As filed with the Securities and Exchange Commission on August 9, 2002
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SCHLUMBERGER N.V.
(Schlumberger Limited)
(Exact name of registrant as specified in its charter)
Netherlands Antilles 1389 52-0684746
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
153 East 53rd Street, 57th Floor
New York, New York 10022-4624
(212) 350-9400
42 Rue Saint-Dominique
Paris, France 75007
33-1-4062-1000
Parkstraat 83, The Hague
The Netherlands 2514 JG
31-70-310-5400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Ellen S. Summer
General Counsel and Secretary
Schlumberger Limited
153 East 53rd Street, 57th Floor
New York, New York 10022-4624
(212) 350-9400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
With Copies to:
J. David Kirkland, Jr.
Baker Botts L.L.P.
3000 One Shell Plaza
Houston, Texas 77002
(713) 229-1234
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
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If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
===================================================================================================================
Proposed
maximum Proposed
offering maximum Amount of
Amount to be price per aggregate registration
Title of each class of securities to be registered registered unit (1) offering price fee
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Common stock, par value $.01 per share 5,000,000 $36.83 184,150,000 $16,941.80
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low prices for
the Registrant's common stock, as reported on the New York Stock Exchange on
August 7, 2002.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Subject to completion, dated August 9, 2002
Schlumberger Limited
5,000,000 Shares
Common Stock
We may use this prospectus to offer and sell up to 5,000,000 shares of our
common stock at various times in connection with business combinations involving
our company or our subsidiaries. The common stock covered by this prospectus may
be issued in connection with:
. mergers, consolidations, recapitalizations or similar plans of
acquisition;
. purchases of some or all of the assets of a business; and
. exchanges for the outstanding securities, obligations or other
interests of a business.
We expect that the specific terms of each business combination in which the
common stock will be issued will be negotiated with the owners, boards of
directors or other controlling persons of the businesses involved. Generally,
the shares of common stock covered by the prospectus that are issued in a
business combination will be valued:
. at a price based on their market value at the time the business
combination is agreed upon or at the time they are delivered pursuant
to the combination;
. at a price based on average market prices for periods ending at or
near these times; or
. on such other basis as the parties may agree.
We will pay all expenses of this offering. We do not expect to pay
underwriting discounts or commissions in connection with issuing these shares,
although we may pay investment banking fees or brokers' commissions in
connection with specific business combinations. Any person receiving these fees
may be deemed an underwriter within the meaning of the Securities Act of 1933,
and any profit on the resale of the common stock purchased by them may be deemed
to be underwriting discounts or commissions under the Securities Act.
We may also permit individuals or entities who have received or will
receive shares of our common stock in connection with the business combinations
described above to use this prospectus to cover resales of those shares. If this
happens, we will not receive any proceeds from such resales. For more
information, please read "Reselling Securities."
Our common stock is listed on the New York Stock Exchange and traded under
the symbol "SLB." The last reported sales price of our common stock on the New
York Stock Exchange on August 7, 2002 was $37.33 per share.
---------------------
Investing in the common stock issued under this prospectus involves risk.
Before making any investment in our company, you should consider carefully the
risk factors beginning on page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ,2002.
TABLE OF CONTENTS
Page
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ABOUT THIS PROSPECTUS ................................................... 1
FORWARD-LOOKING STATEMENTS .............................................. 2
SCHLUMBERGER LIMITED .................................................... 3
RISK FACTORS ............................................................ 4
USE OF PROCEEDS ......................................................... 6
DISTRIBUTION OF SECURITIES .............................................. 6
RESELLING SECURITIES .................................................... 7
DESCRIPTION OF CAPITAL STOCK ............................................ 9
LEGAL MATTERS ........................................................... 10
EXPERTS ................................................................. 10
WHERE YOU CAN FIND MORE INFORMATION ..................................... 10
INDEX TO FINANCIAL STATEMENTS ........................................... F-1
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. You should
assume that the information appearing in this prospectus is accurate only as of
the date on the front cover of this prospectus and that any information we have
incorporated by reference is accurate only as of the date of the document
incorporated by reference. Our business, financial condition, results of
operations and prospects may have changed since those dates.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, which we refer to as the SEC, using the
SEC's shelf registration rules. This prospectus provides you with a general
description of the securities we may sell. Depending on the terms of the
transaction, when we sell securities under this prospectus, we may provide a
prospectus supplement that will contain specific information about the terms of
that offering if required by the securities laws. The prospectus supplement may
also add, update or change information contained in this prospectus.
Under the shelf registration rules, using this prospectus, together with a
prospectus supplement, if one is required, we may sell from time to time, in one
or more offerings, up to 5,000,000 shares of our common stock. We may issue the
securities directly or through our subsidiaries in connection with (1) mergers,
consolidations, recapitalizations or similar plans of acquisition, (2) purchases
of some or all of the assets of a business, or (3) exchanges for the outstanding
securities, obligations or other interests of a business. We expect that the
specific terms of each business combination in which the common stock will be
issued will be negotiated with the owners, boards of directors or other
controlling persons of the businesses involved.
With our consent, persons who have received or will receive securities
under this prospectus in connection with business combinations may use this
prospectus to sell such securities at a later date. We refer to these persons in
the prospectus as selling security holders or selling shareholders. If required
by the securities laws, these selling security holders will be named in a
prospectus supplement. Please see the information described under the heading
"Reselling Securities" to find out more information about resales of the
securities by the selling security holders.
Market information in the incorporated documents is generally based on
company estimates and not third party sources. You should read this prospectus,
the applicable prospectus supplement and the additional information described
below under "Where You Can Find More Information."
1
FORWARD-LOOKING STATEMENTS
This document and the documents incorporated by reference in this
prospectus contain both historical and forward-looking statements. All
statements other than statements of historical fact are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include the information concerning our possible or
assumed future results of operations, including statements identified as
forward-looking statements in documents incorporated by reference in this
prospectus and statements about the following subjects:
. business strategies; . future dividends;
. operating efficiencies or synergies; . financing plans;
. growth opportunities; . budgets for capital and other expenditures;
. competitive position; . timing and cost of completion of capital projects;
. business or market outlook; . performance of contracts;
. expected financial position; . outcomes of legal proceedings;
. expected results of operations; . compliance with applicable laws; and
. future cash flows; . adequacy of insurance.
Forward-looking statements are generally identifiable by use of the
following words and other similar expressions, among others:
. "anticipate"; . "may";
. "believe"; . "might";
. "budget"; . "plan";
. "could"; . "predict";
. "estimate"; . "project";
. "expect"; . "shall";
. "forecast"; . "should"; and
. "intend"; . "will"
All of the forward-looking statements are qualified in their entirety by
reference to the factors discussed under the caption "Risk Factors" in this
prospectus and any applicable prospectus supplement and in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" sections of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, and in any subsequent SEC filings. If one or more of the
risks or uncertainties referred to above materialize (or the consequences of
such a development changes), or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those forecasted or expected.
You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.
2
SCHLUMBERGER LIMITED
We are a global leader in technical services spanning the oil and gas,
utility, semiconductor, smart card, network, and Internet solutions industries.
For 2001, our revenue was approximately $14 billion. We currently employ
approximately 81,000 people in nearly 100 countries around the world.
Schlumberger Oilfield Services, one of our two business segments, is the
leading supplier of services and technology to the international petroleum
industry and operates offices, service locations, and research and development
facilities around the world. Through its reservoir evaluation and development
businesses, Schlumberger Oilfield Services combines wireline, seismic and all
services relevant to well construction and productivity, including directional
drilling, measurements-while-drilling services and logging-while-drilling
services, pressure pumping, drilling fluids, testing, drilling bits, Reda pumps
and completions products. Through its oil and gas information solutions
businesses, Schlumberger Oilfield Services provides complete information
solution business workflows for customers, ranging from secure information
technology infrastructure solutions to software applications, information
management and expert products and services.
SchlumbergerSema, our other business segment, is a leading information
technology services company providing consulting, systems integration, managed
services, business continuity systems, products and Internet Protocol network
security solutions serving the telecommunications, utility, finance,
transportation, oil and gas, and public sector markets.
We are incorporated under the laws of the Netherlands Antilles. The
mailing addresses and telephone numbers of our principal executive offices are:
. 153 East 53rd Street, 57th Floor, New York, New York, 10022-4624,
212-350-9400;
. 42 Rue Saint-Dominique, Paris, France, 75007, 33-1-4062-1000; and
. Parkstraat 83, The Hague, The Netherlands 2514 JG, 31-70-310-5400.
3
RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in our securities. If any of the matters included in the
following risks were to occur, our business, financial condition, results of
operations, cash flows or prospects could be materially adversely affected. In
such case, the trading price of our common stock could decline and you could
lose all or part of your investment. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also adversely
affect our business and operations.
Demand for the majority of our oilfield services is substantially dependent on
the level of expenditures by the oil and gas industry. A substantial or an
extended decline in oil or gas prices could result in lower expenditures by the
oil and gas industry and reduce our revenue.
Demand for the majority of our oilfield services is substantially dependent
on the level of expenditures by the oil and gas industry for the exploration,
development and production of crude oil and natural gas reserves, which are
sensitive to oil and gas prices and generally dependent on the industry's view
of future oil and gas prices. Oil and gas prices have historically been volatile
and are affected by numerous factors, including:
. worldwide demand for energy, which is affected by worldwide population
growth and economic conditions;
. the ability of the Organization of Petroleum Exporting Countries to
set and maintain production levels for oil;
. the level of worldwide oil exploration and production activity;
. the cost of exploring for, producing and delivering oil and gas; and
. technological advances affecting energy consumption.
Demand for our information technology solutions is dependent on industry and
general economic conditions and other factors.
Demand for our information technology solutions is substantially dependent
on general economic conditions, market conditions in related industries, such as
telecommunications, the economic cycle, information technology spending and the
rate of technological change. In addition, competition from other providers can
affect the pricing we can realize on for our information technology solutions.
Acquisitions may be difficult to integrate, disrupt our business and adversely
affect our operating results.
We have in the past made a number of strategic acquisitions and may acquire
other companies, assets or product lines. Acquisitions may divert management's
attention from core businesses and could adversely affect our operating results
during the integration process or if we are unable to achieve the intended
objective of the acquisition. We may seek to finance acquisitions through
borrowings under credit facilities or by incurring new debt.
If we are unable to integrate new technologies and industry standards
effectively in our businesses, our revenue, profits and cash flows may decrease.
We must continue to improve the responsiveness, functionality and features
of our information technology solutions in accordance with industry standards
and to address the increasingly sophisticated technological needs of our
clients. Our ability to do this depends, in part, on our ability to adapt our
solutions to developing technologies, maintain relationships with suppliers and
continue to use best-in-class technologies. We may not be successful in
responding to technological and industry challenges in a timely and
cost-effective manner. If we are unable to integrate new technologies and
industry standards effectively, our revenue, profits and cash flows may
decrease.
4
Environmental compliance costs and liabilities could reduce our earnings and
cash available for operations.
We are subject to increasingly stringent laws and regulations relating to
environmental protection, including laws and regulations governing air
emissions, water discharges and waste management. We incur, and expect to
continue to incur, capital and operating costs to comply with environmental laws
and regulations. The technical requirements of environmental laws and
regulations are becoming increasingly expensive, complex and stringent. These
laws may provide for "strict liability" for damages to natural resources or
threats to public health and safety. Strict liability can render a party liable
for environmental damage without regard to negligence or fault on the part of
the party. Some environmental laws provide for joint and several strict
liability for remediation of spills and releases of hazardous substances.
We use and generate hazardous substances and wastes in our operations. In
addition, many of our current and former properties are or have been used for
industrial purposes. Accordingly, we could become subject to potentially
material liabilities relating to the investigation and cleanup of contaminated
properties, and to claims alleging personal injury or property damage as the
result of exposures to, or releases of, hazardous substances. In addition,
stricter enforcement of existing laws and regulations, new laws and regulations,
the discovery of previously unknown contamination or the imposition of new or
increased requirements could require us to incur costs or become the basis of
new or increased liabilities that could reduce our earnings and our cash
available for operations.
We could be subject to substantial liability claims, which would adversely
affect our results and financial condition.
Many of our oilfield products, such as directional drilling equipment,
perforating systems, subsea completion equipment and well completion systems,
are used in hostile environments, such as exploration, development and
production applications. An accident or a failure of a product can cause
personal injury, loss of life, damage to property, equipment or the environment,
and suspension of operations. Our insurance may not adequately protect us
against liability for some kinds of events, including events involving
pollution, or against losses resulting from business interruption. Moreover, in
the future we may not be able to maintain insurance at levels of risk coverage
or policy limits that we deem adequate. Substantial claims made under our
policies could cause our premiums to increase. Any future damages caused by our
products that are not covered by insurance, or are in excess of policy limits or
are subject to substantial deductibles, could reduce our earnings and our cash
available for operations.
Limitations on our ability to protect our intellectual property rights,
including our trade secrets, could cause a loss in revenue and any competitive
advantage we hold.
Some of our products or services, and the processes we use to produce or
provide them, have been granted U.S. patent protection, have patent applications
pending or are trade secrets. Our business may be adversely affected if our
patents are unenforceable, the claims allowed under our patents are not
sufficient to protect our technology, our patent applications are denied, or our
trade secrets are not adequately protected. Our competitors may be able to
develop technology independently that is similar to ours without infringing on
our patents or gaining access to our trade secrets.
We may be subject to litigation if another party claims that we have infringed
upon its intellectual property rights.
The tools, techniques, methodologies, programs and components we use to
provide our services may infringe upon the intellectual property rights of
others. Infringement claims generally result in significant legal and other
costs and may distract management from running our core business. Royalty
payments under licenses from third parties, if available, would increase our
costs. If a license were not available we might not be able to continue
providing a particular product or service, which would reduce our revenue.
Additionally, developing non-infringing technologies would increase our costs.
5
USE OF PROCEEDS
This prospectus relates to shares of common stock that may be offered and
issued by us from time to time in connection with business combinations. Other
than the businesses, assets, securities or other interests acquired, there
usually will be no proceeds to us from these offerings. When this prospectus is
used by a selling security holder in a public reoffering or resale of securities
acquired pursuant to this prospectus, we will usually not receive any proceeds
from such sale by the selling security holder. However, any proceeds received by
us from the offering of securities pursuant to this prospectus or upon any
resale of securities acquired pursuant to this prospectus will be used for
general corporate purposes.
DISTRIBUTION OF SECURITIES
We may issue the shares of common stock covered by this prospectus at
various times in connection with:
. mergers, consolidations, recapitalizations or similar plans of
acquisition;
. purchases of some or all of the assets of one or more businesses; and
. exchanges for some or all of the outstanding securities, obligations
and other interests of one or more businesses, including capital
stock, debt securities, loans and partnership interests.
We anticipate that the specific terms of each business combination in which
the common stock will be issued will be negotiated with the owners, boards of
directors or other controlling persons of the businesses, assets, securities or
other interests involved in the business combination. The common stock issued
will generally be valued at prices:
. based on or related to market prices for the common stock at or near
the time we agree to the terms of such business combination, at or
near the time of closing, or during the period or periods prior to
delivery of such common stock;
. based on average market prices for periods ending at or near such
times; or
. on such other basis as the parties may agree.
We will pay all expenses of this offering. No underwriting discounts or
commissions will be paid in connection with issuing these shares. However,
investment banking or brokers' fees may be paid from time to time with respect
to specific business combinations. Any person receiving such fees may be deemed
an underwriter within the meaning of the Securities Act, and any profit on the
resale of common stock purchased by them may be deemed to be underwriting
discounts or commissions under the Securities Act.
In an effort to maintain an orderly market in our securities or for other
reasons, we may negotiate agreements with persons receiving common stock covered
by this prospectus that will limit the number of shares that they may sell at
specified intervals. These agreements may be more or less restrictive than
restrictions on sales made under the exemption from registration requirements of
the Securities Act, including the requirements under Rule 144 or Rule 145(d),
and the persons party to these agreements may not otherwise be subject to the
Securities Act requirements. We anticipate that, in general, negotiated
agreements will be of limited duration and may permit the recipients of
securities issued in connection with acquisitions to sell specified portions as
set forth in the agreements. We may also determine to waive any such agreements
without public notice.
6
RESELLING SECURITIES
In general, the persons to whom we issue securities under this prospectus
will be able to resell our securities in the public market without further
registration and without being required to deliver a prospectus. However,
certain persons who receive our securities may want to resell those securities
in distributions that would require the delivery of a prospectus. With our
consent, this prospectus may be used by selling security holders who may wish to
sell securities. As used in this prospectus, "selling security holders" may
include donees, distributees and pledgees of selling securities received from a
named selling security holder. We may limit our consent to a specified time
period and subject our consent to certain limitations and conditions, which may
vary by agreement.
Selling security holders may sell securities from time to time in one or
more of the following transactions:
. through the New York Stock Exchange or any other securities exchange
that quotes the common stock;
. in the over-the-counter market;
. in transactions other than on such exchanges or in the
over-the-counter market (including negotiated transactions and other
private transactions);
. in short sales (sales of shares completed by the delivery of borrowed
stock) of the common stock, in transactions to cover short sales or
otherwise in connection with short sales;
. by pledge to secure debts and other obligations or on foreclosure of a
pledge;
. through put or call options, including the writing of exchange-traded
call options, or other hedging transactions related to the common
stock; or
. in a combination of any of the above transactions.
Selling security holders may enter into hedging transactions from time to
time in which a selling security holder may:
. enter into transactions with a broker-dealer or any other person in
connection with which such broker-dealer or other person will engage
in short sales of common stock, in which case such broker-dealer or
other person may use shares of common stock received from the selling
security holder to close out its short positions;
. sell common stock short itself and redeliver shares offered by this
prospectus to close out its short positions or to close out stock
loans incurred in connection with their short positions;
. enter into option or other types of transactions that require the
selling security holder to deliver common stock to a broker-dealer or
any other person, who will then resell or transfer the common stock
under this prospectus; or
. loan or pledge the common stock to a broker-dealer or any other
person, who may sell the loaned shares or, in an event of default in
the case of a pledge, sell the pledged shares under this prospectus.
Selling security holders may use broker-dealers or other persons to sell
their shares in transactions that may include one or more of the following:
. a block trade in which a broker-dealer or other person may resell a
portion of the block, as principal or agent, in order to facilitate
the transaction;
. purchases by a broker-dealer or other person, as principal, and resale
by the broker-dealer or other person for its account; or
. ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
7
Resales by selling security holders may be made directly to investors or
through securities firms acting as underwriters, brokers or dealers. When
resales are to be made through a securities firm, the securities firm may be
engaged to act as the selling security holder's agent in the resale of the
shares by the selling security holder, or the securities firm may purchase
securities from the selling security holder as principal and thereafter resell
the securities from time to time. The fees earned by or paid to the securities
firm may be the normal stock exchange commission or negotiated commissions or
underwriting discounts to the extent permissible. Securities may be sold at a
fixed offering price, which may be changed, at the prevailing market price at
the time of sale, at prices related to such prevailing market price or at
negotiated prices. The securities firm may resell the securities through other
securities dealers, and commissions or concessions to those other dealers may be
allowed. We and such selling security holders may indemnify any securities firm
participating in such transactions against certain liabilities, including
liabilities under the Securities Act and may reimburse them for any expenses in
connection with an offering or sale of securities. We may also agree to
indemnify the selling security holder against any such liabilities or reimburse
them for expenses. Profits, commissions and discounts on sales by persons who
may be deemed to be underwriters within the meaning of the Securities Act may be
deemed underwriting compensation under the Securities Act.
Selling security holders may also offer shares of common stock covered by
this prospectus by means of prospectuses under other registration statements or
pursuant to exemptions from the registration requirements of the Securities Act,
including sales that meet the requirements of Rule 144 or Rule 145(d) under the
Securities Act. Selling security holders should seek the advice of their own
counsel about the legal requirements for such sales.
The terms of the acquisition of shares of common stock by the selling
security holder may include a provision for the sharing or reallocation of the
selling security holder's costs in connection with the resale of the securities,
including the cost of registering the securities issued in the acquisition and
preparing and printing the amendment or supplement, commissions and other costs
of resale.
This prospectus will be amended or supplemented, if required by the
Securities Act and the rules of the SEC, to disclose the name of the selling
security holder, the participating securities firm, if any, the number of shares
of common stock involved and other information concerning the resale, including
the terms of any distribution, including the names of any underwriters, brokers,
dealers or agents and any discounts, commissions, concessions or other items
constituting compensation. We may agree to keep the registration statement
relating to the offering and sale by the selling security holders of our
securities continuously effective until a fixed date or the date on which the
shares may be resold without registration under the Securities Act.
8
DESCRIPTION OF CAPITAL STOCK
The following is a summary of certain rights of the holders of our common
stock. Reference is made to our deed of incorporation and our by-laws, each as
amended to date, copies of which are filed as exhibits to the registration
statement of which this prospectus is a part and are incorporated into this
prospectus by reference. See "Where You Can Find More Information" on page 10 of
this prospectus for information on how to obtain a copy of our deed of
incorporation or by-laws.
Authorized, Issued and Treasury Shares
We are authorized to issue 1,500,000,000 shares of common stock, par value
$0.01 per share. As of June 30, 2002, 667,104,668 shares were issued, of which
577,436,089 shares were outstanding and 89,668,579 shares were held by us as
treasury stock. In addition, we are authorized to issue, with some limitations
with respect to voting rights, liquidation and dividend preferences, 200,000,000
shares of cumulative preferred stock, par value $0.01 per share, which may be
issued in one or more separate series. If issued, the preferred stock may
contain provisions allowing it to be converted into common stock under terms and
conditions specified by our board of directors. No shares of preferred stock
have been issued as of the date of this prospectus.
Dividend Rights
All outstanding shares of our common stock (i.e., shares not held by us)
are entitled to participate equally and receive dividends that may be paid out
of available profits of the preceding fiscal year or years. All accumulated and
unpaid dividends payable on preferred stock (if issued and outstanding) must be
paid prior to the payment of any dividends on common stock. The amount of
dividends payable with respect to any fiscal year is determined by the
stockholders at the annual general meeting held within nine months of such
fiscal year following such fiscal year, except that our board of directors may
allocate such part of the earnings to the retained earnings reserves as it deems
fit and may declare interim dividends.
Voting Rights
Each holder of shares of common stock is entitled to one vote for each
share registered in that holder's name. Voting rights may be exercised in person
or by proxy. No action to amend our deed of incorporation or to sell all or
substantially all of our assets or to dissolve us can be taken except upon the
authorization of the holders of at least a majority of the outstanding shares
eligible to vote. In addition, holders of preferred stock (if issued and
outstanding) would have additional rights to vote as a class on certain
amendments to our deed of incorporation that would adversely affect the
preferred stock. Any other action requiring the approval of the shareholders may
be authorized by a majority of the votes cast (excluding any abstentions) at any
meeting at which a quorum is present, except that, if a quorum is not present at
any meeting, a second meeting may be called, to be held within two months, at
which second meeting, despite the absence of a quorum, valid resolutions may be
adopted with respect to any matter stated in the notice of the original meeting
and of the second meeting. A quorum consists of not less than 50% of the shares
outstanding and eligible to vote.
Our board of directors is authorized to effect reorganizations or
rearrangements of our corporate structure or that of our subsidiaries without
the vote of shareholders if such reorganization or rearrangement does not result
in any diminution of the beneficial interest of the shareholders in our assets.
The board of directors may change our corporate domicile from the Netherlands
Antilles to another jurisdiction without the necessity of any shareholder action
or approval.
Preemptive and Other Rights
The shares of our common stock do not carry any preemptive or conversion
rights, and there are no redemption provisions with respect to the common stock.
The shares of preferred stock (if issued and outstanding) would not carry any
preemptive rights, but our board of directors could specify conversion rights,
redemption provisions and (within limits) liquidation preferences with respect
to one or more series of preferred stock. We may for our own account purchase
shares of common stock so long as at least one-fifth of our authorized capital
stock remains outstanding with other holders. In the event of liquidation, each
share of common stock is entitled to equal rights after satisfaction of any
preferred stock liquidation preference.
9
Listing, Transfer Agents and Registrars
Our common stock is listed for trading on the New York Stock Exchange, The
London Stock Exchange, Euronext Paris, Euronext Amsterdam and The SWS Swiss
Exchange. The transfer agent and registrar for the common stock is EquiServe
Trust Company, N.A., Canton, Massachusetts.
LEGAL MATTERS
The validity of the common stock will be passed upon for us by Ellen S.
Summer, Esq., our General Counsel. If certain legal matters with respect to the
common stock are to be passed upon by other counsel, information about such
counsel will be indicated in a prospectus supplement.
EXPERTS
The financial statements as of December 31, 2001 and 2000 and for each of
the three years in the period ended December 31, 2001 included in this
Registration Statement on Form S-4 have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available over the Internet at the
SEC's web site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference room at 450 Fifth Street N.W., Room 1024,
Washington, D.C. 20549, and in New York, New York, and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
This prospectus is part of a registration statement on Form S-4 that we
filed with the SEC, which includes exhibits and other information not included
in this prospectus. The SEC allows us to "incorporate by reference" into this
prospectus the information we file with it. This means that we are disclosing
important information to you by referring to other documents filed separately
with the SEC. The information incorporated by reference is an important part of
this prospectus and information that we file later with the SEC will
automatically update and supercede this information. We incorporate by reference
the documents listed below that we have previously filed with the SEC and any
future filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act of 1934, as amended, after the date of this
prospectus until we sell all of the securities covered by this prospectus.
. our Annual Report on Form 10-K for the year ended December 31, 2001;
. our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2002 and June 30, 2002;
. our Current Report on Form 8-K filed May 21, 2002; and
. the description of our common stock contained in our registration
statement on Form F-20 dated January 8, 1962, including any amendment
or report filed for the purpose of updating such description.
10
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Schlumberger Limited
153 East 53rd Street, 57th Floor
New York, New York 10022-4624
(212) 350-9400
Attention: Investor Relations
To ensure timely delivery of these materials, you should make any request
no later than five business days prior to the date on which you must make your
investment decision. We will mail the materials to you by first class mail, or
another equally prompt means, within one business day after we receive your
request.
11
INDEX TO FINANCIAL STATEMENTS
Page
------
Report of Independent Accountants ........................................................................ F-2
Consolidated Statement of Income for the years ended December 31, 2001, 2000 and 1999 .................... F-3
Consolidated Balance Sheet as of December 31, 2001 and 2000 .............................................. F-4
Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000 and 1999 ................ F-5
Consolidated Statement of Stockholders' Equity ........................................................... F-6
Notes to Consolidated Financial Statements ............................................................... F-7
NOTE:
In June 2001, Statement of Financial Accounting Standards No.142, "Goodwill
and Other Intangible Assets," was issued. As required, we adopted this Statement
commencing January 1 , 2002. A requirement of this Statement as it applies to us
is that, in the period of initial application and thereafter until goodwill and
all other intangible assets have been accounted for in accordance with this
Statement, the following information shall be disclosed:
. earnings per share adjusted to exclude amortization of goodwill
(adjusted earnings per share); and
. a reconciliation of reported net income to net income excluding
amortization of goodwill (adjusted net income).
The above disclosures have been incorporated in the financial statements
that follow for the three years ended December 31, 2001. Such financial
statements (without the above dislcosures) had previously been included in our
Annual Report on Form 10-K for the year ended December 31, 2001, which had been
filed on February 28, 2002
F-1
To the Board of Directors and Stockholders
of Schlumberger Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Schlumberger
Limited and its subsidiaries at December 31, 2001 and December 31, 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
-----------------------------------
PricewaterhouseCoopers LLP
New York, New York
January 22, 2002
F-2
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
Elimination of goodwill amortization 0.50 0.17 0.16
---------------- ----------------- ------------------
Adjusted continuing operations 1.41 1.46 0.76
Discontinued operations - - 0.07
---------------- ----------------- ------------------
Adjusted Net Income $ 1.41 $ 1.46 $ 0.83
================ ================= ==================
Diluted earnings per share:
Continuing operations $ 0.91 $ 1.27 $ 0.58
Elimination of goodwill amortization 0.50 0.17 0.15
---------------- ----------------- ------------------
Adjusted continuing operations 1.41 1.44 0.73
Discontinued operations - - 0.07
---------------- ----------------- ------------------
Adjusted Net Income $ 1.41 $ 1.44 $ 0.80
================ ================= ==================
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
F-3
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
Fixed Income 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
F-4
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 -
Decrease (increase) 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
F-5
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 Comprehensive
Common Stock 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
F-6
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 3 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 actual assumptions and allowances 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.
F-7
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 investments and fixed income 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.
F-8
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.
F-9
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
=============== =============== ===============
ADJUSTED NET INCOME
The following is a reconciliation of reported net income to adjusted net income
following the adoption of SFAS 142 (Goodwill and Other Intangible Assets) on
January 1, 2002--see NEW ACCOUNTING STANDARDS below.
(Stated in thousands)
2001 2000 1999
---------- ------------ -------------
Reported Net Income $522,217 $734,596 $366,694
Elimination of goodwill amortization 291,574 94,746 85,324
-------- -------- --------
Adjusted net income $813,791 $829,342 $452,018
======== ======== ========
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.
F-10
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:
F-11
. 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 million 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.
F-12
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.
F-13
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
Acquisitions
------------
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
F-14
amortization of intangibles, and 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.
F-15
. 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.
. 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.
Fixed income 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
--------------
F-16
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.
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.
F-17
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.
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.
F-18
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.
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
F-19
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.
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.
The following table summarizes information concerning currently outstanding and
exercisable options by five 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,
F-20
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 ($0.3 billion).
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 F-11. 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
F-21
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.
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
F-22
telecommunications, energy & utilities, finance, transport, public sector
markets and oil and gas markets.
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 Services 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 - 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 Services businesses.
(2) 2000 income tax expense excludes $10 million related to the Charges.
(3) Includes multiclient seismic data costs.
F-23
--------------------------------------------------------------------------------------------------
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 Services businesses.
(2) 1999 income tax expense excludes $8 million related to the Charges.
(3) Includes multiclient seismic data costs.
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.
F-24
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
============ ============ ============
Effective January 1, 2000, Schlumberger and its subsidiaries amended their
pension plans to improve retirement benefits for active employees.
F-25
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.
F-26
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
============ ============
F-27
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 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
============ ============ ============
F-28
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 478 398
Unrecognized net gain 14 67
Unrecognized prior service cost/other 13 11
Postretirement benefit liability
------------- -------------
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
============ ============= =============
F-29
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
------------ ------------ -------------
Interest income $ 159 $ 302 $ 235
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
============ ============ =============
F-30
QUARTERLY RESULTS
-----------------
(UNAUDITED)
The following table summarizes results for each of the four quarters for the
years ended December 31, 2001 and 2000. Gross margin equals operating revenue
less cost of goods sold and services.
(Stated in millions except per share amounts)
Earnings per share
Gross Net --------------------
Revenue Margin Income Basic Diluted
------- ------ ------ ----- -------
Quarters-2001
First/1/ $ 2,910 $ 717 $ 235 $ 0.41 $ 0.41
Second/2/ 3,635 565 (93) (0.16) (0.16)
Third/3/ 3,624 916 195 0.34 0.34
Fourth/4/ 3,577 906 185 0.32 0.32
------------ ----------- ----------- ---------- ----------
$ 13,746 $ 3,104 $ 522 $ 0.91 $ 0.91
============ =========== =========== ========== ==========
Quarters-2000
First $ 2,138 $ 478 $ 136 $ 0.24 $ 0.24
Second 2,338 508 156 0.27 0.27
Third 2,447 556 205 0.36 0.35
Fourth/5/ 2,688 555 238 0.42 0.41
------------ ----------- ----------- ---------- ----------
$ 9,611 $ 2,097 $ 735 $ 1.29 $ 1.27
============ =========== =========== ========== ==========
1 Includes a $25 million (pretax and after tax) in-process R&D charge ($0.04
per share - diluted).
2 Includes a net, after-tax charge of $280 million ($0.48 per share -
diluted).
3 Includes a net, after-tax credit of $3 million ($0.00 per share-diluted).
4 Includes a net, after-tax credit of $5 million ($0.01 per share-diluted).
5 Includes a net, after-tax and minority interest charge of $3 million ($0.00
per share-diluted).
F-31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers.
Article 10 of our Deed of Incorporation and Article V of our By-Laws
provide that:
The Registrant has the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise or entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Registrant, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful. The Registrant is required to indemnify any of its present or former
officers or directors to the fullest extent allowed by the preceding paragraphs
in the event of a "Change of Control." "Change in Control" means a change in
control of the Registrant, which shall be deemed to have occurred if at any time
(i) any entity, person or organization is or becomes the legal or beneficial
owner, directly or indirectly, of securities of the Registrant representing 30%
or more of the combined voting power of the Registrant's then outstanding shares
without the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such entity, person or organization
attaining such percentage interest; (ii) the Registrant is a party to a merger,
consolidation, share exchange, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any 15-month
period, individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Registrant's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
The Registrant has the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Registrant to procure a judgment in the
Registrant's favor by reason of the fact that such person is or was a director,
officer, employee or agent of the Registrant, or is or was serving at its
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or entity against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the
Registrant's best interests and except that no indemnification may be made in
respect of any claim, issue or matter as to which such person has been finally
adjudged to be liable to the Registrant for improper conduct unless and only to
the extent that the court in which that action or suit was brought or any other
court having appropriate jurisdiction determines upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for those expenses,
judgments, fines and amounts paid in settlement which the court in which the
action or suit was brought or such other court having appropriate jurisdiction
deems proper. The Registrant is required to indemnify any of its present or
former officers or directors to the fullest extent allowed by the preceding
paragraphs in the event of a Change in Control (as defined above).
To the extent that one of the Registrant's directors, officers, employees
or agents has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in the two preceding paragraphs, or in
defense of any claim, issue or matter therein, the Registrant will indemnify
that person against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
II-1
Any indemnification under the first two paragraphs in this item (unless
ordered by a court) may be made by the Registrant only as authorized by contract
approved, or by-laws, resolution or other action adopted or taken, by the board
of directors or by the stockholders or as required by the last sentences of such
paragraphs.
Expenses (including attorney's fees) incurred in defending a civil or
criminal action, suit or proceeding will be paid by the Registrant in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the present or former director or present
officer, employee or agent to repay such amount if it is ultimately determined
that such person is not entitled to be indemnified by the Registrant as
authorized by Article V of the By-Laws or Article 10 of the Deed of
Incorporation.
The Registrant may pay such expenses (including attorney's fees) incurred
by former officers or other employees and agents upon such terms and conditions,
if any, it deems appropriate.
The indemnification and advancement of expenses provided by or granted
pursuant to the other Sections of Article V of the By-Laws and Article 10 of the
Deed of Incorporation are not exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, and, unless otherwise provided
when authorized or ratified, continues as to a person who has ceased to be a
director, officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of that person.
The Registrant has the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Registrant, or is or was serving at our request in such a capacity for another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against that person and incurred by that person in any of
those capacities or arising out of such person's status as such, whether or not
the Registrant would have the power to indemnify such person against such
liability under the provisions of Article V of the By-Laws or Article 10 of the
Deed of Incorporation.
For purposes of Article V of the By-Laws and Article 10 of the Deed of
Incorporation, reference to the Registrant includes, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, stands in the same position under the provisions of
Article V of the By-Laws and Article 10 of the Deed of Incorporation with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
For purposes of Article V of the By-Laws and Article 10 of the Deed of
Incorporation, references to "other enterprises" includes employee benefit
plans; references to "fines" includes any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of us" or "serving at the request of the Registrant" includes any service as a
director, officer, employee or agent of the Registrant which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of us" or
"not opposed to the best interests of the Registrant."
In addition, the Registrant maintains directors' and officers' liability
insurance which insures against certain liabilities that the officers and
directors of the Registrant may incur in such capacities.
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ITEM 21. Exhibits and Financial Statement Schedules
(a) Exhibit
Exhibit No. Description
4.1 Deed of Incorporation of the Registrant, as amended May 4, 2001
(incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2001; File No. 1-4601)
4.2 By-Laws of the Registrant, as amended April 19, 2001
(incorporated by reference to Exhibit 3.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2001; File No. 1-4601)
5 Opinion of Ellen S. Summer as to legality of the common shares
being registered
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Ellen S. Summer (included in Exhibit 5)
24 Powers of Attorney
(b) Financial Statement Schedules
Not Applicable.
(c) Reports, opinions or appraisals
Not Applicable.
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ITEM 22. Undertakings.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item 15 of
this registration statement, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(d)(1) That, prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
II-4
within the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph
(d)(1) immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(f) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 2002.
SCHLUMBERGER N.V.
(Schlumberger Limited)
By: /s/ Jean-Marc Perraud
-----------------------------------
Jean-Marc Perraud
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on August 9,
2002 in the capacities indicated.
* *
------------------------------------- --------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director, Chairman, President Director
and Chief Executive Officer
/s/ Jean-Marc Perraud *
------------------------------------- --------------------------------------
Jean-Marc Perraud Didier Primat
Executive Vice President and Director
Chief Financial Officer
/s/ Frank A. Sorgie *
------------------------------------- --------------------------------------
Frank A. Sorgie Nicolas Seydoux
Chief Accounting Officer Director
* *
------------------------------------- --------------------------------------
John Deutch Linda G. Stuntz
Director Director
* *
------------------------------------- --------------------------------------
Jamie S. Gorelick Sven Ullring
Director Director
* *
------------------------------------- --------------------------------------
Andrew Gould Andre Levy-Lang
Director Director
*
-------------------------------------
Adrian Lajous
Director
*By: /s/ Ellen S. Summer
---------------------------------
Ellen S. Summer
Attorney-in-Fact, pursuant to Power of Attorney dated April 18, 2002
(filed as Exhibit 24 to this Registration Statement).
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