assets used
to determine pension expense in 2001 were 7.5%, 4.5% and 9%, respectively. In
2000, the assumptions were 7.75%, 4.5% and 9%, respectively. In 1999, the
assumptions were 7%, 4.5% and 9%, respectively.
Net pension cost in the US for 2001, 2000 and 1999, included the following
components:
(Stated in millions)
2001 2000 1999
------------ ------------ ------------
Service cost-benefits earned
during the period $ 38 $ 32 $ 45
Interest cost on projected
benefit obligation 84 76 73
Expected return on plan assets
(actual return: 2001 - $(70);
2000 - $(2); 1999 - $211) (101) (97) (86)
Amortization of transition
assets (1) (1) (2)
Amortization of prior service
cost/other 7 5 6
Amortization of unrecognized
net gain (4) (11) -
------------ ------------ ------------
Net pension cost $ 23 $ 4 $ 36
============ ============ ============
24
Effective January 1, 2000, Schlumberger and its subsidiaries amended their
pension plans to improve retirement benefits for active employees.
The change in the projected benefit obligation, plan assets and funded status of
the plans on December 31, 2001 and 2000, was as follows:
(Stated in millions)
2001 2000
------------ ------------
Projected benefit obligation at
beginning of the year $ 1,105 $ 1,048
Service cost 38 32
Interest cost 84 76
Actuarial losses 96 17
Benefits paid (69) (62)
Amendments - (6)
------------ ------------
Projected benefit obligation at
end of the year $ 1,254 $ 1,105
============ ============
Plan assets at market value at
beginning of the year $ 1,212 $ 1,276
Actual return on plan assets (70) (2)
Employer contribution 1 -
Benefits paid (69) (62)
------------ ------------
Plan assets at market value at
end of the year $ 1,074 $ 1,212
============ ============
Excess of assets over projected
benefit obligation $ (180) $ 107
Unrecognized net gain 1 (266)
Unrecognized prior service cost 27 30
Unrecognized net asset at
transition date - (1)
------------ ------------
Pension liability $ (152) $ (130)
============ ============
The assumed discount rate, the rate of compensation increases and the expected
long-term rate of return on plan assets used to determine the projected benefit
obligations were 7.25%, 4.5% and 9%, respectively, in 2001, and 7.5%, 4.5% and
9%, respectively, in 2000. Plan assets on December 31, 2001, consisted of common
stocks ($630 million), cash or cash equivalents ($48 million), fixed income
investments ($326 million) and other investments ($70 million). On December 31,
2001, there is no investment of the plan assets in Schlumberger common stock.
NON-US PENSION PLANS
Outside the US, subsidiaries of Schlumberger sponsor several defined benefit and
defined contribution plans that cover substantially all employees who are not
covered by statutory plans. For defined benefit plans, charges to expense are
based upon costs computed by independent actuaries. These plans are
substantially fully funded with trustees in respect to past and current service.
For all defined benefit plans, pension expense was $52 million, $23 million and
$19 million in 2001, 2000 and 1999, respectively. Based on plan assets and the
projected benefit obligation, the only significant defined benefit plan is in
the UK.
The assumed discount rate, compensation increases and return on plan assets used
to determine pension expense in 2001 and 2000 were 6%, 4% and 9%, respectively.
In 1999, the assumptions were 7%, 4% and 9%, respectively.
25
Net pension cost in the UK plan for 2001 (including the Sema plc plans), 2000
and 1999 (translated into US dollars at the average exchange rate for the
periods), included the following components:
(Stated in millions)
2001 2000 1999
----------- ---------- ----------
Service cost-benefits earned
during the period $ 47 $ 22 $ 22
Interest cost on projected
benefit obligation 44 17 15
Expected return on plan assets
(actual return: 2001 - ($47);
2000 - ($28); 1999 - $106) (68) (34) (33)
Amortization of transition
asset and other (2) (5) (6)
----------- ---------- ----------
Net pension cost $ 21 $ - $ (2)
=========== ========== ==========
The change in the projected benefit obligation, plan assets and funded status of
the plan, including the Sema plc plans (translated into US dollars at year-end
exchange rates) was as follows:
(Stated in millions)
2001 2000
----------- -----------
Projected benefit obligation at
beginning of the year $ 311 $ 290
Acquisition of Sema 580 -
Service cost 47 22
Interest cost 44 17
Actuarial losses 55 19
Gain in exchange (2) (26)
Benefits paid (21) (11)
Disposals (25) -
Projected benefit obligation at
----------- -----------
end of the year $ 989 $ 311
=========== ===========
Plan assets at market value at
beginning of the year $ 385 $ 454
Acquisition of Sema 540 -
Actual return on plan assets (47) (28)
Loss in exchange (5) (38)
Employer contribution 31 7
Employee contributions 6 1
Benefits paid (21) (11)
Disposals (21)
Plan assets at market value at
----------- -----------
end of the year $ 868 $ 385
=========== ===========
Excess of assets over projected
benefit obligation $ (121) $ 74
Unrecognized net gain 131 (39)
Unrecognized prior service cost 1 1
Unrecognized net asset at
transition date (1) (2)
----------- -----------
Pension asset $ 10 $ 34
=========== ===========
The assumed discount rate and rate of compensation increases used to determine
the projected benefit obligation were 6% and 4%, respectively, in 2001, and 6.5%
and 4%, respectively, in 2000; the expected
26
long-term rate of return on plan assets was 9% in 2001 and 2000. Plan assets
consisted of common stocks ($702 million), cash or cash equivalents ($23
million) and fixed income investments ($143 million). None of the plan assets
represented Schlumberger common stock.
For defined contribution plans, funding and cost are generally based upon a
predetermined percentage of employee compensation. Charges to expense in 2001,
2000 and 1999, were $32 million, $22 million and $24 million, respectively.
OTHER DEFERRED BENEFITS
In addition to providing pension benefits, Schlumberger and its subsidiaries
have other deferred benefit programs, primarily profit sharing. Expenses for
these programs were $192 million, $114 million and $73 million in 2001, 2000 and
1999, respectively.
HEALTH CARE BENEFITS
Schlumberger and its US subsidiary provide health care benefits for certain
active employees. The cost of providing these benefits is recognized as expense
when incurred and aggregated $68 million, $60 million and $53 million in 2001,
2000 and 1999, respectively. Outside the US, such benefits are mostly provided
through government-sponsored programs.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Schlumberger and its US subsidiary provide certain health care benefits to
former employees who have retired under the US pension plans.
The principal actuarial assumptions used to measure costs were a discount rate
of 7.5% in 2001, 7.75% in 2000 and 7% in 1999. The overall medical cost trend
rate assumption is 9.5% graded to 5% over the next six years and 5% thereafter.
Net periodic postretirement benefit cost in the US for 2001, 2000 and 1999,
included the following components:
(Stated in millions)
2001 2000 1999
---------- ---------- -----------
Service cost - benefits
earned during the period $ 13 $ 10 $ 11
Interest cost on accumulated
postretirement benefit obligation 32 28 23
Amortization of unrecognized net
gain and other (1) (3) (3)
---------- ---------- -----------
$ 44 $ 35 $ 31
========== ========== ===========
27
The change in accumulated postretirement benefit obligation and funded status on
December 31, 2001 and 2000, was as follows:
(Stated in millions)
2001 2000
------------- -------------
Accumulated postretirement benefit
obligation at beginning of the year $ 398 $ 320
Service cost 13 10
Interest cost 32 28
Actuarial losses (gains) 53 57
Benefits paid (18) (17)
------------- -------------
Accumulated postretirement benefit
obligation at the end of the year
Unrecognized net gain 478 398
Unrecognized prior service cost/other 14 67
Postretirement benefit liability 13 11
------------- -------------
on December 31 $ 505 $ 476
============= =============
The components of the accumulated postretirement benefit obligation on December
31, 2001 and 2000, were as follows:
(Stated in millions)
2001 2000
------------- -------------
Retirees $ 237 $ 216
Fully eligible 67 47
Actives 174 135
------------- -------------
$ 478 $ 398
============= =============
The assumed discount rate used to determine the accumulated postretirement
benefit obligation was 7.25% for 2001 and 7.50% for 2000.
If the assumed medical cost trend rate was increased by one percentage point,
health care cost in 2001 would have been $53 million, and the accumulated
postretirement benefit obligation would have been $560 million on December 31,
2001.
If the assumed medical cost trend rate was decreased by one percentage point,
health care cost in 2001 would have been $38 million, and the accumulated
postretirement benefit obligation would have been $412 million on December 31,
2001.
Supplementary Information
- -------------------------
Operating revenue and related cost of goods sold and services for continuing
operations comprised the following:
(Stated in millions)
Year ended December 31, 2001 2000 1999
- ----------------------- ------------ ------------ ------------
Operating revenue
Products $ 4,896 $ 4,225 $ 3,822
Services 8,850 5,386 4,573
------------ ------------ ------------
$ 13,746 $ 9,611 $ 8,395
============ ============ ============
Direct operating costs
Goods sold $ 2,876 $ 2,582 $ 2,461
Services 7,255 4,790 4,288
------------ ------------ ------------
$ 10,131 $ 7,372 $ 6,749
============ ============ ============
28
Cash paid for interest and income taxes for continuing operations was as
follows:
(Stated in millions)
Year ended December 31, 2001 2000 1999
-------- -------- ---------
Interest $ 363 $ 268 $ 200
Income taxes $ 298 $ 231 $ 182
Accounts payable and accrued liabilities are summarized as follows:
(Stated in millions)
Year ended December 31, 2001 2000
------------- -------------
Payroll, vacation and
employee benefits $ 929 $ 672
Trade 1,184 946
Taxes, other than income 312 204
Other 2,082 1,089
------------- -------------
$ 4,507 $ 2,911
============= =============
Interest and other income includes the following:
(Stated in millions)
2001 2000 1999
------------- ------------ -------------
$ 159 $ 302 $ 235
Interest income
Equity in net earnings of
affiliated companies 62 39 19
Gain on sale of business - 82 -
Gain on sale of financial instruments 21 - 103
------------- ------------ -------------
$ 242 $ 423 $ 357
============= ============ =============
29
Schlumberger Limited (Schlumberger N.V.)
Proxy Solicitation on Behalf of the Board of Directors
Annual General Meeting of Stockholders
The undersigned, having received the Notice and Proxy Statement of the
P Annual General Meeting of Stockholders and the 2001 Annual Report to
Stockholders, hereby appoints Lupe A. Bosnie, Olette Pierik, Jan A. Konig
R and Leoni van Roggen and each of them, proxies, with power of
subsititution, to vote in the manner indicated on the reverse side hereof,
O and with discretionary authority as to any other matters that may properly
come before the meeting, all my (our) shares of record of Schlumberger
X Limited (Schlumberger N.V.) at the Annual General Meeting of Stockholders
to be held at the Avila Beach Hotel, Penstraat 130, Willemstad, Curacao,
Y Netherlands Antilles on April 10, 2002, and at any adjournment or
adjournments thereof.
If no other indication is made, the proxies will vote FOR the election
of the director nominees and FOR Proposals 2 and 3.
- ----------------- -----------------
SEE REVERSE Continued and to be signed on reverse side SEE REVERSE
SIDE SIDE
- ----------------- -----------------
- ----- --------
Please mark
X votes as in
this example
- ----- --------
Unless you indicate otherwise, this proxy will be voted in accordance
with the Board of Directors' recommendations. Directors recommend a
vote FOR items 1, 2 and 3.
1. Election of 11 Directors 2. Adoption and approval of FOR AGAINST ABSTAIN
Nominees: D.E. Baird, J. Deutch, J. Gorelick, A. Gould, Financials and Dividends [_] [_] [_]
A. Lajous, A. Levy-Lang, W.T. McCormick, Jr.,
D. Primat, N. Seydoux, L.G. Stuntz,
S. Ullring 3. Approval of Auditors [_] [_] [_]
FOR WITHHELD
ALL FROM ALL
NOMINEES [_] NOMINEES [_]
FOR ALL NOMINEES
EXCEPT THOSE
NOTED IN THE BLANK [_] _________________
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please sign names exactly as printed hereon. If
signing as attorney, administrator, executor,
guardian or trustee, please give full title as
such. Please sign, date and return in the enclosed
envelope.
Signature:_________________________ Date:_______ Signature:_________________________ Date:_______
