As filed with the Securities and Exchange Commission on February 27, 2003March 3, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 20022003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SECURITIES EXCHANGE ACT OF 1934
For the Transition period fromto
Commission File Number 1-4601
Schlumberger N.V. (Schlumberger Limited)
(Exact name of registrant as specified in its charter)
| Netherlands Antilles | 52-0684746 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
153 East 53 Street, New York, New York, U.S.A. | 10022-4624 | |
42, rue Saint-Dominique Paris, France | 75007 | |
Parkstraat 83, The Hague, The Netherlands | 2514 JG | |
(Addresses of principal executive offices) | (Zip Codes) | |
Registrant’s telephone number in the United States, including area code, is:
(212) 350-9400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $0.01 per share | New York Stock Exchange Euronext Paris Euronext Amsterdam The London Stock Exchange SWX Swiss Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESx NO¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b.212b-2 of the Act). YESx NO¨
As of June 28, 2002,30, 2003, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $26$26.8 billion.
As of February 20, 2003,25, 2004, Number of Shares of Common Stock Outstanding: 582,204,604.588,663,848.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated herein by reference into the Parts indicated: Definitive Proxy Statement for the Annual General Meeting of Stockholders to be held April 11, 200314, 2004 (“Proxy Statement”), Part III.
Form 10-K
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Item 4. | 7 | ||||
Item 5. | Market for Schlumberger’s Common Stock and Related Stockholder Matters |
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Item 6. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial |
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| Item 9A. | Controls and Procedures | 71 | |||
Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
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| Item 14. | Principal Accounting Fees and Services | 72 | |||
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Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K |
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Part 1, Item 1
All references herein to “Registrant”, “Company” and “Schlumberger” refer to Schlumberger Limited and its consolidated subsidiaries. The following discussion of results should be read in conjunction with the Consolidated Financial Statements.
Founded in 1927, Schlumberger Limited is a global technologyoilfield and information services company consistingwith major activity in the energy industry. As of December 31, 2003, the company employed 77,000 people, which included 25,000 employees of SchlumbergerSema, of more than 140 nationalities working in 100 countries, and has principal executive offices in New York, Paris and The Hague. During 2003, Schlumberger comprised three primary business segments: first, Schlumberger Oilfield Services one ofis the leading providersworld’s premier oilfield services company supplying a wide range of technology services and solutions to the international petroleum industry; second,oil and gas industry. WesternGeco, jointly owned with Baker Hughes, is one of the world’s largest and most advanced surface seismic company. SchlumbergerSema anis a leading supplier of IT services company providing consulting, and systems integration, services, and network and infrastructure solutions, primarilyservices to the global energy industry, as well as to the public sector, including oiltelecommunications and gas,finance markets.
On September 22, 2003, Schlumberger announced its intention to sell the SchlumbergerSema business to Atos Origin. The sale closed on January 29, 2004. Today, Schlumberger comprises two primary business segments – Oilfield Services and other regional markets spanning the telecommunications, finance and public sectors and third, the Other business segment which principally comprises the Cards, Terminals, Meters North America and NPTest activities. With approximately 78,500 employees and operations in over 100 countries, Schlumberger has principal executive offices in Paris, New York and The Hague. The following summary describes the services and productsWesternGeco.
Active divestiture negotiations are currently ongoing for each business segment.of the remaining businesses, which are included in Other activities described below.
Schlumberger Oilfield Services is one of the world’s leading providersprovider of technology, servicesproject management and information solutions to the international petroleum industry.
With 48,000 employees, Schlumberger Oilfield Services manages its business through 27 Oilfield Services GeoMarket* regions, which are grouped into four geographic areas: North America; Latin America; Europe, CIS and WestEurope/CIS/W. Africa; and the Middle East & Asia. The GeoMarket regions offer customers a single point of contact at the local level for field operations and bring together geographically focused teams to meet local needs and deliver customized solutions.
Schlumberger invented wireline logging in 1927 as a technique for obtaining downhole data in oil and gas wells. Today, Schlumberger Oilfield Services operates in each of the major oilfield service markets covering the entire life cycle of the reservoir. These services are organized into seven technology segments,product lines, in which Schlumberger holds a number of market leading positions, to capitalize on technical synergies and introduce innovative solutions within the GeoMarket regions.
| Wireline – services that provide the information necessary to evaluate the |
| Drilling & Measurements – directional drilling, |
| Well Services – services to construct oil and gas wells, as well as maintain optimal production through the life of an oil and gas field. These include pressure pumping, well stimulation services, coiled tubing, cementing and engineering services. |
| Well Completions & Productivity – services for testing and completing wells and producing oil and gas, |
| Integrated Project Management – consulting, project management and engineering services leveraging the expertise from the other technology segments for the E&P industry. |
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Part 1, Item 1
| · | Data & Consulting Services – measurements, interpretation and integration of all exploration and production data types, and expert consulting services for reservoir characterization, production enhancement, multi-disciplinary reservoir and production solutions, and field development planning. |
| Schlumberger Information Solutions – |
The technology segmentsproduct lines are also responsible for overseeing operational processes, resource allocation, personnel and quality, health, safety and environmental matters in the GeoMarket.
Supporting the service technology segmentsproduct lines are 13 technology centers19 research and five researchdevelopment (R&D) centers. Through its research and product development,R&D, Schlumberger is committed to advanced technology programs that
will enhance oilfield efficiency, lower finding and producing costs, improve productivity, maximize reserve recovery, increase asset value and accomplish all of these goals in a safe, environmentally sound manner.
In addition, Schlumberger is a minority owner in M-I Drilling Fluids, a joint venture with Smith International that offers drilling and completion fluids utilized to stabilize rock strata during the drilling process and minimize formation damage during completion and workover operations.
Schlumberger also owns several jack up rigs, two of which were sold in the fourth quarter of 2002. In addition, the Reed Hycalog drillbits business was sold to Grant Prideco in December 2002 and has been treated as a discontinued operation.
Schlumberger’s oilfield services are marketed byOilfield Services uses its own personnel.personnel to market its products and services. The customer base, business risks and opportunities for growth are essentially uniform across all services. There is a sharing of manufacturing and engineering facilities as well as research centers; labor force is interchangeable. Technological innovation, quality of service, and price are the principal methods of competition. Competition varies geographically with respect to the different services offered. While there are numerous competitors, both large and small, Schlumberger believes that it is an industry leader in providing seismic services, measurements-while-drilling and logging-while-drilling services, and fully computerized logging and geoscience software and computing services. Land and marine seismic operations and technologies are managed and developed by WesternGeco. A large proportion of Schlumberger’s oilfield services arethe company’s offering is non-rig related; consequently, revenue does not necessarily correlate to rig count fluctuations.
In December 2003, Schlumberger announced a phased agreement to acquire PetroAlliance, Russia’s largest independent oilfield services company, beginning with a minority share in 2004. PetroAlliance provides a broad range of exploration and development services, to international standards, throughout Russia and the Caspian.
The focus of Schlumberger Oilfield Services is on increasinga minority owner in M-I Drilling Fluids, a joint venture with Smith International that offers drilling and completion fluids utilized to stabilize rock strata during the productivity of oildrilling process and gas reservoirs,minimize formation damage during completion and workover operations.
WesternGeco, which is being enhanced through the delivery,70% owned by Schlumberger, provides comprehensive worldwide reservoir imaging, monitoring, and application of real-time data. As oil and gas operators face declining production and challenges in adding new reserves economically, they are increasing their focus on improving recovery rates from existing and new reserves while reducing overall costs. As a result, the long-term objective is to fully integrate SchlumbergerSema IT solutions anddevelopment seismic services, with oilfield operationsthe most extensive seismic crews and data processing centers in the industry, as well as the world’s largest multiclient seismic library. Services range from 3D and time-lapse (4D) seismic surveys to provide real-timemulti-component surveys for delineating prospects and reservoir managementmanagement. Seismic solutions include proprietary Q* technology for enhanced reservoir description, characterization, and monitoring throughout the life of the field – from exploration through enhanced recovery.
Positioned for meeting a full range of customer needs in land, marine and shallow-water transition-zone services, that allow customers to optimize productionWesternGeco offers a wide range of technologies and the recovery of their hydrocarbon reserves.services:
| · | Land Seismic – comprehensive resources for seismic data acquisition on land and across shallow-water transition zones. |
| · | Marine Seismic – fully calibrated single-sensor marine seismic acquisition and processing system, delivering the seismic technology breakthrough needed for new-generation reservoir management. |
| · | Multiclient Services – high-quality seismic data from the most prospective hydrocarbon basins with the leading multiclient data library. |
| · | Reservoir Services – people, tools, and technology to help customers capture the benefits of a completely integrated approach to locating, defining, and monitoring the reservoir. |
| · | Seismic Data Processing – extensive seismic data processing centers for complex processing projects. |
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Part 1, Item 1
SchlumbergerSema providesprovided during 2003 IT consulting, systems integration, managed services together with network and infrastructure solutions primarily into the global energy market which includes the oil and gas industry, where Schlumberger holds a leadership position and the energy and utilities market. In addition, SchlumbergerSema provides these servicesas well as in specific regional markets spanning the telecommunications, finance, transport and public sectors.
During 2002Prior to its sale, SchlumbergerSema underwent two organizational changes:
The objective of the reorganizations is to maximize the synergies between SchlumbergerSema and Oilfield Services by rapidly developing IT services for the Energy sector.
With approximately 25,000 people serving customers in 65 countries, SchlumbergerSema is organized into 19 GeoMarkets grouped into three major geographic areas: North and South America; Europe, Africa, Middle East; and Asia.
SchlumbergerSema services are organized as follows:
| Network & Infrastructure Solutions that combines specialized technologies, domain experience and global infrastructure to enable the digital enterprise through their DeXa Suite of Services and provides secure global IP infrastructure, integrated information security solutions, wireless and remote network connectivity and complete network managed services. |
| Consulting & Systems Integration which offers consulting services, business systems and large-scale technical systems designed to operate to the highest levels of reliability in demanding conditions. The knowledge, skills and methods used by Schlumberger consultants around the world, combined with technical, systems integration and outsourced managed services capability within SchlumbergerSema, enable the development, implementation and management of major business and IT programs that are core to the strategic goals and long-term success of all businesses. |
SchlumbergerSema was formedOther comprises of businesses which are in April 2001, when Schlumberger Limited acquired Sema plc, and combined it with part of its former Test & Transactions business and other recent acquisitions.
Otheractive divestiture negotiations. The activities included in this segment are:
Schlumberger Volume Products offers a broad portfolio of hardware and software products that provide the foundation of the company’s best-in-class services and solutions. With more than 20 years experience as the smart card industry leader, Schlumberger was the first company to introduce Java-based smart card technology, and has sold more than 2.5 billion smart cards to date. Product expertise includes:
| Axalto (Smart Cards and Point-of-Sale Terminals) – On September 22, 2003, Schlumberger Smart Cards & Terminals (SC&T) changed its name to Axalto to bring more visibility and reinforce its image as a leading smart card player. The SC&T e-City parking meters business was subsequently sold to Apax in the fourth quarter of 2003. |
| · | Payphones provides payphones terminals and related communication solutions. |
| · | Electricity Meters (automated meters and meter reading technology for the North American electricity industry). In July 2003, Schlumberger entered into an agreement to sell the Electricity Meters activity to Itron Inc.; the sale is expected to be completed in the first half of 2004 pending the successful completion of the Hart-Scott-Rodino review process and other conditions. |
Also included in this segment is NPTest, which provides advanced test and diagnostic systems as well as engineering services to the semiconductor industry. These devices range from microprocessors, graphics processors, chipsets, devices for high-speed data transfer and communication applications to those used in increasingly complex consumer electronics such as DVDs and set-top boxes.
Acquisitions
Information on acquisitions made by Schlumberger or its subsidiaries appears under the heading “Acquisitions” on page 4749 of this Report within the “Notes to Consolidated Financial Statements”.
GENERAL
Research & Development
Research to support the engineering and development efforts of Schlumberger’s activities is conducted at Schlumberger Doll Research, Ridgefield, Connecticut, USA; Schlumberger Cambridge Research, Cambridge, England, and at Stavanger, Norway; Moscow, Russia and Dhahran, Saudi Arabia.
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Part 1, Item 1
Patents
While Schlumberger seeks and holds numerous patents, no particular patent or group of patents is considered material to Schlumberger’s business.
Seasonality
Although weather and natural phenomena can temporarily affect delivery of oilfield services, the widespread geographic location of such services precludes the overall business from being characterized as seasonal. However, because oilfield services are provided predominantly in the Northern Hemisphere, severe weather can temporarily affect the delivery of such services and products.
Customers and Backlog of Orders
No single customer exceeded 10% of consolidated revenue. Oilfield Services has no backlog since it is primarily service rather than product related. SchlumbergerSema backlog at December 31, 20022003 was $4.7$5.2 billion of which $1.5$1.9 billion is the subsequent twelve month backlog. At December 31, 2001,2002, the SchlumbergerSema backlog was $4.3$4.7 billion of which $1.5 billion was the subsequent twelve month backlog. The orders are believed to be firm but there is no assurance that any of the current backlog will actually result in sales.
Government Contracts
No material portion of Schlumberger’s business is subject to renegotiation of profits or termination of contracts by the US or other governments.
Employees
As of December 31, 2002,2003, Schlumberger had approximately 78,50077,000 employees which included 25,000 SchlumbergerSema employees.
Non-US Operations
Schlumberger’s non-US operations are subject to the usual risks which may affect such operations. Such risks include unsettled political conditions in certain areas, exposure to possible expropriation or other governmental actions, exchange controls, and currency fluctuations. Although it is impossible to predict such occurrences or their effect on Schlumberger, management believes these risks to beare acceptable.
Environmental Protection
Compliance with governmental provisions relating to the protection of the environment does not materially affect Schlumberger’s capital expenditures, earnings or competitive position. Management believes that Schlumberger is currently in substantial compliance with applicable environmental laws and regulations. For more information, seeEnvironmental Matters on page 30.32 of this Report.
Financial Information
Financial information by business segment for the years ended December 31, 2003, 2002 2001 and 20002001 is given on pages 58-5960 to 63 of this Report, within theNotes to Consolidated Financial Statements.
Internet Website
Schlumberger’s internetInternet website can be found atwww.slb.com. Schlumberger makes available free of charge, or through our internet website atinvestorcenter.slb.com, access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statement and Forms 3, 4 and 5 filed on behalf of
| 6 / SLB | 2003 FORM 10-K |
Part 1, Item 1, 2, 3, 4
directors and executive officers and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed, or furnished to the Securities and Exchange Commission.Commission (“SEC”). Additionally, Schlumberger’s corporate governance materials, including Board Committee Charters, Corporate Governance Guidelines, and Code of Ethics may also be found oninvestorcenter.slb.com. From time to time to time corporate governance materials on our website may be updated to comply with rules issued by the SEC and the New York Stock Exchange (“NYSE”) or as desirable to promote the effective governance of Schlumberger. Any stockholder wishing to receive, without charge, a copy of any of the SEC filings or corporate governance materials should write the Secretary, Schlumberger Limited, 153 East 53rd Street, 57th Floor, New York, New York, 10022.
The reference to this website address does not constitute incorporation by reference of the information contained on the website and should not be construed as part of this report.
Schlumberger owns or leases manufacturing facilities, administrative offices, service centers, research centers, sales offices and warehouses in North and South America, Europe, Africa, Asia and Australia. Some facilities are owned and some are held through long-term leases. No significant lease is scheduled to terminate in the near future, and Schlumberger believes comparable space is readily obtainable should any lease expire without renewal. Schlumberger believes all of its properties are generally well maintained and adequate for the intended use.
Outside the United States the principal owned or leased facilities of Oilfield Services are located in Hassi Massoud, Algeria; Luanda, Angola; Perth, Australia; Baku, Azerbaijhan; Rio de Janeiro, Brazil; Calgary and Edmonton, Canada; Beijing, China; Bogota, Colombia; Cairo, Egypt; Clamart and Paris, France; Bombay, India; Balikpapan and Jakarta, Indonesia; Milan, Italy; Fuchinobe, Japan; Atyrau, Kazakhstan; Kuwait City, Kuwait; Kuala Lumpur, Malaysia; Mexico City and Reynosa, Mexico; Port Harcourt, Nigeria; Belfast, Northern Ireland; Bergen and Stavanger, Norway;
Doha, Qatar; Moscow, Russia; Al-Khobar, Saudi Arabia; Singapore; Bangkok, Thailand; Abu Dhabi and Dubai, United Arab Emirates; Aberdeen Gatwick, Inverurie,and Stonehouse, and Southampton, United Kingdom; and Caracas, Venezuela.
Within the United States, the principal owned or leased facilities of Oilfield Services are located in Anchorage, Alaska; Lawrence, Kansas; New Orleans, Louisiana; Bartlesville, Oklahoma; Austin,and Houston, La Marque, Rosharon and Sugar Land, Texas.
Within the United States, the principal owned or leased facilities of SchlumbergerSemaWesternGeco are located in San Carlos, California; Denver, Colorado; Miami, Florida; Atlanta, Georgia; Owings Mills, Maryland; Boston, Massachusetts; Jersey City and Moorestown, New Jersey; Oconee, South Carolina; AustinDead Horse, Alaska, and Houston, Texas.
Outside the United States, the principal owned or leased facilities of SchlumbergerSemaWesternGeco are located in Buenos Aires, Argentina; Sydney,Hassi Mesaoud, Algeria; Luanda, Angola; Perth, Australia; Brussels, Belgium; Curitiba and Sao Paulo,Baku, Azerbaijan; Rio de Janeiro, Brazil; Toronto and Quebec,Calgary, Canada; Santiago, Chile; Beijing, Changsha, Guangzho, Hong Kong and Shanghai, China; Bogota, Colombia; San Jose, Costa Rica; Copenhagen, Denmark; Chambray-les-Tours, Louveciennes, Montrouge, Paris and Sophia Antopolis, France; Dreiech, Dusseldorf, Hamburg, Koln and Munich, Germany; Calcutta, Mumbai and New Delhi, India;Cairo, Egypt; Jakarta, Indonesia; Dublin, Ireland; Milan, Pont St. Martin, Naples and Rome, Italy; Tokyo, Japan; Seoul, Korea;Atyrau, Kazakhstan; Kuwait City, Kuwait; Kuala Lumpur, Malaysia; Mexico City and Poza Rica, Mexico; AskerLagos, Nigeria; Bergen, Oslo and Oslo,Stavanger, Norway; Moscow, Russia; Al-Khobar, Saudi Arabia; Singapore; Cape TownAbu Dhabi, Dubai and Johannesburg,Jebel Ali, United Arab Emirates; Gatwick and London, United Kingdom; and Caracas, Venezuela.
Other principal owned facilities were in Montrouge, France and Oconee, South Africa; Barcelona and Madrid, Spain; Gothenburg, Kiruna, Malmo and Stockholm, Sweden; Geneva and Zurich, Switzerland; Taipei, Taiwan; Bangkok, Thailand; Birmingham, Crewe, Docklands, Glasgow, Nottingham, London, Reading and Wilmslow, United Kingdom.Carolina.
The information with respect to Item 3 is set forth under the headingContingencies on page 5760 of this Report, within theNotes to Consolidated Financial Statements.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Schlumberger’s security holders during the fourth quarter of the fiscal year covered by this report.
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Part 1, Item 4
Executive Officers of Schlumberger
Information with respect to the executive officers of Schlumberger and their ages as of February 28, 20032004 is set forth below. The positions have been held for at least five years, except where stated.
| Name | Age | Present Position and Five-Year Business Experience | ||
Andrew Gould |
| Chairman and Chief Executive Officer, since February 2003; President and Chief Operating Officer, March 2002 to February 2003; Executive Vice President – Oilfield Services, January 1999 to March 2002; and Executive Vice President – OFS Products, February 1998 to January 1999. | ||
Jean-Marc Perraud |
| Executive Vice President and Chief Financial Officer, since March 2002; Controller and Chief Accounting Officer, April 2001 to March 2002; Treasurer, January 1999 to May 2001; and Vice President – Director of Taxes, May 1993 to January 1999. | ||
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Chakib Sbiti |
| Executive Vice President, since February 2003; President Oilfield Services Middle East & Asia, July 2001 to February 2003; President Oilfield Services Asia, August 2000 to July 2001; and Oilfield Services Director of Personnel, January 1998 to August 2000. | ||
Dalton Boutte | 49 | Executive Vice President, since February 2004 and President WesternGeco, since January 2003; Vice President OFS Operations, May 2001 to January 2003; President OFS Europe/C.I.S./Africa. March 2000 to May 2001; and Gulf Coast GeoMarket Manager, February 1998 to March 2000. | ||
Ellen Summer |
| Secretary and General Counsel, since March 2002; Director of Legal Services, April 2001 to March 2002; and Deputy General Counsel, March 2001 and prior. | ||
Simon Ayat |
| Vice President, Controller and Business Processes, since December 2002; Vice President Finance SchlumbergerSema, April 2001 to December 2002; Oilfield Services Controller, September 1998 to April 2001; and GeoMarket Manager Indonesia, February 1998 to September 1998. | ||
Pierre E. Bismuth |
| Vice President – Vice President – Personnel, July 2003 and prior. | ||
Mark Danton |
| Vice President – Director of Taxes, since January 1, 1999; and Deputy Director of Taxes, January 1995 to January 1999. | ||
Andre Erlich |
| Chief Information Officer, since May 2002; Vice President Technology and General Manager, April 2001 to May 2002; Vice President Business Development, October 1999 to April 2001; and Vice President and General Manager SRPC, September 1997 to October 1999. | ||
Peter A. Goode | 47 | Vice President, since February 2004 and President Schlumberger Information Solutions since September 2003; President, Energy IT Services, January 2003 to September 2003; President Reservoir Management, January 2001 to January 2003; and Vice President and General Manager IPM September 1999 to January 2001. | ||
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Part 1, Item 4
| Name | Age | Present Position and Five-Year Business Experience | ||
Rene Huck |
| Vice President QHSE & Industry Affairs, since March 2002; President Reservoir Evaluation and Development, Oilfield Services, January 2001 to March 2002; President Reservoir Development, Oilfield Services, December 1999 to January 2001; President Camco International, September 1998 to December 1999; and President European-Caspian Area, Oilfield Services, January 1998 to September 1998. | ||
Philippe Lacour-Gayet |
| Vice President and Chief Scientist, since January 2001; and Chief Scientist, July 1997 to January 2001. | ||
Satish Pai | 42 | Vice President since February 2004 and Vice President Oilfield Technologies since March 2002; President Schlumberger Information Solutions, January 2001 to March 2002; President IndigoPool.Com, April 2000 to January 2001; and GeoQuest Operations Manager UKI, July 1999 to April 2000. | ||
Jean-Dominique Percevault |
| Vice President – European Affairs and Chairman France, since January 2002; and Vice President – European Affairs, December 2001 and prior. | ||
Doug Pferdehirt | 40 | Vice President Communications and Investor Relations, since July 2003; President SchlumbergerSema NSA, August 2002 to July 2003; Vice President Marketing and Technique, April 2002 to August 2002; Gulf Coast GeoMarket Manager, February 2000 to April 2002; and Dowell North and South America Business Manager, March 1998 to February 2000. | ||
Frank Sorgie |
| Chief Accounting Officer, since May 2002; and Director of Financial Reporting, January 1993 to May 2002. | ||
Michel Soublin |
| Treasurer, since May 2001; Seconded as Chief Financial Officer to Yukos, January 1999 to May 2001; Director Business Information Systems, September 1998 to January 1999; and Vice President and Controller, Oilfield Services, January 1996 to September 1998. | ||
David Tournadre | 36 | Vice President Personnel since August 2003; Operations Manager REW, September 2001 to August 2003; Management and Technical Training Program, April 2001 to September 2001; and Seconded as Vice President Personnel, Exploration and Production to Yukos, December 1998 to April 2001. | ||
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Part II, Item 5
Item 5 Market for Schlumberger’s Common Stock and Related Stockholder Matters
As of December 31, 2002,2003, there were 582,173,115585,948,328 shares of the Common Stock of Schlumberger outstanding, exclusive of 84,931,55381,157,660 shares held in Treasury,treasury, and approximately 24,82524,770 stockholders of record. The principal United States market for Schlumberger’s Common Stock is the New York Stock Exchange.
Schlumberger’s Common Stock is also traded on the Euronext Paris, Euronext Amsterdam, London and SWX Swiss stock exchanges.
Common Stock, Market Prices and Dividends Declared per Share
The information with respect to this portion of Item 5 is set forth under the headingCommon Stock, Market Prices and Dividends Declared per Share on page 3032 of this Report.
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Part II, Item 6
FIVE-YEAR SUMMARY
(Stated in millions except per share amounts) | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2002 | 20011 | 20001 | 19991 | 19981 | ||||||||||||||||
SUMMARY OF OPERATIONS | ||||||||||||||||||||
Operating revenue: | ||||||||||||||||||||
Oilfield Services | $ | 9,347 |
| $ | 9,867 |
| $ | 7,253 |
| $ | 6,043 |
| $ | 8,029 |
| |||||
SchlumbergerSema2 |
| 2,991 |
|
| 2,258 |
|
| 238 |
|
| 68 |
|
| — |
| |||||
Other3 |
| 1,442 |
|
| 2,136 |
|
| 2,468 |
|
| 2,480 |
|
| 2,932 |
| |||||
Eliminations and other |
| (306 | ) |
| (203 | ) |
| (128 | ) |
| (18 | ) |
| — |
| |||||
Total operating revenue | $ | 13,474 |
| $ | 14,058 |
| $ | 9,831 |
| $ | 8,573 |
| $ | 10,961 |
| |||||
% increase (decrease) over prior year |
| (4 | )% |
| 43 | % |
| 15 | % |
| (22 | )% |
| 1 | % | |||||
Pretax segment income: | ||||||||||||||||||||
Oilfield Services | $ | 1,328 |
| $ | 1,803 |
| $ | 1,041 |
| $ | 595 |
| $ | 1,288 |
| |||||
SchlumbergerSema2 |
| 34 |
|
| (33 | ) |
| (75 | ) |
| 3 |
|
| 2 |
| |||||
Other3 |
| 20 |
|
| 93 |
|
| 155 |
|
| 103 |
|
| 159 |
| |||||
Eliminations4 |
| (148 | ) |
| (420 | ) |
| (206 | ) |
| (169 | ) |
| (198 | ) | |||||
Pretax segment income before minority interest |
| 1,234 |
|
| 1,443 |
|
| 915 |
|
| 532 |
|
| 1,251 |
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Minority interest |
| — |
|
| 38 |
|
| 7 |
|
| 11 |
|
| 9 |
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Total pretax segment income, before charges | $ | 1,234 |
| $ | 1,405 |
| $ | 908 |
| $ | 521 |
| $ | 1,242 |
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% increase (decrease) over prior year |
| (12 | )% |
| 55 | % |
| 74 | % |
| (58 | )% |
| (11 | )% | |||||
Interest income |
| 68 |
|
| 154 |
|
| 297 |
|
| 228 |
|
| 164 |
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Interest expense |
| 364 |
|
| 380 |
|
| 273 |
|
| 184 |
|
| 127 |
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Charges (net of minority interest)5 |
| 3,077 |
|
| 134 |
|
| (7 | ) |
| 120 |
|
| 432 |
| |||||
Taxes on income6 |
| 279 |
|
| 554 |
|
| 218 |
|
| 132 |
|
| 261 |
| |||||
Income (loss), continuing operations | $ | (2,418 | ) | $ | 491 |
| $ | 721 |
| $ | 313 |
| $ | 586 |
| |||||
% increase (decrease) over prior year |
| — |
|
| (32 | )% |
| 130 | % |
| (47 | )% |
| (44 | )% | |||||
Income, discontinued operations | $ | 98 |
| $ | 31 |
| $ | 14 |
| $ | 54 |
| $ | 428 |
| |||||
Net income (loss) | $ | (2,320 | ) | $ | 522 |
| $ | 735 |
| $ | 367 |
| $ | 1,014 |
| |||||
% increase (decrease) over prior year |
| — |
|
| (29 | )% |
| 100 | % |
| (64 | )% |
| (27 | )% | |||||
Basic earnings (loss) per share: | ||||||||||||||||||||
Continuing operations | $ | (4.18 | ) | $ | 0.85 |
| $ | 1.26 |
| $ | 0.57 |
| $ | 1.08 |
| |||||
Discontinued operations |
| 0.17 |
|
| 0.06 |
|
| 0.03 |
|
| 0.10 |
|
| 0.78 |
| |||||
Net income (loss) | $ | (4.01 | ) | $ | 0.91 |
| $ | 1.29 |
| $ | 0.67 |
| $ | 1.86 |
| |||||
Add back amortization of goodwill |
| — |
|
| 0.50 |
|
| 0.17 |
|
| 0.16 |
|
| 0.13 |
| |||||
Adjusted earnings (loss) per share | $ | (4.01 | ) | $ | 1.41 |
| $ | 1.46 |
| $ | 0.83 |
| $ | 1.99 |
| |||||
Diluted earnings (loss) per share: | ||||||||||||||||||||
Continuing operations | $ | (4.18 | ) | $ | 0.85 |
| $ | 1.25 |
| $ | 0.55 |
| $ | 1.04 |
| |||||
Discontinued operations |
| 0.17 |
|
| 0.06 |
|
| 0.02 |
|
| 0.10 |
|
| 0.77 |
| |||||
Net income (loss) | $ | (4.01 | ) | $ | 0.91 |
| $ | 1.27 |
| $ | 0.65 |
| $ | 1.81 |
| |||||
Add back amortization of goodwill |
| — |
|
| 0.50 |
|
| 0.17 |
|
| 0.15 |
|
| 0.12 |
| |||||
Adjusted earnings (loss) per share | $ | (4.01 | ) | $ | 1.41 |
| $ | 1.44 |
| $ | 0.80 |
| $ | 1.93 |
| |||||
Cash dividends declared per share | $ | 0.75 |
| $ | 0.75 |
| $ | 0.75 |
| $ | 0.75 |
| $ | 0.75 |
| |||||
(Stated in millions except per share amounts) | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2002 | 20011 | 20001 | 19991 | 19981 | ||||||||||||||||
SUMMARY OF FINANCIAL DATA | ||||||||||||||||||||
Income as % of operating revenue, continuing operations |
| (18 | )% |
| 3 | % |
| 7 | % |
| 4 | % |
| 5 | % | |||||
Income as % of operating revenue, continuing operations excluding charges |
| 5 | % |
| 6 | % |
| 7 | % |
| 5 | % |
| 9 | % | |||||
Return on average stockholders’ equity, continuing operations |
| (31 | )% |
| 6 | % |
| 9 | % |
| 4 | % |
| 8 | % | |||||
Return on average stockholders’ equity, continuing operations excluding charges |
| 9 | % |
| 10 | % |
| 9 | % |
| 6 | % |
| 12 | % | |||||
Fixed asset additions | $ | 1,366 |
| $ | 2,044 |
| $ | 1,317 |
| $ | 787 |
| $ | 1,458 |
| |||||
Depreciation expense | $ | 1,256 |
| $ | 1,178 |
| $ | 936 |
| $ | 923 |
| $ | 929 |
| |||||
Avg. number of shares outstanding: | ||||||||||||||||||||
Basic |
| 579 |
|
| 574 |
|
| 570 |
|
| 549 |
|
| 544 |
| |||||
Assuming dilution |
| 579 |
|
| 580 |
|
| 580 |
|
| 564 |
|
| 562 |
| |||||
AT DECEMBER 31: | ||||||||||||||||||||
Liquidity7 | $ | (5,021 | ) | $ | (5,037 | ) | $ | 422 |
| $ | 1,231 |
| $ | 731 |
| |||||
Working capital | $ | 735 |
| $ | 1,487 |
| $ | 3,502 |
| $ | 4,787 |
| $ | 4,681 |
| |||||
Total assets | $ | 19,435 |
| $ | 22,326 |
| $ | 17,173 |
| $ | 15,081 |
| $ | 16,078 |
| |||||
Long-term debt | $ | 6,029 |
| $ | 6,216 |
| $ | 3,573 |
| $ | 3,183 |
| $ | 3,285 |
| |||||
Stockholders’ equity | $ | 5,606 |
| $ | 8,378 |
| $ | 8,295 |
| $ | 7,721 |
| $ | 8,119 |
| |||||
Number of employees continuing operations |
| 78,500 |
|
| 80,000 |
|
| 59,000 |
|
| 54,000 |
|
| 58,000 |
| |||||
| (Stated in millions except per share amounts) | ||||||||||||||||||||
| Year Ended December 31, | 2003 | 20021 | 20011 | 20001 | 19991 | |||||||||||||||
SUMMARY OF OPERATIONS | ||||||||||||||||||||
Operating revenue: | ||||||||||||||||||||
Oilfield Services | $ | 8,823 | $ | 8,171 | $ | 8,381 | $ | 6,855 | $ | 5,520 | ||||||||||
WesternGeco | 1,183 | 1,476 | 1,702 | 511 | 591 | |||||||||||||||
SchlumbergerSema2 | 2,677 | 2,409 | 1,833 | 70 | – | |||||||||||||||
Other3 | 1,480 | 1,334 | 2,016 | 2,095 | 2,138 | |||||||||||||||
Eliminations and other | (270 | ) | (272 | ) | (176 | ) | (73 | ) | (18 | ) | ||||||||||
Total operating revenue | $ | 13,893 | $ | 13,118 | $ | 13,756 | $ | 9,458 | $ | 8,231 | ||||||||||
% increase (decrease) over prior year | 6 | % | (5 | )% | 45 | % | 15 | % | (21 | )% | ||||||||||
Pretax Segment income: | ||||||||||||||||||||
Oilfield Services | $ | 1,536 | $ | 1,278 | $ | 1,585 | $ | 1,061 | $ | 652 | ||||||||||
WesternGeco | (20 | ) | 71 | 221 | (25 | ) | (54 | ) | ||||||||||||
SchlumbergerSema2 | 61 | 17 | (15 | ) | (83 | ) | – | |||||||||||||
Other3 | 109 | 18 | 88 | 153 | 88 | |||||||||||||||
Eliminations4 | (200 | ) | (147 | ) | (422 | ) | (193 | ) | (169 | ) | ||||||||||
Pretax Segment income before Minority interest | 1,486 | 1,237 | 1,457 | 913 | 517 | |||||||||||||||
Minority interest | (10 | ) | (1 | ) | 38 | 7 | 11 | |||||||||||||
Total Pretax Segment income, before charges | $ | 1,496 | $ | 1,238 | $ | 1,419 | $ | 906 | $ | 506 | ||||||||||
% increase (decrease) over prior year | 21 | % | (13 | )% | 57 | % | �� | 79 | % | (57 | )% | |||||||||
Interest income | 49 | 68 | 153 | 297 | 228 | |||||||||||||||
Interest expense | 329 | 364 | 380 | 273 | 184 | |||||||||||||||
Charges (net of minority interest)5 | 534 | 3,077 | 134 | (7 | ) | 120 | ||||||||||||||
Taxes on income6 | 209 | 282 | 564 | 222 | 131 | |||||||||||||||
Income (loss), continuing operations | $ | 473 | $ | (2,417 | ) | $ | 494 | $ | 715 | $ | 299 | |||||||||
% increase (decrease) over prior year | – | – | (31 | )% | 139 | % | (45 | )% | ||||||||||||
Income (loss), discontinued operations | $ | (90 | ) | $ | 97 | $ | 28 | $ | 20 | $ | 68 | |||||||||
Net income (loss) | $ | 383 | $ | (2,320 | ) | $ | 522 | $ | 735 | $ | 367 | |||||||||
% increase (decrease) over prior year | – | – | (29 | )% | 100 | % | (64 | )% | ||||||||||||
Basic earnings per share | ||||||||||||||||||||
Continuing operations | $ | 0.81 | $ | (4.18 | ) | $ | 0.86 | $ | 1.25 | $ | 0.55 | |||||||||
Discontinued operations | (0.15 | ) | 0.17 | 0.05 | 0.04 | 0.12 | ||||||||||||||
Net income (loss) | $ | 0.66 | $ | (4.01 | ) | $ | 0.91 | $ | 1.29 | $ | 0.67 | |||||||||
Add back amortization of goodwill | – | – | 0.50 | 0.17 | 0.16 | |||||||||||||||
Adjusted earnings (loss) per share | $ | 0.66 | $ | (4.01 | ) | $ | 1.41 | $ | 1.46 | $ | 0.83 | |||||||||
Diluted earnings per share | ||||||||||||||||||||
Continuing operations | $ | 0.81 | $ | (4.18 | ) | $ | 0.85 | $ | 1.23 | $ | 0.53 | |||||||||
Discontinued operations | (0.15 | ) | 0.17 | 0.06 | 0.04 | 0.12 | ||||||||||||||
Net income (loss) | $ | 0.66 | $ | (4.01 | ) | $ | 0.91 | $ | 1.27 | $ | 0.65 | |||||||||
Add back amortization of goodwill | – | – | 0.50 | 0.17 | 0.15 | |||||||||||||||
Adjusted earnings (loss) per share | $ | 0.66 | $ | (4.01 | ) | $ | 1.41 | $ | 1.44 | $ | 0.80 | |||||||||
Cash dividends declared per share | $ | 0.75 | $ | 0.75 | $ | 0.75 | $ | 0.75 | $ | 0.75 | ||||||||||
| 11 / SLB | 2003 FORM 10-K |
Part II, Item 6
| (Stated in millions except per share amounts) | ||||||||||||||||||||
| Year Ended December 31, | 2003 | 20021 | 20011 | 20001 | 19991 | |||||||||||||||
SUMMARY OF FINANCIAL DATA | ||||||||||||||||||||
Income as % of operating revenue, continuing operations | 3 | % | (18 | )% | 4 | % | 8 | % | 4 | % | ||||||||||
Income as % of operating revenue, continuing operations excluding charges | 7 | % | 5 | % | 6 | % | 8 | % | 5 | % | ||||||||||
Return on capital employed, continuing operations8 | 10 | % | 6 | % | 8 | % | 9 | % | 5 | % | ||||||||||
Return on average stockholders’ equity, continuing operations | 8 | % | (31 | )% | 6 | % | 9 | % | 4 | % | ||||||||||
Return on average stockholders’ equity, continuing operations excluding charges | 16 | % | 9 | % | 10 | % | 9 | % | 5 | % | ||||||||||
Fixed asset additions | $ | 1,025 | $ | 1,358 | $ | 2,037 | $ | 1,311 | $ | 787 | ||||||||||
Depreciation expense | $ | 1,200 | $ | 1,245 | $ | 1,172 | $ | 930 | $ | 917 | ||||||||||
Avg. number of shares outstanding: | ||||||||||||||||||||
Basic | 584 | 579 | 574 | 570 | 549 | |||||||||||||||
Assuming dilution | 586 | 579 | 580 | 580 | 564 | |||||||||||||||
ON DECEMBER 31 | ||||||||||||||||||||
Net debt7 | $ | (4,176 | ) | $ | (5,021 | ) | $ | (5,037 | ) | $ | 422 | $ | 1,231 | |||||||
Working capital | $ | 1,554 | $ | 735 | $ | 1,487 | $ | 3,502 | $ | 4,787 | ||||||||||
Total assets | $ | 20,041 | $ | 19,435 | $ | 22,326 | $ | 17,173 | $ | 15,081 | ||||||||||
Long-term debt | $ | 6,097 | $ | 6,029 | $ | 6,216 | $ | 3,573 | $ | 3,183 | ||||||||||
Stockholders’ equity | $ | 5,881 | $ | 5,606 | $ | 8,378 | $ | 8,295 | $ | 7,721 | ||||||||||
Number of employees continuing operations | 77,000 | 77,500 | 79,000 | 58,000 | 53,000 | |||||||||||||||
| 1. |
| 2. |
| 3. |
| 4. | Includes amortization of goodwill and other acquisition related intangibles. |
| 5. | For details of Charges, see pages |
| 6. | In 2003, the provision for income tax before the tax benefit on the charges was $303 million. In 2002, the provision for income tax before the net tax expense on the charges was |
| 7. | As defined on page |
| 8. | Return on capital employed, continuing operations is computed as: [Net income from continuing operations excluding charges + Minority interest + Interest expense – Interest income – Tax benefit on interest expense] divided by [Shareholders’ equity + Net debt + Minority interest]. The charges excluded were 2003 – $440 million; 2002 – $3.11 billion; 2001 – $297 million; 2000 – $3 million; 1999 – $128 million. Schlumberger management believes that the exclusion of these charges, which results in a non-GAAP measure, enables it to evaluate more effectively the company’s operations, period over period, and to identify operating trends that could otherwise be masked by the excluded charges. |
| 12 / SLB | 2003 FORM 10-K |
Part II, Item 7
Item 7Management’s Discussion and Analysis of Financial Condition
and Results of Operations
2003 Summary
The year 2003 marked a watershed for Schlumberger operates threeas we took the decision to focus on our core businesses in oilfield services. Our reasoning was simple. World energy needs for much of the next half-century will be met mostly by carbon-based fuels produced from an aging reserves base. Substantial investment will be needed to sustain today’s production as well as to meet tomorrow’s demand, and technology will be the key to a cleaner, more cost-effective response to this challenge. We therefore believe the future for Schlumberger is exceptionally bright.
The year’s results for Oilfield Services were robust, with growth in all regions. Among the GeoMarket regions, activity was strongest in Mexico, Indonesia, India, the Caspian, and on land in the United States. Most technology segments registered double-digit gains, with records achieved by Drilling & Measurements and Data & Consulting Services. Much of the technology that saw increasing market penetration was associated with boosting performance in mature fields, or “brownfields”, to stem declining production. Rotary steerable systems to accurately place well trajectories to tap bypassed hydrocarbon pockets and a range of cased-hole wireline evaluation tools to analyze such zones were two particular successes.
A number of technical and business highlights marked the year. Integrated Project Management (IPM) continued to grow, particularly in Mexico, where our history of successful projects led to the award of the Chicontepec contract, the most significant oil development project in Mexico in the last 20 years. In Malaysia, we signed a contract with PETRONAS Carigali Sdn. Bhd. to jointly redevelop the Bokor field that began production in the 1980s. This field, comprising more than 165 stacked sands and over 100 producing strings, has been modeled using the latest techniques and the redevelopment plan involves multiple technology segments. Such projects underline the value of our unique GeoMarket organization.
In December we announced a phased agreement to acquire PetroAlliance, Russia’s largest independent oilfield service company, beginning with a minority share in 2004. PetroAlliance was formed in 1995 to provide a broad range of exploration and development services to international standards. The size and scope of activity in Russia is huge, and this type of investment will benefit Schlumberger and the Russian oil industry as that industry seeks access to technology to be applied to its particular needs for continued growth.
Perhaps the most difficult challenge we set for ourselves early in 2003 was to return WesternGeco to sustainable profitability. Continued overcapacity in both the land and marine and multiclient data markets made this a daunting task. Our approach has been threefold: to bring capacity and cost down to appropriate levels, to reflect a proper carrying value for the data library, and to continue the aggressive introduction of proprietary Q* technology, for which the market has continued to grow rapidly.
Last summer we acquired the first marine time-lapse Q survey for Statoil, 200 km from the western coast of Norway. Twenty-one months had elapsed between the two surveys. Initial results, produced only 11 days after acquisition, enabled Statoil to revise plans for a new well and drill a shallower trajectory to remain clear of the oil/water contact. The well was a success and is producing without making water. The reliability and extremely high repeatability of Q-Marine* technology were considered critical to achieving this result. In other applications, a Q system was commissioned in the Middle East late in the year and Q-Seabed* underwent highly successful trials in both the North Sea and Middle East.
In defining the business activities sold with SchlumbergerSema, we maintained our commitment to the growing activity in oil and gas IT solutions. The natural fusion of the Schlumberger software and information management activities with the SchlumbergerSema oil & gas consulting and network infrastructure businesses began in October, and by year-end business managers were in place throughout the GeoMarket organization. We have chosen to retain the Schlumberger Information Solutions name for the enlarged business, and our objective is to help customers extract more value from their core operational processes through leveraging the combination of our domain knowledge in IT and in exploration and production (E&P).
| 13 / SLB | 2003 FORM 10-K |
Part II, Item 7
Early in 2003 we stated clear financial goals. By year-end we had made solid progress. Return on capital employed had risen to 12.8% in the fourth quarter, double the corresponding figure in 2002 and well in line with our intention to reach the mid-teens longer term. After-tax return on sales for Oilfield Services reached 14.2% in the same quarter—a level much more consistent with our performance in previous cycles. Net debt fell to $4.2 billion, just shy of our $4 billion target as a result of adverse currency movements. For more information regarding the purposes for which we use net debt, see page 29 of this Report.
In January 2004, we concluded the sale of the major part of SchlumbergerSema to Atos Origin and reduced our holding in that company to 14.5%. Total cash proceeds from the cash and stock sale amounted to $1.1 billion. With conclusion of the sale of the North American electricity meter business and the sales of the Business Continuity, Infodata, and Telecom software products businesses we expect to see net debt below the $3 billion level by the middle of 2004. Beyond that point, the only significant divestiture remaining will be the IPO of Axalto, the Schlumberger smart card business, as and when market conditions permit.
In 2003, Schlumberger operated four business segments: Oilfield Services, WesternGeco, SchlumbergerSema and Other. The following discussion and analysis of results of operations should be read in conjunction with the Consolidated Financial Statements.
(Stated in millions)
| (Stated in millions) | (Stated in millions) | |||||||||||||||||||
| 20032 | 20022 | % Change | ||||||||||||||||||
OILFIELD SERVICES | 2002 | 20011 | % Change | |||||||||||||||||
Operating Revenue | $ | 8,823 | $ | 8,171 | 8 | % | ||||||||||||||
Pretax Segment Income1 | $ | 1,536 | $ | 1,278 | 20 | % | ||||||||||||||
WESTERNGECO | ||||||||||||||||||||
Operating Revenue | $ | 9,347 | $ | 9,867 |
| (5 | )% | $ | 1,183 | $ | 1,476 | (20 | )% | |||||||
Pretax Segment Income2 | $ | 1,328 | $ | 1,803 |
| (26 | )% | |||||||||||||
Pretax Segment Income1,3 | $ | (20 | ) | $ | 71 | – | % | |||||||||||||
SCHLUMBERGERSEMA3 | 2002 | 2001 | % Change | |||||||||||||||||
SCHLUMBERGERSEMA | ||||||||||||||||||||
Operating Revenue | $ | 2,991 | $ | 2,258 |
| 32 | % | $ | 2,677 | $ | 2,409 | 11 | % | |||||||
Pretax Segment Income2 | $ | 34 | $ | (33 | ) | — | % | |||||||||||||
Pretax Segment Income1 | $ | 61 | $ | 17 | 249 | % | ||||||||||||||
OTHER4 | 2002 | 2001 | % Change | |||||||||||||||||
Operating Revenue | $ | 1,442 | $ | 2,136 |
| (33 | )% | $ | 1,480 | $ | 1,334 | 11 | % | |||||||
Pretax Segment Income2 | $ | 20 | $ | 93 |
| (78 | )% | |||||||||||||
Pretax Segment Income1 | $ | 109 | $ | 18 | 505 | % | ||||||||||||||
| 1 |
| Pretax segment income represents income before taxes and minority interest, excluding interest income, interest expense |
| 2003 excludes impairment charges of $398 million for Multiclient library and $54 million for vessels. 2002 excludes an impairment charge of $184 million for Multiclient library and charges of $117 million for severance and other costs. |
| 4 | Principally comprises the Axalto (Smart Cards |
Oilfield Services
World oil demand surged in 2003 due to strong economic growth in North America and China. The increase in demand from these areas accounted for almost two thirds of overall world oil demand growth. The rise in world oil production more than matched demand growth. Non-OPEC oil production accounted for one third of the increase, due to expanding production in the CIS. OPEC output increased despite supply disruptions in Venezuela and Nigeria and the loss of Iraqi production during and after the war. Oil prices remained high throughout the year, with an average Western Texas Intermediate (WTI) oil price almost 20% higher than in 2002.
| 14 / SLB | 2003 FORM 10-K |
Part II, Item 7
In 2004, the rate of global oil demand growth is expected to be similar to 2003, with oil demand projected to grow strongly in developing countries and ease in OECD countries. Non-OPEC oil production is forecast to grow at roughly similar levels to 2003 although there is more uncertainty over the level of supply in the CIS and the US. OPEC production is likely to be adjusted to maintain the price of the OPEC basket of crude in the stated target price range of $22 to $28 per barrel.
North American gas demand in 2003 showed little change compared to 2002, and is not expected to vary much in 2004. However, maintaining gas supply to meet demand is challenging, as production decline rates are already high and expected to increase further. The average annual US natural gas price in 2003 rose considerably compared to last year and has stimulated growth in the number of active drilling rigs in North America.
Relatively high commodity prices in 2003 and increases in production have resulted in high levels of cash generation in the oil and gas industry, and a subsequent increase in the average number of active drilling rigs. Assuming demand remains strong and that OPEC manages to maintain oil prices in its target range, exploration and production (E&P) spending is expected to increase in 2004.
2003 Results
Revenue of $8.8 billion increased 8% in 2003 versus 2002 led by North America with an increase of 14%, followed by Latin America and Middle East & Asia, which both increased 9%, and Europe/CIS/W. Africa, which was up 4%. Pretax operating income of $1.54 billion in 2003 was 20% higher than in 2002, primarily due to strong customer demand resulting from increased E&P expenditures and customer acceptance of new technologies, such as PowerDrive* rotary steerable systems, LiteCRETE* coalbed methane slurry system, ABC*Analysis Behind Casing suite of services, Viscoelastic Diverting Acid (VDA*) advanced acidizing system, and ClearFRAC* polymer-free fracturing fluid. Overhead cost savings of $67 million generated from restructuring and downsizing efforts, principally in Europe/CIS/W. Africa and North & South America, also contributed to the increased profitability during the year.
Oilfield Services began the year with relatively flat revenue in the first quarter, then achieved modest, but continuous growth over the following three quarters due to new contracts, the introduction of new technologies, and increased demand for Integrated Project Management and Schlumberger Information Solutions (SIS) services. The results were positively impacted by an upturn in natural gas drilling in North America, and increased activity in Mexico, Russia and the Middle East, partially offset by a nationwide strike in Venezuela and ethnic unrest in Nigeria.
All technology product lines helped drive revenue growth. Well Services and Drilling & Measurements’ record levels of revenue contributed to more than half of the increase in Oilfield Services revenue. Data & Consulting services drew the award of several contracts for reservoir modeling, field development planning, and production optimization. SIS experienced strong demand, particularly in Europe, Asia, and the Middle East. Integrated Project Management (IPM) experienced high activity levels principally fueled by Latin America.
In December, Schlumberger announced a phased agreement to acquire PetroAlliance beginning with a minority share in 2004. PetroAlliance is Russia’s largest independent oilfield services company, and provides a broad range of exploration and development services throughout Russia and the Caspian.
North America
North America revenue of $2.6 billion increased 14% versus 2002. The growth in revenue was mainly due to increased activity in US Land, as well as Canada, which had a 31% increase in revenue to $410 million. Both markets were driven by strong commodity prices, which, in turn, were caused by the record low gas storage levels at the end of the 2003 drawdown season. This growth was not mirrored in the Gulf of Mexico where activity was essentially flat year-on-year. A combination of factors contributed to the sluggish performance
| 15 / SLB | 2003 FORM 10-K |
Part II, Item 7
offshore, including higher finding and developing cost on the shelf, lack of exploration success in deepwater and unfavorable weather conditions hampering drilling and completion efficiency on a number of deepwater projects.
Pretax operating income of $365 million increased 33% over 2002 primarily due to a beneficial fall-through resulting from improved equipment utilization in US Land following asset rationalization and cost containment. Increased demand for Drilling & Measurements, cased hole wireline and hydraulic fracturing solutions, related to increased complexity in developing new gas reserves in US Land, also contributed to profitability improvement.
Latin America
Latin America revenue of $1.4 billion increased 9% versus 2002 primarily due to substantial increases in Mexico, Brazil and Argentina, partially offset by a significant decline in Venezuela. Large-scale project management contracts substantially accounted for the growth in activity in Mexico. Growth in Brazil was driven by a strong increase in Petrobras exploration activity, and Argentina benefited from the high oil price.
The political turmoil in the early part of the year substantially impacted results in Venezuela, however the focus on restoring production favorably drove the revenue in the latter half of the year. The increase in E&P spending in Mexico was driven by the compelling need to satisfy the domestic demand for natural gas, increase the light oil production and ramp-up the oil production potential. Key contracts that contributed to revenue growth included project management of a four-year, $500 million integrated oilfield services project which represents the most significant oil development project in Mexico in the last 20 years, and a two-year, $60 million information management solution.
Pretax operating income of $221 million was up 31% year-on-year with all areas excluding Venezuela contributing to improved profitability. There were record levels of Integrated Project Management contracts in Mexico and positive fall-through on incremental revenue in Argentina and Brazil.
Europe/CIS/West Africa
Revenue of $2.6 billion increased 4% over 2002, primarily in Russia due to growth in E&P spending and continued expansion of the addressable market, which drove increased fracturing activity, high sales of artificial lift pumps, and the adoption of more advanced drilling technologies. CIS reached a record revenue level of $629 million, 22% higher than 2002. An increase in the number of E&P companies entering the development phase of deepwater projects in the West & South Africa GeoMarket during the second half of 2003, and an offshore gas project in the Mediterranean also contributed to overall activity improvement in the Area, principally in Well Completions & Productivity and Well Services technologies. These results were partially offset by lower exploration activity by the major oil companies in the North Sea and by production shutdowns in the Western Niger delta in Nigeria due to socio-political unrest.
Pretax operating income of $460 million increased 20% over 2002 primarily due to cost savings generated at the beginning of the year, as well as increased activities in West & South Africa due to deepwater activities moving into a more lucrative development phase. This was partially offset by appreciation of currencies against the US dollar negatively impacting the results by $4 million later in the year.
Middle East & Asia
Revenue of $2.1 billion increased 9% over 2002 with more than half the growth coming from Saudi Arabia/Kuwait, Egypt and Indonesia. Despite geopolitical uncertainty in the period leading up to the war in Iraq and relative softness in Asia principally caused by the SARS outbreak, revenue showed marked improvement primarily due to higher demand for Drilling & Measurements, Wireline and Well Completion & Productivity technologies in Egypt, Saudi Arabia/Kuwait and Indonesia partially offset by reduced activity in Malaysia/Brunei/Philippines due to the suspension of planned deepwater development work resulting from the
| 16 / SLB | 2003 FORM 10-K |
Part II, Item 7
deepwater acreage dispute between Malaysia and Brunei. Late in the year, strong year-on-year improvements across the region were tempered by reduced rig activity in Saudi Arabia due to customers’ accelerated spending in the first three quarters.
Pretax operating income of $509 million increased 12%, primarily due to the operating leverage on increased revenue across most GeoMarkets, principally caused by increased activity in Indonesia’s East Kalimantan and stimulation activity and artificial lift sales in East Africa.
2002 Results
Revenue for 2002 was $9.3$8.2 billion versus $9.9$8.4 billion in 2001 reflecting a 5% decrease due to reduced activity in North America and Latin America, which were 24% and 7% lower respectively. This was partially mitigated by higher activity in Europe/CIS/WestW. Africa up 14% and the Middle East & Asia, where revenue increased 10%. The M-I rig count fell 17%.Asia. Pretax operating income of $1.3 billion decreased 26%19% primarily from reduced margins in wireline, well servicesWireline and seismic technologiesWell Services as activity declined in North America.
A sharp fall in revenue at the beginning of 2002 reflected declining activity levels in North America, which remained depressed for the remainder of the year, together with political and economic uncertainty in Latin America. In the second and third quarters, robust activity in Europe/CIS/WestW. Africa, and signs of a possible recovery in Asia, mitigated the effects of low North American drilling levels resulting in increased revenues.revenue. However, this trend was short-lived as slower activity outside North America due mainly to seasonal influences coupled with budget cuts resulted in lower fourth quarter revenues. In 2002, therevenue. The Caspian, Russia and Mexico GeoMarkets posted the highest double-digit year-on-year revenue growth of 89%, 62% and 48% respectively versus 2001.
, respectively.
From a technology standpoint, the strongest performer was Well Completions & Productivity where acquisitions, testing, advanced completions systems and artificial lift technology showed market share gains resulted in 8% revenue growth. gains.
During the year, Schlumberger acquired A. Comeau & Associates Limited, a leading provider of electrical engineering products and services for artificially lifted wells. This latest addition, combined with the successful integration of Sensa and Phoenix technologies into the Schlumberger Artificial Lift services portfolio, contributed to higher sales in 2002, particularly in the Eastern Hemisphere. The Drilling & Measurements technology segment also recorded solid revenue growth of 7% fuelled largely by the continued penetration of the PowerDrive475* rotary steerable system into new GeoMarkets.
In addition to A. Comeau & Associates Limited, Schlumberger made two further acquisitions during the year to bolster its real-time reservoir management suite of services. In January, Schlumberger acquired Norwegian-based Inside Reality AS providing new 3D virtual reality systems that create a unique and powerful environment for interactive well planning and real-time geosteering analysis. Schlumberger also acquired the software and services business of Technoguide AS, a leader in the reservoir modeling domain.
The seismic downturn continued throughout 2002 resulting in significantly lower activity levels, a reduction in multiclient license sales and extreme pricing pressures for WesternGeco. As a result, Schlumberger announced operating losses in the third quarter related to contracts in India and Mexico, and in the fourth quarter, workforce reductions of 1,700 people coupled with the closure of its land-based seismic operations in the US lower 48 states and Canada. WesternGeco revenue of $1.5 billion decreased 13% and pretax operating income of $71 million fell 68%.
North America
North America revenueRevenue of $2.8$2.3 billion decreased 24%19% versus 2001 while the M-I rig count dropped 27%.
2001. A steep revenue decline at the outset of the year reflected a continued lackluster drilling environment and unseasonably mild weather conditions. Throughout the remainder of the year activity levels remained depressed resulting in essentially flat revenue for 2002. Other factors contributing to reduced revenuesrevenue included lower non-rig related activity resulting in lower wireline, well servicesWireline, Well Services, and well completionsWell Completions & productivity revenues,Productivity revenue, the effects of the tropical storms in the third quarter and a slow pick-up in Canadian activity post spring break-up and the previously stated closure of US land-based and Canadian seismic operations.
break-up.
Pretax operating income of $409$274 million decreased 52%from $637 million in 2001 due to pricing pressures across all services, particularly in well services, well completionsWell Services and Well Completions & productivity and seismic services.
WesternGeco revenue of $548 million and pretax operating income of $131 million fell 36% and 40% respectively.Productivity.
Latin America
Latin America revenueRevenue of $1.5$1.3 billion decreased 7%9% versus 2001 while the M-I rig count decreased 20%.
2001. Ongoing political and economic uncertainty in the region continued to affect business conditions, particularly in Venezuela and Argentina. This particularly impacted results in the first half of the year. In sharp contrast, the second half of 2002 saw solid growth partly as a
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result of higher demand for drillingDrilling & measurementsMeasurements and well completionsWell Completions technologies connected to contracts in the Burgos Basin. In addition, the completion of an IPM project that involved the sale of production facilities in Ecuador for $26.5 million in the fourth quarter contributed to end-of-year higher revenue.
Pretax operating income of $175$169 million declined 13%8% as a result of decreased activity in Venezuela and Argentina.
WesternGeco revenue of $169 million increased 25%; however, pretax operating income of $4.9 million dropped 71% due to the recognition of land seismic contract losses in Mexico in the third quarter.
Europe/CIS/West Africa
Europe/CIS/West Africa revenueRevenue of $2.7$2.5 billion increased 14%17% versus 2001 as the M-I rig count decreased 5%.
2001. Strong revenue growth was recorded in the first three quarters reflecting increased activity levels and market share gains particularly in the Caspian and Russia GeoMarkets in respect to artificial lift and drilling technologies. The Well Completions & Productivity technology segment recorded the strongest growth of 27% followed by Drilling & Measurements, which grew 24%.
This growth was partially mitigated by a steep revenue drop in the fourth quarter due to exceptionally severe winter weather conditions in the North Sea and Russia that affected all services, particularly seismic and fracturing activities. In addition, operator budget cuts in the Nigeria GeoMarket and refocused investment decisions in the UK contributed to lower fourth quarter revenues.
revenue.
Pretax operating income of $322was $383 million decreased 6%compared to $385 million in 2001, with the very slight decrease due to softening in pricing towards the end of the year and restructuring in the region to reduce support infrastructure to match slowing activity levels.
WesternGeco revenue of $267 million decreased 5% and the pretax operating loss of $52 million was 67% higher than 2001.
Middle East & Asia
Middle East & Asia revenueRevenue of $2.4$1.9 billion increased 10% outpacing the M-I rig count, which grew 6% for the same period.
8% versus 2001. After a decline at the beginning of the year resulting from exceptional artificial lift sales at the end of 2001, the Asian market showed signs of recovery highlighted by strong revenue growth in the second quarter. Over the year, the India and Malaysia/Brunei/Philippines GeoMarkets recorded the strongest growth due to increased activity in these countries. In addition, the Wireline and Well Services technology segments posted the highest growth, up 14% and 10%, respectively.
This was partly offset however, by a slowdown in activity in the second half of 2002 due to a number of major projects nearing completion and lower equipment sales and a significant reduction in seismic activity throughout the Area.
sales.
Pretax operating income of $457$453 million was flat despite the revenue growth due to marine seismic contract losses incurred in India in the third quarter coupled with softening pricing in well completions and productivity services.
WesternGeco revenue of $490 million increased 15%; however, pretax operating income of $3.2 million declined 93% due to the recognition of marine seismic contract losses in India.up 9% versus 2001.
2001 Results
Record Oilfield Services operating revenueRevenue of $9.9$8.4 billion increased 36%22% over 2000 in sharp contrast with the worldwide M-I rig count, which grew only 15%.2000. Increased non-rig related activity partly attributable to the WesternGeco Joint Venture, and higher pricing levels contributed to the growth.
Operating revenue started to grow in the first First quarter due toresults reflected continued high activity in North America and increased demand internationally. The latter continued throughout 2001 and was reflectedinternationally, but a softening in the Europe/CIS/West Africa and Middle East & Asia Area results. However, softening North American drilling activity in the third quarter as a result of slower economic growth and declining natural gas drilling activity, offset international growth.
The WesternGeco Joint Venture in its first full financial reporting year was the largest contributor to double-digit growth in all Areas with the Malaysia/Brunei/Philippines, Alaska, Gulf Coast and West & South Africa GeoMarkets recording the strongest results versus 2000. Market share gains, improved pricing levels, and the introduction of new technology contributed to strong growth in the Drilling & Measurements technology business. In addition, improved Reda submersible pump sales and the continued expansion of the PowerSTIM* well production optimization solution contributed to significant growth in the Well Completions & Productivity technology segment.
2001 was a significant year as Oilfield Services acquired severalsegments. Three key technologies as part of its continuing focus to build a complete suite of real-time reservoir optimization services. In April 2001, Schlumberger acquiredacquisitions were made during the year: Baker Jardine a leading provider of software(software tools, IT consulting and integrated solutions that help operators increase oil and gas production. Secondly, a unique Distributing Temperature Sensing technique was added to the Schlumberger real-time offering through the acquisition of Sensa. The
recognized leader in fiberproduction), Sensa (fiber optic sensing technologies, Sensa provides operators with a continuous measurement for the monitoring of producing wells. Thirdly, Schlumberger acquiredtechnologies), and Phoenix a leading provider of technologies(technologies and techniques for optimizing production from artificially lifted wells, in October 2001.wells). Pretax operating income of $1.59 billion increased 49% over last year.
North America
North American operating revenueRevenue of $2.8 billion increased 49%17% versus 2000 outpacing the M-I rig count, which grew 17%.2000. The strong operating revenue growth that continued in the first quarter of 2001 plateaued in the middle of the year. This was due to slower economic conditions and declining natural gas prices, which resulted in reduced activity towards the end of the year. The Alaska and Gulf Coast GeoMarkets recorded the strongest revenue growth due to increased demand for drillingDrilling & Measurements, Well Services, and measurements and well services, wireline technologies and higher seismic activity.
Wireline technologies. Pretax operating income of $637 increased 124% particularly69%, primarily due to strong demand for well services technologies and the significant impact of the WesternGeco Joint Venture.Well Services technology.
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Latin America
Operating revenueRevenue of $1.5 billion increased 32% exceeding the M-I rig count growth of 13%. Increased activity31%, with improvements across all services contributedcontributing to double-digit growth inacross the GeoMarkets. GrowthGeoMarkets, which was led by the Peru/Colombia/Ecuador and Latin America South GeoMarkets as a result of increased drillingDrilling & Measurements, Well Services, and measurements and well services. Further, higher well completions services during the year, and an increase in land seismic activity in Bolivia during the fourth quarter contributed to growth in these GeoMarkets.
Well Completions activity. Pretax operating income of $183 million increased 133%131% principally as a result of increases in IPM,Integrated Project Management and Wireline and the impact of the WesternGeco Joint Venture.services.
Europe/CIS/West Africa
Operating revenueRevenue of $2.1 billion increased 41% in the Europe/CIS/West Africa Area, more than double the M-I rig count growth, which rose 15%36%. Overall moderate growth was recorded for the year led by high demand for well completionsWell Completions services in Nigeria, and strong growth in drillingboth Drilling & Measurements and measurements and wirelineWireline services in the Russia GeoMarket. In particular, strong growth was seenRussia. Growth in the West and& South Africa GeoMarket was partly due to an Early Production Facility Project for IPM during the year.
Pretax operating income of $385 million increased 59%60% due mainly to the Well Completions & Productivity segment, which recorded strong growth across most GeoMarkets.
Middle East & Asia
A 26% increase in operating revenue surpassed the M-I rig count four-fold in 2001.Revenue of $1.8 billion increased 16%. Almost all GeoMarkets in the regionArea recorded strong double-digit growth led by seismic, drillingDrilling & Measurements and measurements and well servicesWell Services activities in the Malaysia, Brunei and Malaysia/Brunei/Philippines GeoMarket, and as a result of new contract wins in the Gulf GeoMarket. Moderate sequential growth was recorded throughout the year reflecting the pick up in international activity.
Pretax operating income increased 50% comprised mostly of an increase$416 grew 34% due to increases in the Drilling & Measurements and in the Well Completions & Productivity technology segments.
2000WesternGeco
2003 Results
Moderate growthRevenue for 2003 was recorded during$1.2 billion versus $1.5 billion in 2002, reflecting a 20% decrease year-on-year. This was primarily due to lower land crew activity following the first halfexiting of the yearNorth American Land market combined with sharp sequential growththe completion of some contracts in the second half of the year ledMiddle East. The decrease in revenue was also due to declines in Multiclient sales principally in North & South America, partially offset by increased Marine activity in North AmericaEurope, Caspian and higher demand for drilling & measurements technologies, up 29%, and well services up 25%. The seismic down cycle, which started at the beginning of 1999,Middle East. Q-Marine* continued through the first half of the year. The second half of 2000 saw significant improvement leading to higher Schlumberger activity due to the introduction of new generation seismic Q* Marine technology and increased multiclient data sales.
Oilfield Services operating revenue increased 20% comparedgain customer acceptance with 1999 as the worldwide M-I rig count grew 30%.
North America
North America operating revenue increased 46% versus 1999, in line with the M-I rig count, which grew 47%. Increased activity, which started75% vessel utilization on third party contracts in the third quarter, of 1999, continued intoand the beginning of 2000 with a significant increase in drilling activity due to the continued shift to natural gas exploration and development. Well Services posted the strongest revenue growth, up 56% followed by Drilling & Measurements, up 46% and Wireline,first Q-on-Q time lapse survey, which increased 40%. Pretax operating income increased 233%.
Latin America
Latin America operating revenue increased 23% for the year, consistent with a 23% increasewas performed in the M-I rig count. There was strong growth in the second half of 2000 across most technology segments. Pretax operating segment income increased 390% due to improved profitability led by Drilling & Measurements and Well Services.
Europe/CIS/West Africa
Operating revenue increased 7% in Europe/CIS/West Africa during 2000, consistentNorth Sea with a 10% increase in the M-I rig count. Results in the first quarter were lower year over year due to continued flat activity and a sharp decline in seismic activity in this region for the same period.initial processing results available after 11 days. The increase in activity in the second halfend of the year was moderate compared withsaw a return to traditional seasonal Multiclient revenue levels partially helped by the other Areas. Pretax operating income increased 86% assigning of a result of increased pricing for wireline and drilling & measurements technologies.
Middle East & Asia
Operating revenue in Middle East & Asia increased 5%, in linelong-term business agreement with a 5% increase inmajor energy company that included the M-I rig count. Lower first quarter results resulted from the continued industry down cycle, and the growth was moderate for the remainderlicensing of part of the year due toWesternGeco data library, as well as joint R&D and training on new technology for seismic data processing.
Including Multiclient pre-commitments, the backlog at the end of 2003 reached $408 million, reflecting the award of a slow increase in activity. Stronger sequential growth in the second halfnumber of the year resulted from increased activityLand contracts in the Middle East and improved demand particularlya material Multiclient volume agreement signed in the fourth quarter. During 2003, Q-Marine continued to command significant pricing premiums as a result of the added value obtained from the delivered product, but pricing across other business segments was flat to down for drilling & measurementsconventional marine, land and testing technologies. data processing activity due to continued overcapacity in the industry. The company’s decision to acquire only significantly prefunded multiclient surveys, along with lower amortization following the impairment charge in 2003, resulted in the Multiclient product line being in a much healthier condition at the end of the year. Q-Marine penetration continued strong, reflected by the doubling of Q revenue year-on-year.
Pretax operating income increased 3%.loss was $20 million versus a profit of $71 million in 2002 (excluding Multiclient impairment and other charges in both years) mainly due to significantly higher Multiclient amortization charges as a result of lower sales and a more conservative amortization policy in light of business conditions. The lower Multiclient sales were primarily due to an overall lessening in interest in the Gulf of Mexico from
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SchlumbergerSemathe major oil companies coupled with an average price reduction of approximately 30% during the year. The deterioration in the Multiclient results was partially offset by an improvement in Land and Marine following the fourth quarter 2002 restructuring program combined with better service delivery.
In the third quarter, an impairment charge of $398 million pretax was taken against the multiclient library and there was a $54 million pretax charge on the Western Trident and Western Monarch vessels.
2002 Results
WesternGeco revenue of $1.5 billion decreased 13% compared to the prior year, primarily due to decreased activity in North America and Europe/CIS/W. Africa, which were partially offset by increases in Latin America and the Middle East & Asia.
The seismic downturn continued throughout 2002 resulting in significantly lower activity levels, a reduction in Multiclient sales, and extreme pricing pressures on all services due to large overcapacity in the seismic industry. Significant workforce reductions were made in the fourth quarter of 2002 as a result of the decision to stop Land acquisition activities in the US lower 48 states and Canada.
Pretax operating income of $71 million fell 68%, primarily due to significantly lower Multiclient sales and decreased activities in North America coupled with Land seismic contract losses in Mexico and Marine seismic contract losses in India, both of which were related to production delays.
2001 Results
The WesternGeco joint venture was formed on November 30, 2000. Revenue in 2001 was $1.7 billion and pretax operating income was $221 million. The Malaysia/Brunei/Philippines, Alaska, Gulf Coast, and West & South Africa GeoMarkets recorded the strongest results for the year. Multiclient sales of $654 million in a favorable pricing environment also contributed to the high level of activity and were the major contributor to the operating income.
SchlumbergerSema
2003 Results
On September 22, 2003, Schlumberger announced its intention to sell the SchlumbergerSema business to Atos Origin. The sale closed on January 29, 2004.
The transaction proceeds consisted of €443 million ($550 million) in cash, which included a working capital adjustment, and 19.3 million shares of common stock of Atos Origin with a value of €1.02 billion ($1.275 billion) which represented approximately 29% of the outstanding common shares of Atos Origin. On February 2, 2004, Schlumberger sold 9.6 million shares for $630 million reducing its investment in Atos Origin to approximately 15% of the outstanding common shares.
Revenue of $2.7 billion was 11% higher than 2002. The increase was mainly due to the strengthening of the European currencies against the US dollar, with a positive impact of $274 million, resulting in an underlying decrease in operating revenue of $6 million.
Pretax operating income of $61 million increased 32%$44 million versus 2002. The improvement in profitability reflected the full year benefit of indirect cost reduction programs carried out in 2002 in North America, Asia, UK, and Sweden coupled with improvement in gross margins in Asia and South America.
North & South America
Revenue of $350 million decreased 2% mainly due to the Salt Lake City Olympic Games revenue in 2002, partially offset by new contracts for Lee County, Florida; Dallas County, Texas; Sprint; and the city of Los Angeles, California.
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Pretax operating income of $3 million increased $57 million year-on-year. Despite the decline in revenue, operating income increased substantially mainly due to the positive impact of indirect cost reduction programs initiated in 2002, which had a full impact of $29 million in 2003.
Europe/Middle East/Africa
Revenue of $2.2 billion increased 14% mainly due to the appreciation of European currencies against the US dollar. Revenue from operations declined due to a depressed IT market in Italy, a more than 20% average selling price drop in France, and a sharp downturn in the telecommunications industry in Germany. These declines were substantially offset by a significant increase in revenue in the UK due to the Metropolitan Police, Department of Works and Pension, Consignia, and Department of Trade and Industry contracts, and by the award of the All Africa Games project in Nigeria.
Pretax operating income of $46 million decreased 65% year-on-year reflecting the impact of lower revenue from operations due to the major downturn in the IT industry, especially in France and Germany. Profitability also decreased due to extra service delivery costs in Sweden, and higher pension costs in France. These decreases were partially offset by the benefit of indirect cost reduction programs in the UK, as well as increased profitability from the revenue growth in the UK and Nigeria.
Asia
Revenue of $144 million decreased 4% mainly due to a lower activity level in India and Taiwan.
Pretax operating income increased from break-even in 2002 to $34 million profit in 2003, reflecting a 10% increase in gross margins, as well as lower costs following headcount reduction programs initiated in 2001 and 2002.
2002 Results
Revenue of $2.4 billion increased 31% compared withto 2001 mainly due to the acquisition of Sema plc whose results were consolidated with effect from April 1, 2001. On a proforma basis, assuming the acquisition occurred on January 1, 2001, operating revenue in 2002 was up 7% compared to 2001.
The pretax segmentoperating income of $34was $17 million compared to a loss of $33$15 million in 2001, reflecting the cost reductions initiatives implemented since the integration of Sema plc into Schlumberger. The 2002 pretax segment income excludes the charges discussed on pages 23-24 of this Report.
In December an updated strategy for SchlumbergerSema was announced. The SchlumbergerSema focus is now on IT consulting and systems integration together with network and infrastructure solutions,North & South America
Revenue of $356 million decreased 7% over 2001 primarily in global energy while continuing to develop specific regional market sectors in areas where it hasdue a successful competitive position based on scale and domain knowledge. This strategy is designed to create industry leadershipdeclining activity level in the energy market by combiningtelecommunications and utility industries due primarily to the systems integration skills of Sema with the global reachweak IT services spending environment as customers faced economic challenges and energy sector knowledge of Schlumberger.
SchlumbergerSema won the top prize at the prestigious Management Consultancies Association (MCA) Best Management Practice Awards in London for its workcontinued to revise budgets downwards and delay decisions on the 2002 Salt Lake City Olympic Winter Games.contract awards. At the 2002 Winter Olympic Games, SchlumbergerSema led a consortium of 15 technology partners in a three-year long project to deliver the IT infrastructure needed to run the Games. Dr Jacques Rogge, president of the International Olympic Committee commented “The Information Technology operations of any Olympic Games play a vital role in the overall success of the Games”. Schlumberger is also the official Worldwide Information Technology Partner for the Olympic Games in 2004, 2006 and 2008.
North & South America
Operating revenue increased 4% over 2001 primarily due to increased activity from the Network Infrastructure Solutions (NIS) business as a result of several large IT outsourcing projects. These include the Conoco and Dallas County IT projects and the DeXa.Net global connectivity solution to provide communications for Houston-based Atwood Oceanics offshore and land facilities around the world. Partially offsetting the increase in activity from NIS, revenue declined in the telecom and utility industries due primarily to the weak IT services spending environment as customers faced economic challenges and continued to revise budgets downwards and delay decisions on contract awards. However, major contracts have been awarded in the energy segment such as the Online Energy Management System for AES Infoenergy in Brazil and the systems integration and data management services contracts with Nebraska Public Power District (NPPD) of Columbus, Nebraska.
Despite the marginal increase in revenue, pretaxPretax operating loss of $43$54 million represented an improvement of 18%improved by $4 million over 2001, mainly attributable to the cost reduction programs implemented throughout the area.
Europe/Middle East/Africa
Operating revenueRevenue of $1.9 billion increased 35%33% over 2002 mainly due to the inclusion of a full year’s revenue from the acquisition of Sema plc compared to nine months in 2001. On a comparable basisAdditionally, the revenue increased by 4% despite a declining IT services market in Europe for the first time since 1993. The main growth contributor to the growth was the public sectorPublic Sector mainly in the UK where SchlumbergerSema won large outsourcing contracts with the Association of Train Operating Companies, the Department of WorkWorks and Pension, and the Vehicle Inspectorate. Also contributing to the improvements were an energy-related project for Brussels-based Electrabel S.A., a leading energy producer, distributor and supplier in Belgium, with power plants in eight European countries serving about 4.5 million customers dailyInspectorate, and a health and welfare services project to Consignia’s 220,000 employees in the UK.
employees.
Pretax operating income of $132 million increased 33% due mainly to the cost cutting program implemented throughout the year.year and higher activity level in the UK.
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Asia
OperatingRevenue of $150 million increased 36% mainly due to the inclusion of a full year’s revenue increased 38%. On a comparable basis, operating revenue would have been flat.from the acquisition of Sema plc compared to nine months in 2001. The decreased activity in telecommunications, mainly in China and Taiwan, was offset by the increase in the finance segment on new outsourcing contracts in the insurance sector in Japan for Mass Mutual and delivery of payment systems in China.
Pretax operating income decreased 61%94% mainly attributable to pricing pressure and economic declines in the telecommunications IT services industry.
Telecom Products
Operating revenue increased 22% over 2001 principally due to the inclusion of Sema plc. On a comparable basis the activity was flat despite the sharp decline in the telecommunications industry. During the year the focus was on streamlining the product portfolio and reducing the number of R&D centers and reducing the workforce to the level of activity.
The pretax operating loss of $24 million was an improvement over the loss of $34 million in 2001 mainly due to the significant workforce reduction aimed at aligning R&D with the product development cycles.
2001 Results
On April 6, 2001, Schlumberger completed the acquisition of Sema plc, for $5.15 billion. Sema plc is a leadingan IT and technical services company with a strong European presence. The acquisition was financed through existing cash resourcespresence, for $5.15 billion.
Revenue of Schlumberger and from borrowings under a $3$1.8 billion floating rate credit facility. As a result of the acquisition, the SchlumbergerSema business segment was created combining Sema plc and certain businesses of Schlumberger Test & Transactions and Resource Management Services, including CellNet and Convergent.
Operating revenue increased $2.0 billion overcompared to $70 million in 2000 due toreflecting the acquisition of Sema plc. Excluding
Pretax operating loss of $15 million improved $69 million over the acquisitionprior year due to the addition of Sema plc the operating revenue increase would have been $383 million on a pro forma basis.
NIS experienced a 91% operating revenue growth for 2001 versus 2000 mostly due to E&P contracts demonstrating that this industry is recognizing the importance of IT connectivity and security.plc.
North & South America
Operating revenueRevenue of $381 million increased 233% versusfrom $70 million in 2000 essentially due to the inclusion of SchlumbergerSema and the full year’s activity forof the Convergent Group, acquired in November 2000 and CellNet Data Systems, acquired in June 2000. Additionally the increased utilities activity was a result of strong demand for Real Time Energy Management Systems (RTEMS) services and further deployment of related networks, the extension of key existing utility business contracts in North America for utility data management services and the award of a significant contract for consulting and personal energy management advanced data services. Contributing to the growth was the award of NIS projects by University of Texas Medical Board, Shell and Ecopetrol.
Pretax operating loss was 22% lower thanof $58 million improved $12 million compared to the previous year due to the inclusion of SchlumbergerSema and the new businesses acquired the previous year.
Europe/Middle East/Africa
Operating revenue increased significantlyRevenue of $1.4 billion in 2001 compared to no activity in 2000 due to the inclusion of Sema plc. Excluding Sema plc the year on year pro forma operating revenue increase would have been $83 million due principally to the full inclusion of Data Marine Systems Limited acquired in October 2000 and toMain contracts included the award of multi-million dollar contracts in France for Banque de France and in the UK for Metropolitan Police.
Pretax operating income increased significantlywas $99 million due to the inclusion of Sema plc.
Asia
Operating revenue increased almost eight-fold largelyRevenue of $110 million compared to no activity in 2000 due to the integrationinclusion of Sema plc. Excluding Sema plc the year on year growth would have been $24 million entirely due to stronger NIS activity and to sustained demand for business continuity and outsourcing services throughout the area exemplified by the desktop outsourcing project for Caltex in Sumatra, Indonesia.
Pretax operating income increased significantlywas $8 million due to the inclusion of Sema plc.
Telecom ProductsOther
There was no activity prior to 2001.
The activity was mainly led by strong bookings in mobile messaging systems, with the first SemaPortal* short message server implementation and customer care and billing products system integration for mobile operators, such as the project awarded by Telecom Italia Mobile (TIM) which covers their operations in Europe and Brazil.
2000 Results
During the year, SchlumbergerSema took strategic steps in the global energy segment to build its solutions offerings through the acquisition in June 2000 of CellNet Data Systems, the leading provider of telemetry technology for the development and deployment of large-scale automatic meter reading (AMR) systems and the Convergent Group, a leading builder of digital enterprises focusing on the utility sector, in November 2000.
Operating revenue increased 250% year-on-year reflecting the above two acquisitions and the acquisition of the remaining 50% stake in Omnes, a joint venture previously equally owned by Schlumberger and Cable & Wireless.
North & South America
Operating revenue increased more than four-fold over 1999 due to market expansion, including the acquisition of CellNet Data Systems and the Convergent Group, the receipt of several major orders in Real Time Energy Management Systems (RTEMS) and the University of Texas Medical Board NIS’ contract.
The pretax operating loss reflected the newly acquired CellNet and Convergent activities.
Europe/Middle East/Africa
Operating revenue increased 158% and pretax operating income increased 37% due to the 50% consolidation of Omnes and the full consolidation of Data Marine Systems.
Asia
Operating revenue increased 108% and pretax operating income increased 8-fold entirely due to the consolidation of 100% of Omnes into Schlumberger.
Telecom Products
There was no activity in Telecom Products during the year 2000.
Other
Includedactivities included in this segment are NPTest, consistingAxalto (Smart Cards and Point-of-Sale Terminals), Electricity Meters, Business Continuity, Infodata, Telecom Software Products, Payphones, and Essentis. Active divestiture negotiations are currently ongoing for each of these activities.
2003 Results
In July 2003, Schlumberger entered into an agreement to sell the Electricity Meters activity to Itron Inc. for $255 million in cash. The deal is expected to be completed in the first half of 2004 depending upon the successful completion of the core product linesHart-Scott-Rodino review process and other conditions.
Revenue of Schlumberger Semiconductor Solutions, smart cards, point-of-sale terminals, eCity terminals, payphones, payments systems, electricity meters and the divested businesses$1.5 billion increased 11% over 2002. Electricity Meters had a 25% improvement on revenue of $294 million partially as a result of the former Resource Management Services segment.transition from electro-mechanical meters to solid-state meters. Also contributing to revenue growth, Smart Cards and Point-of-Sale Terminals revenue of $776 million increased 8% principally due to strong demand for Subscriber Identity Module (SIM) cards for the mobile communications sector, particularly in North & South America and Eastern Europe.
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On May 21, 2002 NPTest filedPretax operating income of $109 million increased six fold. Electricity Meters pretax operating income of $61 million increased 132% primarily due to improved manufacturing efficiencies, changes in product mix, and cost reductions. Smart Cards pretax operating income of $58 million increased 68% due to better growth margins as a registration statement with the Securitiesresult of increased volume and Exchange Commission for a proposed initial public offering of its shares of common stock which is not yet effective.more favorable product mix, partially offset by lower average selling prices.
2002 Results
Operating revenueRevenue of $1.3 billion decreased 32%34% reflecting the divestiture of the Resource Management ServicesServices’ North American water metering activities, and the non-North American electricity and water meter, and worldwide gas meter businesses in November 2001.
NPTest activity increased due to a partial recovery in test equipment sales in North America and Asia partially offset by decreases in diagnostic equipment sales and equipment support services.
Volume ProductCards activity remained flat despite the continuing slump in the telecommunications industry and the continued pricing pressure. This was partially offset by higher activity in banking and IT cards coupled withcards. Electricity Meters activity improved 13% on revenue of $235 million as a favorable euro-dollar exchange rate.
result of the market penetration of Automated Meter Reading (AMR) technologies.
Pretax operating income of $18 million decreased 78%80% mainly due to the divestiture of most of the Resource Management Services businesses, and eroded profitabilitysignificantly lower growth margins in the smart cardsCards business.
2001 Results
Operating revenueRevenue of $2.0 billion decreased 13%4% reflecting mainly the divestiture of most of the Resource Management Services businesses, which were sold in November 2001 and the decline in semiconductor activity, which followed the down cycle in the worldwide semiconductor industry.
Volume Products operatingCards revenue grew by 13% despite8% reflecting the acquisition of Bull CP8 in March 2001, partially offset by a decline in SIM card activity related to a slowdown in the telecommunications industry. Smart cards operatingElectricity Meters activity grew 29% on revenue increased 9% compared with 2000.
NPTest revenue decreased approximately 47% fromof $208 million as a result of the prior year due to the sharp declineacquisition of CellNet and participation in the industry, with all product lines affected.
network projects.
Pretax operating income of $88 million decreased 40%42% due mainly to pricing pressurelower growth margins and higher operating expenses in both the semiconductor and the smart cards industries.Smart Cards business.
2000 Results
Operating revenue was flat. Increased activity in the smart cards business, driven by outstanding growth of the mobile communications market and in NPTest (up 5%) was offset by the decline in Resource Management Services (down 16%) where pressure on utility prices resulted in a continued downturn for the utility industry.
Pretax operating income grew 49% year-on-year mainly attributable to the improved profitability in smart cards.
Income – Continuing Operations
(Stated in millions except per share amounts) | ||||||||||||||||
Income (loss) from Continuing Operations | ||||||||||||||||
Earnings (loss) per share | ||||||||||||||||
Basic | Diluted | Adjusted5 | ||||||||||||||
20021 | $ | (2,418 | ) | $ | (4.18 | ) | $ | (4.18 | ) | $ | (4.18 | ) | ||||
20012,4 | $ | 491 |
| $ | 0.85 |
| $ | 0.85 |
| $ | 1.35 |
| ||||
20003,4 | $ | 721 |
| $ | 1.26 |
| $ | 1.25 |
| $ | 1.42 |
| ||||
(Stated in millions except per share amounts) | ||||||||||||||||
Income (loss) Operations | Earnings (loss) per share | |||||||||||||||
| Basic | Diluted | Adjusted5 | ||||||||||||||
20031 | $ | 473 | $ | 0.81 | $ | 0.81 | $ | 0.81 | ||||||||
20022,4 | $ | (2,417 | ) | $ | (4.18 | ) | $ | (4.18 | ) | $ | (4.18 | ) | ||||
20013,4 | $ | 494 | $ | 0.86 | $ | 0.85 | $ | 1.35 | ||||||||
| Includes a net, after-tax and minority interest charge of |
| Includes a net, after-tax and minority interest charge of $3.11 billion ($5.38 per share – diluted). SeeCharges – Continuing Operations on page 47 of this Report in theNotes to the Consolidated Financial Statements. |
| 3. | Includes a net, after-tax and minority interest charge of $297 million ($0.51 per share – diluted). |
| Restated for discontinued operations. |
| Excludes amortization of goodwill. |
In 2003, Oilfield Services segment net income increased $196 million, or 20%, to $1.19 billion as revenue increased 8%, with increases in all geographic areas, particularly North America where revenue was up 14%. WesternGeco segment net loss of $17 million compared to a $4 million profit in 2002 as revenue decreased 20% reflecting lower land crew activity following the decision to exit the North American Land market and lower Multiclient sales principally in North & South America. SchlumbergerSema net income of $38 million improved
| 23 / SLB | 2003 FORM 10-K |
Part II, Item 7
from $9 million in 2002, as revenue increased 11%. In the Other segment, net income of $72 million increased $61 million as revenue increased 11% reflecting strong improvement in the Smart Cards and Electricity Meters activities.
In 2002, Oilfield Services segment net income decreased $267$179 million, or 21%15%, to $987$998 million as revenue declined 5% compared to the worldwide M-I rig count reduction of 17%3%. North America registered the most significant decline as revenue decreased 24% on a M-I rig count reduction19%. WesternGeco segment net income of 27%.$4 million decreased from $79 million in 2001, as revenue decreased 13% in the declining seismic market. SchlumbergerSema segment net income of $21$9 million improved from a loss of $22$5 million in 2001, reflecting the revenue increase of 32%31% (7% on a proformapro forma basis – assuming the Sema plc acquisition took place on January 1, 2001) and the effect of the previously announced cost reduction program. In the Other segment, net income declined to $14$11 million, from $85$71 million in 2001 which included the divested Resource Management Services businesses.
In 2001, Oilfield Services segment net income increased $498$387 million, or 66%49%, to $1,254 million$1.18 billion reflecting the 36%22% growth in revenue, which outpaced the 15% increase in the worldwide M-I rig count.revenue. Higher pricing levels and increased non-rig related activity were the major factorscontributing factors. WesternGeco segment net income of $79 million improved from a loss of $37 million in 2000 as revenue increased to $1.7 billion, from $0.5 billion, attributable to the record Oilfield Services revenues.new venture with Baker Hughes Incorporated, formed in November 2000. SchlumbergerSema segment net loss of $22$5 million improved $19$44 million reflecting the incremental income from the newly acquired Sema plc. In the Other segment, net income of $85$71 million declined $34$42 million from the prior year with declines in the semiconductor-related and Smart Cards activities.
In 2000, Oilfield Services segment net income increased $328 million, or 76%, to $756 million. Increases in E&P expenditures and in oil and gas prices, resulting from increased oil demand and the lowest level of excess oil production capacity in decades, were the underlying factors of the strong increases in most areas, and notably in North America. Average worldwide rig count increased 30% compared to 1999. SchlumbergerSema segment net loss of $41 million was down $43 million due to losses in the newly acquired CellNet and Convergent businesses in North America. In the Other segment, net income of $119 million increased $32 million from the prior year mainly due to stronger results from the Cards activity where revenue was up 26%.
Currency Risks
Refer to page 39,42 of this Report,Translation of Non-US Currencies in theNotes to Consolidated Financial Statements, for a description of the Schlumberger policy on currency hedging. There are no material unhedged assets, liabilities or commitments which are denominated in other than a business’ functional currency. Schlumberger businesses operate principally in US dollars, the euro and most other European currencies and most South American currencies.
While changes in exchange rates affect revenue, especially in the SchlumbergerSema segment, they also affect costs. Generally speaking, Schlumberger is currency neutral. For example, aA 5% change in average
exchange rates of OECD currenciesin 2003 would have had no material effect on consolidatedchanged revenue by about 1% and net income.
In general, when the US dollar weakens against other currencies, consolidated revenue increases, usually with no material effect on net income. This is principally because the fall-through incremental margin in the SchlumbergerSema segment offsets the higher Oilfield Services segment non-US dollar denominated expenses.income from continuing operations before charges by about 7%.
Research & Engineering
Expenditures by business segment were as follows:
(Stated in millions) | (Stated in millions) | |||||||||||||||||
(Stated in millions) | 2003 | 2002 | 2001 | |||||||||||||||
2002 | 2001 | 2000 | ||||||||||||||||
Oilfield Services | $ | 438 | $ | 425 | $ | 365 | $ | 375 | $ | 370 | $ | 362 | ||||||
WesternGeco | 52 | 68 | 63 | |||||||||||||||
SchlumbergerSema |
| 84 |
| 86 |
| 18 | 55 | 84 | 86 | |||||||||
Other |
| 128 |
| 164 |
| 146 | 74 | 74 | 118 | |||||||||
In-process R&D charge1 |
| — |
| 25 |
| — | – | – | 25 | |||||||||
$ | 650 | $ | 700 | $ | 529 | $ | 556 | $ | 596 | $ | 654 | |||||||
| 1 | Relating to the Bull CP8 acquisition. |
Interest Expense
Interest expense decreased $34 million, to $334 million due to a decrease in average debt balances and a decrease in average borrowing rates from 4.9% to 4.6%. The decrease in 2002 of $17 million, to $368 million, mainlywas due to a decrease in average borrowing rates from 5.8% to 4.9%. which more than offset a $1 billion increase in average debt balances. The increase in 2001 of $109 million, to $385 million, was principally due toreflected the significantly higher debt balances incurred, relating to the acquisition of Sema plc, which were only partially offset by a reduction in average borrowing rate from 6.9% to 5.8%. The increase in 2000 of $83 million, to $276 million, was mainly due to an increase in average borrowing rates from 5.8% to 6.9%.
| 24 / SLB | 2003 FORM 10-K |
Part II, Item 7
Hanover Compressor TransactionCompany
In August 2001, Schlumberger sold its Oilfield Services worldwide gas compression activity to Hanover Compressor Company. The proceeds included common stock8.7 million shares of Hanover Compressor common stock, with a value at closing of $173 million, which is restricted from marketability until August 30, 2004, and a $150 million long-term subordinated note maturing December 15, 2005.
In the fourth quarter of 2003, Schlumberger sold the subordinated note for $177 million and realized a pretax gain of $32 million ($20 million after-tax; $0.03 per share).
The marketAt December 31, 2003, the carrying value of Schlumberger’s investment in Hanover Compressor common stock was $80 million as of December 31, 2002. Followingexceeded the decline inmarket value. As required by generally accepted accounting principles (SFAS 115), Schlumberger wrote down its investment to the fair market value of the stock below carrying value during the second quarter of 2002, Schlumberger has performed, and continues to perform, a periodic assessment in accordance with its policy to determine whether an other-than-temporary decline in fair value has occurred. Schlumberger evaluated the recoverability of its investment by reviewing recent information related to the industry and the operating results and financial position of Hanover Compressor and by considering Schlumberger’s requirement, ability and intent to hold the investment on a long-term basis. Schlumberger concluded that evidence existed$91.4 million at December 31, 2002 to support the recoverability of its carrying value, that there were no events or changes in circumstances specifically relating to the business prospects of Hanover Compressor, that the underlying business fundamentals are good with natural gas supplies reduced2003 and higher natural gas prices in North America. In addition, the recently announced Hanover cutbacks in workforce and capital expenditures coupled with no immediate debt maturities should provide adequate capital resources in the near-term. Accordingly, Schlumberger concluded that the decline in market value of its investment ($93 million) in Hanover Compressor as of December 31, 2002 was temporary in nature and has not reduced the cost basis of that investment. If the decline in value persists or should Schlumberger’s assessment change, Schlumberger would takerecorded a charge to its earnings for the amount that is deemed unrecoverable.
The $150of $81.2 million long-term subordinated note has a mandatory prepayment upon the issuance, sale or other disposition by Hanover Compressor of any shares of capital stock or other equity interests pursuant to a
public offering or a private placement otherwise prepayment is discretionary. As of December 31, 2002, Schlumberger considers the carrying value of the note to be fully collectible.
(before and after-tax; $0.13 per share).
As part of the sale agreement, Schlumberger agreed that the financing of the PIGAP II joint venture in Venezuela would be non-recourse to the buyer and would be executed prior to December 31, 2002. Accordingly, Schlumberger was obligated, with respect to the financing, to guarantee 30% (approximately $80 million) until the project was completed in 2002 and, if as of December 31, 2002, refinancing had not become non-recourse to the buyer or the project had not achieved substantial completion, Hanover Compressor had an option to put its interest in the joint venture back to Schlumberger.
As an outcome of the turmoil in Venezuela, although the project reached substantial completion, the non-recourse financing for the project was not achieved by December 31, 2002. On January 30, 2003, Hanover Compressor gave notice of its intention to exercise its right to put its ownership interest in the joint venture back to Schlumberger. The put is subject to certain consents and other conditions. Schlumberger’s obligation to provide a guarantee with respect to the financing was eliminated.
As Schlumberger originally deferred the gain on the sale of thePIGAP II joint venture in 2001, there is no impact onVenezuela back to Schlumberger results of operations due to theif certain financing conditions were not met. Hanover Compressor did not exercise of itsthis option.
Charges – Continuing Operations
Schlumberger recorded the following after-tax and minority interest charges/credits for continuing operations in 2003, 2002 2001 and 2000:2001:
| · | In December 2003, a gain of $20 million on the sale of the Hanover Compressor note. |
| In December 2003, a charge of $81 million relating to the write-down, to fair market value, of Schlumberger’s investment in Hanover Compressor common stock. The write-down was required by SFAS 115 as the decline in the market value of the stock is “other than temporary”. |
| · | In September 2003, a $205 million multiclient library impairment charge following an evaluation of current and expected future business conditions in the seismic sector, a $38 million seismic vessel impairment charge and a $31 million gain on the sale of a drilling rig. |
| · | Between June 12 and July 22, 2003, subsidiaries of Schlumberger launched and concluded tender offers to acquire three series of outstanding European bonds; $1.3 billion of principal was repurchased for a total cost of $1.5 billion, which included the premium, and issuing and tender costs. The total charge on the tenders was $168 million, of which $81.5 million was recorded in the second quarter of 2003, when the first tender closed, with the balance of $86.3 million recorded in the third quarter of 2003. |
| · | On December 10, 2002, Schlumberger announced that the Board of Directors had approved an updated strategy for its SchlumbergerSema business segment. The new strategic plan outlook, current business values and the reorganization of SchlumbergerSema constitute significant events that required an impairment analysis to be performed in accordance with |
| 25 / SLB | 2003 FORM 10-K |
Part II, Item 7
Schlumberger recorded severance, facility and other costs in an effort to reduce costs at SchlumbergerSema and WesternGeco. These costs related to expenses that offer no future benefit to the ongoing operations of these businesses. During the fourth quarter, Schlumberger also recorded an impairment charge, to reflect a change in the business projections of the WesternGeco business, related to capitalized multiclient seismic library costs, a deferred tax valuation allowance and other costs.
The total of the above charges was $3,168 million and consisted of (1) a goodwill impairment charge of $2,638 million; (2) an intangible assets impairment charge of $132 million; (3) SchlumbergerSema severance and other charges of $77 million in response to current business conditions; (4) WesternGeco severance and other charges of $72 million in response to current business conditions; (5) a WesternGeco multiclient library impairment charge of $129 million following a valuation of the library; (6) environmental related charges of $26 million; and (7) a deferred tax valuation allowance charge of $94 million.
| In December 2002, a credit of $87 million reflecting the gain on the sale of two drilling rigs. |
| In March 2002, a charge of $29 million related to the financial/economic crisis in Argentina. |
| In December 2001, a net credit of $5 million, including an |
| In |
| · | In June 2001, a charge of $280 million for the |
| · | In March 2001, a charge of $25 million for in-process R&D related to the |
An analysis of the Decemberfourth quarter 2002 pretax severance and facility charges as of December 31, 2003 is as follows:
(Stated in millions) | ||||||||||||||||||||
($ stated in millions) | ($ stated in millions) | |||||||||||||||||||
| Severance | Facilities Amount | |||||||||||||||||||
Severance | Facilities | Amount | People | |||||||||||||||||
Amount | Headcount | Amount | ||||||||||||||||||
Charges | $ | 94.5 | 3,492 | $ | 42.8 | $ | 94.5 | 3,492 | $ | 42.8 | ||||||||||
Paid in December 2002 |
| 32.9 | 1,643 |
| 6.6 | 32.9 | 1,643 | 6.6 | ||||||||||||
Balance, December 31, 2002 | $ | 61.6 | 1,849 | $ | 36.2 | |||||||||||||||
Balance December 31, 2002 | 61.6 | 1,849 | 36.2 | |||||||||||||||||
Paid/reversed in 2003 | 60.6 | 1,841 | 25.1 | |||||||||||||||||
Balance December 31, 2003 | $ | 1.0 | 8 | $ | 11.1 | |||||||||||||||
The remaining severance costs are expected to be paid before September 30, 2003.
At December 31, 2003, the Severance balance of $1.0 million is classified asAccounts Payable and Accrued Liabilities and the Facilities balance of $11.1 million is classified inLiabilities held for sale on theConsolidated Balance Sheet.
The December 2001 charge included severance costs of $41 million (775 people), which have been paid.
| 26 / SLB | 2003 FORM 10-K |
The December 2000 charges included severance costs of $9 million (380 people) which have been paid.
Part II, Item 7
Critical Accounting Policies and Estimates
Schlumberger’s discussion and analysis of its financial condition and results of operations are based upon Schlumberger’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Schlumberger to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
On an on-going basis, Schlumberger evaluates its estimates, including those related to bad debts, valuation of inventories and investments, recoverability of long-lived assets, income tax provision and deferred taxes, profit assumptions on long-term percentage-of-completion contracts, contingencies and litigation and actuarial assumptions for employee benefit plans. Schlumberger bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Schlumberger believes the critical accounting policies described below affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Schlumberger recognizes revenue and profit as work progresses on long-term, fixed price contracts using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. Schlumberger follows this method since reasonably dependable estimates of the revenue and costs applicable to various stages of a contract can be made. Recognized revenue and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged or credited to income in the period in which the facts that give rise to the revision become known as a change in estimate. Losses on long-term contracts are provided for when such losses are known and reasonably estimated.
Schlumberger recognizes revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. Whether the fee is fixed and determinable is assessed based on the payment terms associated with the transaction. Collection is assessed based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer.
Revenues from contracts with multiple element arrangements, such as those including installation and integration services, are recognized as each element is earned based on the relative fair value of each element and when there are no undeliveredthe delivered elements that are essentialhave stand alone value to the functionality of the delivered elements.
customers.
For sales, either a binding purchase order, signed license agreement or a written contract is used as evidence of an arrangement.
Revenue from maintenance services is recognized ratably over the contract term. The training and consulting services (time and materials) are billed based on hourly rates, and revenue is generally recognized as these services are performed. Revenue from outsourcing services is generally recognized as services are performed.
The Oilfield ServicesWesternGeco segment capitalizes the cost associated with obtaining multiclient seismic data. Such costs are charged toCost of Goods Soldgoods sold and Servicesservices based on a percentage of estimated total revenue that Schlumberger estimates that it will receive from the sales of such data. The carrying value of individual surveys is reviewed at least annually and adjustments to the value are made based upon the revised estimated revenues for the surveys.
Schlumberger maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Schlumberger’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
| 27 / SLB | 2003 FORM 10-K |
Part II, Item 7
Schlumberger writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory writedowns may be required.
Schlumberger assesses the impairment of identifiable intangibles, long-lived assets and related goodwill at least annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following:
| significant underperformance relative to expected historical or projected future operating results; |
| significant changes in the manner of our use of the acquired assets or the strategy for our overall business; |
| significant negative industry or economic trends; |
| significant decline in Schlumberger’s stock price |
When Schlumberger determines that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, any impairment is measured based on projected net cash flows expected to result from that asset, including eventual disposition.
Schlumberger hashad net deferred tax assets of $583$632 million at December 31, 2002. Schlumberger considers future taxable income and tax planning strategies in assessing the need for valuation allowances. In December 2002, in connection with the SchlumbergerSema strategic review Schlumberger determined that it would not be able to realize a part of its October 1, 2002 net deferred asset in the future2003 which excluded $325 million relating to a certain European net operating loss. Aloss for which there is a valuation allowanceallowance. In assessing the need for valuation allowances, Schlumberger considers the probable likelihood of $94 million was charged tofuture taxable income in the fourth quarter. The cumulative valuation allowance relating to this European net operating loss is approximately $147 million at December 31, 2002.
and available tax planning strategies.
With regard to pension and postretirement benefits, Schlumberger evaluates the appropriateness of assumptions used by an independent actuary, in particular assumptions as to discount rate, return on plan assets and medical cost trend rates. The assumptions are revised at least annually as circumstances require.
LiquidityCash Flow
A measureIn 2003, cash provided by operations was $2.11 billion as net income plus depreciation/amortization and net charges including the extinguishment of financial positionEuropean debt and multiclient and vessel impairments, were only partially offset by increases in customer receivables, due to higher revenue, and decrease in accounts payable and accrued liabilities. Cash used in investing activities was $1.49 billion and included investments in fixed assets ($1.03 billion) and multiclient seismic data ($150 million), the purchase of short-term investments ($1.15 billion), the net proceeds ($106 million) from the sale of Schlumberger’s investment of 9.7 million shares in Grant Prideco Inc., the proceeds from the sales of NPTest ($220 million) and e-City ($79 million) activities and the net proceeds ($177 million) from the sale of the Hanover Compressor note. Cash used by financing activities was $558 million with the proceeds from employee stock plans ($172 million) offset by the payment of dividends to shareholders ($437 million), the costs related to the extinguishment of certain European debt ($168 million) and an overall reduction in debt of $126 million.
| 28 / SLB | 2003 FORM 10-K |
Part II, Item 7
“Net Debt” is liquidity, which Schlumberger defines asgross debt less cash, plus short-term investments and fixed income investments less debt. Negative liquidity indicatesheld to maturity. Management believes that Net Debt provides useful information regarding the level of Schlumberger’s indebtedness by reflecting cash and investments that could be used to repay debt, and that the level of net debt. The following table summarizesdebt provides useful information as to the change in consolidated liquidity for eachresults of Schlumberger’s deleveraging efforts. Details of the past three years:Net Debt follows:
(Stated in millions) | ||||||||||||
2002 | 20011 | 20001 | ||||||||||
(Loss)/income from continuing operations | $ | (2,418 | ) | $ | 491 |
| $ | 721 |
| |||
(Gain)/loss on sale of businesses |
| (87 | ) |
| 110 |
|
| (61 | ) | |||
Net charges |
| 3,197 |
|
| 162 |
|
| 64 |
| |||
Depreciation & amortization2 |
| 1,545 |
|
| 1,896 |
|
| 1,271 |
| |||
Decrease (increase) in working capital requirements |
| 167 |
|
| (839 | ) |
| (104 | ) | |||
Proceeds from business divestitures |
| 354 |
|
| 896 |
|
| 155 |
| |||
Fixed asset additions2 |
| (1,711 | ) |
| (2,469 | ) |
| (1,546 | ) | |||
Dividends paid |
| (433 | ) |
| (430 | ) |
| (426 | ) | |||
Proceeds from employee stock plans |
| 175 |
|
| 122 |
|
| 229 |
| |||
Acquisition of Sema plc |
| (132 | ) |
| (4,853 | ) |
| — |
| |||
Other business acquisitions |
| (44 | ) |
| (453 | ) |
| (1,076 | ) | |||
Acquisition related payments |
| (70 | ) |
| — |
|
| — |
| |||
Impact of change in exchange rates |
| (507 | ) |
| (6 | ) |
| 40 |
| |||
Other |
| (51 | ) |
| (117 | ) |
| (90 | ) | |||
Net decrease in liquidity from continuing operations |
| (15 | ) |
| (5,490 | ) |
| (823 | ) | |||
Discontinued operations |
| 31 |
|
| 31 |
|
| 14 |
| |||
Net (increase) decrease in net debt/liquidity |
| 16 |
|
| (5,459 | ) |
| (809 | ) | |||
Liquidity—beginning of period |
| (5,037 | ) |
| 422 |
|
| 1,231 |
| |||
Liquidity—end of period | $ | (5,021 | ) | $ | (5,037 | ) | $ | 422 |
| |||
(Stated in millions) | ||||||||||||
| 2003 | 2002 | 2001 | ||||||||||
Net Debt, beginning of year | $ | (5,021 | ) | $ | (5,037 | ) | $ | 422 | ||||
Income/(loss) from continuing operations | 473 | (2,417 | ) | 494 | ||||||||
Gain on sale of drilling rigs | – | (87 | ) | – | ||||||||
Net charges | 440 | 3,197 | 272 | |||||||||
Depreciation & amortization1 | 1,571 | 1,533 | 1,876 | |||||||||
(Increase) decrease in working capital | (228 | ) | 165 | (839 | ) | |||||||
Proceeds from business divestitures | 299 | 354 | 896 | |||||||||
Fixed asset additions1 | (1,175 | ) | (1,702 | ) | (2,453 | ) | ||||||
Dividends paid | (437 | ) | (433 | ) | (430 | ) | ||||||
Proceeds from employee stock plans | 172 | 175 | 122 | |||||||||
Debt extinguishment costs | (168 | ) | – | – | ||||||||
Sale of Grant Prideco stock | 106 | – | – | |||||||||
Sale of Hanover Compressor note | 177 | – | – | |||||||||
Acquisition of Sema plc | – | (132 | ) | (4,853 | ) | |||||||
Other business acquisitions | – | (44 | ) | (453 | ) | |||||||
Acquisition related payments | – | (70 | ) | – | ||||||||
Translation effect on net debt | (461 | ) | (507 | ) | (6 | ) | ||||||
Other | 76 | (16 | ) | (85 | ) | |||||||
Net Debt, end of year | $ | (4,176 | ) | $ | (5,021 | ) | $ | (5,037 | ) | |||
Dec. 31 2003 | Dec. 31 2002 | Dec. 31 2001 | ||||||||||
| Components of Net Debt | ||||||||||||
Cash and short term investments | $ | 3,109 | $ | 1,736 | $ | 1,618 | ||||||
Fixed income investments, held to maturity | 223 | 408 | 576 | |||||||||
Bank loans and current portion of long-term debt | (1,411 | ) | (1,136 | ) | (1,015 | ) | ||||||
Long-term debt | (6,097 | ) | (6,029 | ) | (6,216 | ) | ||||||
| $ | (4,176 | ) | $ | (5,021 | ) | $ | (5,037 | ) | ||||
At December 31, 2002, Schlumberger���s liquidity was negative (debt exceeded2003, the cash plus investments). At December 31, 2002, Schlumberger had cash/and short-term investments of $1.7$3.1 billion and the remaining capacity in debt facilities of $3.7$2.6 billion which are sufficient to meet future business requirements.
Based on forecast 20032004 net income, depreciation/amortization estimates, cash from the sale of SchlumbergerSema ($550 million) and Atos Origin stock ($625 million) and other liquiditypossible business and asset divestitures, and other cash flow components, Schlumberger expects to improve liquiditycash flow with an objective of reducing the net debt to under $4$3 billion by year end 2003.mid-year and $2 billion by year-end 2004. This will largely be dependent upon the business segments operating results and the successful completion of certain business divestitures.
| 29 / SLB | 2003 FORM 10-K |
Part II, Item 7
Acquisition of Sema plcFinancing
On February 12, 2001,June 9, 2003, Schlumberger announced thatLimited issued $850 million aggregate principal amount of 1.5% Series A Convertible Debentures due June 1, 2023 and $450 million aggregate principal amount of 2.125% Series B Convertible Debentures due June 1, 2023. On July 2, 2003, Schlumberger Limited issued an additional $125 million aggregate principal amount of the Series A debentures pursuant to an option granted to the initial purchasers.
The debentures were sold to Citigroup Global Markets Inc. and Goldman, Sachs & Co. pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The debentures were resold, with registration rights, by the initial purchasers in transactions exempt from registration under Rule 144A of the Securities Act. The aggregate offering price of the debentures was $1.425 billion, the initial purchasers’ discount was $25.4 million and the net proceeds to Schlumberger Limited were $1.4 billion.
The Series A debentures and the Series B debentures are convertible, at the holders’ option, into shares of common stock of Schlumberger Limited. Holders of the Series A debentures may convert their debentures into common stock at a conversion rate of 13.8255 shares for each $1,000 principal amount of Series A debentures (equivalent to an initial conversion price of $72.33 per share). Holders of the Series B debentures may convert their debentures into common stock at a conversion rate of 12.5 shares for each $1,000 principal amount of Series B debentures (equivalent to an initial conversion price of $80.00 per share). Each conversion rate may be adjusted for certain events, but it had reached an agreement with the board of directors of Sema plc on the terms of a recommended offerwill not be adjusted for the entire issued and to be issued share capital of Sema plc.
accrued interest.
On March 8, 2001, a wholly owned subsidiary of Schlumberger acquired, through market purchases, approximately 20%or after June 6, 2008 (in the case of the issued share capitalSeries A debentures) or June 6, 2010 (in the case of Semathe Series B debentures), Schlumberger may redeem for cash all or part of the applicable series of debentures, upon notice to the holders, 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 acquisitionredemption prices of 100% of the issued Sema shares was $5.15 billion (including expensesprincipal amount of the transaction)debentures, plus accrued and unpaid interest to the date of redemption. On June 1, 2008, June 1, 2013, and June 1, 2018, holders of Series A debentures may require Schlumberger to repurchase their Series A debentures. On June 1, 2010, June 1, 2013 and June 1, 2018, holders of Series B debentures may require Schlumberger to repurchase their Series B debentures. The repurchase price will be 100% of the principal amount of the debentures plus accrued and unpaid interest to the repurchase date. The repurchase price for repurchases on June 1, 2008 (in the case of the Series A debentures) and June 1, 2010 (in the case of the Series B debentures) will be paid in cash. On the other repurchase dates, Schlumberger may choose to pay the repurchase price in cash or common stock or any combination of cash and common stock. In addition, upon the occurrence of a Fundamental Change, holders may require Schlumberger to repurchase all or a portion of their debentures, in cash or, at Schlumberger’s election, common stock valued at 99% of its market price or any combination of cash and common stock, at a repurchase price equal to 100% of the principal amount of the debentures plus accrued and unpaid interest to the redemption date. The debentures will mature on June 1, 2023 unless earlier redeemed or repurchased.
Between June 12 and July 22, 2003, certain subsidiaries of Schlumberger launched and concluded tender offers to acquire three series of their outstanding European bonds. The companies bought back $1.3 billion of principal of these bonds for a total cost of $1.5 billion, which includes the premium, and issuing and tender costs. The total charge on the tender was financed from existing cash resources and borrowings under a $3 billion credit facility.$168 million.
Sale of SchlumbergerSema to Atos Origin
On October 3, 2001, wholly owned subsidiariesSeptember 22, 2003, Schlumberger announced the signing of an agreement with Atos Origin for the sale of the SchlumbergerSema business.
On the January 29, 2004 the sale transaction was completed. As consideration for the transaction Schlumberger issued $1.9received €443 million ($550 million) in cash which included a working capital adjustment, and 19.3 million shares of common stock of Atos Origin with a value of €1.02 billion European bonds (Euro 1.4 billion and £425($1.275 billion), which represented approximately 29% of the outstanding common shares of Atos Origin after the transaction was completed. Schlumberger expects the result of the sale will be a gain.
| 30 / SLB | 2003 FORM 10-K |
Part II, Item 7
On February 2, 2004 Schlumberger sold 9.6 million of the Atos Origin shares for a net consideration of €500 million ($625 million). The average interest rateAs a result of these bonds is 5.9% with maturity from 2008 through 2032. The proceeds fromthis sale, Schlumberger’s investment was reduced to approximately 15% of the issues were used to repay short-term bank loans originally taken out by those subsidiaries to financeoutstanding common shares of Atos Origin. Schlumberger will account for the acquisition of Sema plc.remaining investment in Atos Origin on the cost method.
The acquisition was accounted for using the purchase method of accounting and the goodwill and identifiable intangibles aggregated $5.19 billion which were being amortized on a straight-line basis in 2001. Effective January 1, 2002, with the adoption of SFAS 142 (seeNew Accounting StandardsBusiness Divestitures), amortization of goodwill and workforce ceased. Identifiable intangibles continue to be amortized on a straight-line basis over a life of 10 years.
The aggregate value of goodwill and identifiable intangibles comprisedDuring 2003, Schlumberger divested the following:following businesses:
(Stated in billions) | ||||
Cost (including expenses) | $ | 5.15 |
| |
Purchase accounting adjustments |
| 0.34 |
| |
Net tangible assets acquired |
| (0.30 | ) | |
$ | 5.19 |
| ||
| · | In July, the NPTest semiconductor testing business to a partnership led by Francisco Partners and Shah Management. The proceeds were $220 million in cash. Additionally, the partnership has a contingent obligation to make a further payment to Schlumberger upon a subsequent qualifying disposition or an initial public offering of NPTest by the partnership, under certain circumstances. The results of NPTest are reported asDiscontinued Operationsin theConsolidated Statement of Income and include a net loss of $12 million on the sale. The net assets were $202 million. |
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. All remaining severance was paid in 2002.
| · | In August, the Verification Systems business by a proceed-free management buyout. The results of Verification Systems are reported asDiscontinued Operations in theConsolidated Statement of Income and include a net loss of $18 million on the sale. The net assets were $17 million. |
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 to $14.3 billion and consolidated net income would have decreased by approximately $140 million, to $382 million, related primarily to increased interest expense, amortization of intangibles and lower interest income. On a proforma basis, Schlumberger 2000 operating revenue and net income would have been $12 billion and $300 million, 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.
Business Divestitures
| · | In October, the e-City ‘pay & display’ parking solutions business to Apax Partners. The proceeds were $84 million in cash. The results of e-City are reported asDiscontinued Operationsin theConsolidated Statement of Income and include a net loss of $56 million on the sale. The net assets were $120 million, including a $65 million allocation of goodwill. |
During 2002, Schlumberger divested the following businesses:
| In December, the Reed Hycalog drillbits business. The proceeds included $259 million in cash and 9.7 million shares of Grant Prideco common stock with a value of $103 million. The |
During 2001, Schlumberger divested the following businesses:
| In August, the Oilfield Services worldwide gas compression activity primarily consisting of the Production Operators Corp. subsidiary. The proceeds 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. The after-tax gain was $52 million. |
| In November, the Resource Management Services North American water metering activities. Cash proceeds were $304 million and the after-tax gain was $117 million. |
| In November, the Resource Management Services non-North American electricity and water meter, and worldwide gas meter businesses. The net cash proceeds were $256 million and the after-tax loss was $300 million, of which $280 million had been recorded as an impairment charge in June (SeeCharges-Continuing Operations). |
| In November, the Yield Enhancement Systems division of Semiconductor Solutions. Cash proceeds were $62 million and the after-tax gain was $12 million. |
| 31 / SLB | 2003 FORM 10-K |
Part II, Item 7
Summary of Major Contractual Commitments
(Stated in millions) | (Stated in millions) | (Stated in millions) | ||||||||||||||||||||||||||||
| Payment Period | ||||||||||||||||||||||||||||||
| Contractual Commitments | Total | Less than 1 year | 2-3 years | 4-5 years | After 5 years | |||||||||||||||||||||||||
Payment Period | ||||||||||||||||||||||||||||||
Contractual Commitments | Total | Less than 1 year | 2-3 years | 4-5 years | After 5 years | |||||||||||||||||||||||||
Long-Term Debt | $ | 6,481 | $ | 453 | $ | 2,049 | $ | 1,461 | $ | 2,518 | $ | 6,987 | $ | 890 | $ | 866 | $ | 3,149 | $ | 2,082 | ||||||||||
Operating Leases | $ | 1,278 | $ | 219 | $ | 317 | $ | 226 | $ | 516 | $ | 1,653 | $ | 344 | $ | 522 | $ | 366 | $ | 421 | ||||||||||
Letters of credit/guarantees outstanding aggregated $771$788 million at December 31, 2002.
2003.
In general, the remaining amount of letters of credit/guarantees relate to business performance bonds, custom/excise tax commitments, facility lease/rental obligations, etc. All such were entered into in the ordinary course of business and are customary practices in the various countries where Schlumberger operates.
Common Stock, Market Prices and Dividends Declared per Share
Quarterly high and low prices for Schlumberger common stock as reported by the New York Stock Exchange (composite transactions), together with dividends declared per share in each quarter of 20022003 and 2001,2002, were:
Price Range | Dividends Declared | |||||||||||||||||||||
| Price Range | Dividends Declared | |||||||||||||||||||||
| High | Low | |||||||||||||||||||||
2003 | ||||||||||||||||||||||
QUARTERS | ||||||||||||||||||||||
First | $ | 43.330 | $ | 35.620 | $ | 0.1875 | ||||||||||||||||
Second | 50.150 | 36.080 | 0.1875 | |||||||||||||||||||
Third | 52.100 | 44.500 | 0.1875 | |||||||||||||||||||
Fourth | 56.240 | 45.460 | 0.1875 | |||||||||||||||||||
High | Low | Dividends Declared | ||||||||||||||||||||
2002 | ||||||||||||||||||||||
QUARTERS | ||||||||||||||||||||||
First | $ | 62.430 | $ | 49.150 | $ | 0.1875 | $ | 62.430 | $ | 49.150 | $ | 0.1875 | ||||||||||
Second |
| 59.890 |
| 46.300 |
| 0.1875 | 59.890 | 46.300 | 0.1875 | |||||||||||||
Third |
| 47.400 |
| 35.870 |
| 0.1875 | 47.400 | 35.870 | 0.1875 | |||||||||||||
Fourth |
| 46.850 |
| 33.400 |
| 0.1875 | 46.850 | 33.400 | 0.1875 | |||||||||||||
2001 | ||||||||||||||||||||||
QUARTERS | ||||||||||||||||||||||
First | $ | 82.810 | $ | 57.300 | $ | 0.1875 | ||||||||||||||||
Second |
| 69.250 |
| 51.150 |
| 0.1875 | ||||||||||||||||
Third |
| 56.900 |
| 40.840 |
| 0.1875 | ||||||||||||||||
Fourth |
| 56.750 |
| 42.050 |
| 0.1875 | ||||||||||||||||
The number of holders of record of Schlumberger common stock at December 31, 2002,2003, was approximately 24,825.24,770. There are no legal restrictions on the payment of dividends or ownership or voting of such shares, except as to shares held in the Schlumberger Treasury. US stockholders are not subject to any Netherlands Antilles withholding or other Netherlands Antilles taxes attributable to ownership of such shares.
Environmental Matters
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, the risk of personal injury, natural resource or property damage claims 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.
| 32 / SLB | 2003 FORM 10-K |
Part II, Item 7
New Accounting Standards
In June 2001, SFAS 141 (Business Combinations) and SFAS 142 (Goodwill and Other Intangible Assets) were issued. SFAS 141 was adopted by Schlumberger for acquisitions subsequent to June 30, 2001. SFAS 142 was adopted by Schlumberger commencing January 1, 2002. As required by SFAS 142, Schlumberger undertook an initial review of goodwill impairment in the first quarter of 2002 and completed an “event driven” review in the fourth quarter of 2002. The findings of the independent valuation indicated there was an impairment write down of $2.6 billion which was approved by the Board of Directors in December 2002 in conjunction with the approval of the new strategic plan for SchlumbergerSema.
Amortization of goodwill and workforce ceased with effect from January 1, 2002. Assembled workforce, net of deferred taxes, of $175 million was reclassified toGoodwill.
Amortization of goodwill and other intangibles included in Schlumberger’s results are as follows:
(Stated in millions) | |||||||||||||
Pretax | |||||||||||||
2002 | 2001 | 2000 | |||||||||||
Goodwill | $ | — | $ | 270 | $ | 96 | |||||||
Workforce |
| — |
| 32 |
| — | |||||||
Other intangibles |
| 72 |
| 45 |
| 5 | |||||||
$ | 72 | $ | 347 | $ | 101 | ||||||||
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 or results of operations.
In August 2001, SFAS 144 (Accounting for Impairment or Disposal of Long-Lived Assets) was issued. SFAS 144 was adopted by Schlumberger commencing January 1, 2002 and did not have a material effect on its financial position or results of operations.
Effective January 1, 2002, Schlumberger adopted the FASB EITF Abstract 01-14, (Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred). Prior year revenue has been restated to include reimbursable costs billed to customers which had been classified as a contra expense and now must be classified as revenue. The reclassification was only required in the Oilfield Services (OFS) segment as the SchlumbergerSema segment was already in compliance with the new standard. OFSoperating revenue andcost of goods sold & services increased in 2001 by $557 million and in 2000 by $416 million. There was no effect on cash flow or net income.
On July 29, 2002, the Financial Accounting Standards Board issued SFAS 146 (Accounting for Costs Associated with Exit or Disposal Activities). The standard required companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, (Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity [including Certain Costs Incurred in a Restructuring]). SFAS 146 replaced Issue 94-3. Schlumberger will applyadopted SFAS 146 prospectively to exit or disposal activities initiated after December 31, 2002.
In November 2002, FASB Interpretation No. 45 (Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others) was issued. It requires certain accounting and disclosures of guarantees to third parties including indebtedness. The statementinterpretation is effective on a prospective basis for guarantees issued or modified after December 31, 2002. Schlumberger does not believe that theThe implementation of this statement willinterpretation did not have a material effect on itsSchlumberger’s financial position or results of operations.
In January 2003, the Emerging Issues Task Force (EITF) issued No. 00-21 “(Accounting for Revenue Arrangements with Multiple Deliverables”). This EITF establishes the criteria for recognizing revenue in arrangements when several itemsdeliverables are bundled into one agreement. EITF 00-21 does not allow revenue recognition unless the fair value of the undelivered element(s) is available and the element has stand-alone value to the customer. EITF 00-21 also provides guidance on allocating the total contract revenue to the individual elements based upon the available fair value of each deliverable. Schlumberger is in the processThe implementation of determining if this pronouncement willdid not have a material impact on itsSchlumberger’s financial position or results of operations.
In April 2003, the Financial Accounting Standards Board issued SFAS No. 149 (Amendment of Statement 133 on Derivative Instruments and Hedging Activities) which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133 (Accounting for Derivative Instruments and Hedging Activities). SFAS 149, which is to be applied prospectively, is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this new standard did not have a material impact on Schlumberger’s results of operations or financial position.
In May 2003, the Financial Accounting Standards Board issued SFAS No. 150, (Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity). The Standard specifies that instruments within its scope embody obligations of the issues and therefore, the issuer must classify them as liabilities. The Standard was effective July 1, 2003, and had no material effect on Schlumberger’s financial position.
In January 2004, the Financial Accounting Standards Board issued FSP No. FAS 106-1 (Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of
| 33 / SLB | 2003 FORM 10-K |
Part II, Item 7, 7A
2003). The statement permits the deferral of accounting related to the effects of the legislation until the earlier of issuance of final accounting guidance by the FASB or a significant plan amendment/curtailment event requiring remeasurement, occurring after January 31, 2004. Schlumberger expects the new legislation will reduce future postretirement medical costs.
Forward-looking Statements
This 10-K report, the fourth quarter and full year 20022003 earnings release, associated web-based publications and other statements we make contain forward looking statements, which include any statements that are not historical facts, such as our expectations regarding business outlook, economic recovery, improvements in liquidity, expected capex multi-client and depreciation and amortization expenditures,charges, the capitalizing of multiclient survey costs and the acquisition of new multiclient surveys, the funding of pension plans and related pension expense, the likelihood and timing of and likelihood of NPTest’s initial public offering,the benefits to be derived from divestitures, conditions in the oilfield service business, including activity levels during 2003,2004 and higher E&P investment, production increases in non-OPEC areas, issues affecting the seismic industry, including sales pertaining to Q technology, continued deepwater drilling activity, benefits from contract awards, future results of operations, pricing, future effective tax rates the realization of cost reduction and savings in SchlumbergerSema andour expectations regarding the future business and performancesale of SchlumbergerSema resulting from the updated strategy and business realignment.our remaining investment in Atos Origin shares. These statements involve risks and uncertainties, including, but not limited to, the extent and timing of a rebound in the global economy; changes in exploration and production spending by major oil companies; recovery of activity levels;levels, improved pricing and realization of cost reduction and cost savings targets associated with the seismic business; continuing customer commitment to certain key oilfield projects;market acceptance of Q seismic technology; general economic and business conditions in key regions of the world, including Argentina andArgentina; political and economic uncertainty in Venezuela and Nigeria and further socio-political unrest in the Persian Gulf and/or Asia; changesthe market in business strategy for SchlumbergerSema businesses including the expectedAtos Origin shares; our ability to complete and benefits to be derived from other divestitures; our ability to achieve growth of Schlumberger IT Consulting and Systems Integration Services and Network and Infrastructure Solutions in the global energy sector; continuing customer commitment to key long-term services and solutions contracts in our SchlumbergerSema businesses; a reversal of the weak IT environment and a significant increaseobjectives in IT spending; the extent and timing of a recovery in the telecommunications industry;solutions to upstream E&P business; continued growth in the demand for smart cards and related products; Schlumberger’sour ability to meet itsour identified liquidity projections, including the generation of sufficient cash flow from oilfield operating results and the successful completion of certain business divestitures; the adoption and effect of new accounting standards; potential contributions to pension plansplans; and other factors detailed in our fourth quarter and full year 20022003 earnings release; and our most recent Forms 10-K and 10-Qrelease, this Report and other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties 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. Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.
Item 7AQuantitative &and Qualitative Disclosures aboutAbout Market Risk
Schlumberger does not believe it has a material exposure to financialinterest rate and currency market risk.risks. Schlumberger manages the exposure to interest rate changes by using a mix of debt maturities and variable- and fixed-rate debt together with interest rate swaps, where appropriate, to fix or lower borrowing costs. With regard to foreign currency fluctuations, Schlumberger enters into various contracts, which change in value as foreign exchange rates change, to protect the value of external and intercompany transactions in foreign currencies. Schlumberger does not enter into foreign currency or interest rate transactions for speculative purposes.
Schlumberger Oilfield Services has operationsWith respect to equity market risks, Schlumberger’s investment portfolio includes equity investments in Venezuela which represented about 4%publicly held companies that are classified as available-for-sale, or restricted from sale, and other strategic equity holdings in privately held companies. These securities are exposed to price fluctuations. As of December 31, 2003, the carrying value of the 2002 Oilfield Services operating revenue. In lightavailable-for-sale and restricted equity securities was $92 million (December 31, 2002: $283 million).
The process of determining the fair values of the present labor unrestprivately held equity investments inherently requires certain assumptions and subjective judgments. These valuation assumptions and judgments include
| 34 / SLB | 2003 FORM 10-K |
Part II, Item 7A, 8
consideration of: (1) the investee’s earnings and cash flow position, cash flow projections, and rate of cash consumption; (2) recent rounds of equity infusions; (3) the strength of the investee’s management; and (4) valuation data provided by the investee that may be compared with data for peers. Schlumberger has and may continue to record impairment losses and write-down the carrying value of certain equity investments when the declines in Venezuela, Schlumberger is reviewing its potential currencyfair value are other-than-temporary. Investment impairment charges recognized in 2003 and business exposure,2002 were $81 million and taking appropriate steps to minimize the risks. While the ultimate loss$0, respectively. Schlumberger’s policy is not determinable at this time, such loss will not have a significant effect on Schlumberger’s consolidated financial position or liquidity.to hedge equity price risk.
Item 8Financial Statements and Supplementary Data
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Stated in thousands except per share amounts) | (Stated in thousands except per share amounts) | ||||||||||||||||||||||
Year Ended December 31, | 2002 | 2001 | 2000 | 2003 | 2002 | 2001 | |||||||||||||||||
Revenue | |||||||||||||||||||||||
Operating | $ | 13,473,662 |
| $ | 14,058,366 |
| $ | 9,831,472 | $ | 13,892,604 | $ | 13,117,562 | $ | 13,755,926 | |||||||||
Interest and other income |
| 139,068 |
|
| 242,258 |
|
| 423,255 | 166,493 | 139,068 | 242,258 | ||||||||||||
| 13,612,730 |
|
| 14,300,624 |
|
| 10,254,727 | 14,059,097 | 13,256,630 | 13,998,184 | |||||||||||||
Expenses | |||||||||||||||||||||||
Cost of goods sold and services |
| 13,759,257 |
|
| 11,014,923 |
|
| 7,779,578 | 11,419,873 | 13,525,742 | 10,816,096 | ||||||||||||
Research & engineering |
| 650,038 |
|
| 700,096 |
|
| 529,107 | 556,124 | 595,675 | 653,928 | ||||||||||||
Marketing |
| 401,384 |
|
| 446,621 |
|
| 316,816 | 350,996 | 353,622 | 396,312 | ||||||||||||
General |
| 664,364 |
|
| 681,021 |
|
| 416,499 | 662,224 | 640,641 | 660,092 | ||||||||||||
Debt extinguishment costs | 167,801 | – | – | ||||||||||||||||||||
Interest |
| 367,973 |
|
| 384,896 |
|
| 276,099 | 334,336 | 367,973 | 384,896 | ||||||||||||
| 15,843,016 |
|
| 13,227,557 |
|
| 9,318,099 | 13,491,354 | 15,483,653 | 12,911,324 | |||||||||||||
Income (Loss) from continuing operations before taxes and minority interest |
| (2,230,286 | ) |
| 1,073,067 |
|
| 936,628 | 567,743 | (2,227,023 | ) | 1,086,860 | |||||||||||
Taxes on income |
| 279,122 |
|
| 553,887 |
|
| 218,337 | 209,386 | 282,070 | 564,461 | ||||||||||||
Income (Loss) from continuing operations before minority interest |
| (2,509,408 | ) |
| 519,180 |
|
| 718,291 | 358,357 | (2,509,093 | ) | 522,399 | |||||||||||
Minority interest |
| 91,879 |
|
| (28,545 | ) |
| 2,163 | 114,200 | 91,879 | (28,545 | ) | |||||||||||
Income (Loss) from Continuing Operations |
| (2,417,529 | ) |
| 490,635 |
|
| 720,454 | 472,557 | (2,417,214 | ) | 493,854 | |||||||||||
Income from Discontinued Operations |
| 97,534 |
|
| 31,582 |
|
| 14,142 | |||||||||||||||
Income (Loss) from Discontinued Operations | (89,555 | ) | 97,219 | 28,363 | |||||||||||||||||||
Net Income (Loss) | $ | (2,319,995 | ) | $ | 522,217 |
| $ | 734,596 | $ | 383,002 | $ | (2,319,995 | ) | $ | 522,217 | ||||||||
Basic earnings per share: | |||||||||||||||||||||||
Income (Loss) from Continuing operations | $ | (4.18 | ) | $ | 0.85 |
| $ | 1.26 | |||||||||||||||
Income from Discontinued Operations |
| 0.17 |
|
| 0.06 |
|
| 0.03 | |||||||||||||||
Income (Loss) from Continuing Operations | $ | 0.81 | $ | (4.18 | ) | $ | 0.86 | ||||||||||||||||
Income (Loss) from Discontinued Operations | (0.15 | ) | 0.17 | 0.05 | |||||||||||||||||||
Net Income (Loss) |
| (4.01 | ) |
| 0.91 |
|
| 1.29 | 0.66 | (4.01 | ) | 0.91 | |||||||||||
Add back amortization of goodwill |
| — |
|
| 0.50 |
|
| 0.17 | – | – | 0.50 | ||||||||||||
Adjusted earnings (loss) per share | $ | (4.01 | ) | $ | 1.41 |
| $ | 1.46 | $ | 0.66 | $ | (4.01 | ) | $ | 1.41 | ||||||||
Diluted earnings per share: | |||||||||||||||||||||||
Income (Loss) from Continuing operations | $ | (4.18 | ) | $ | 0.85 |
| $ | 1.25 | |||||||||||||||
Income from Discontinued Operations |
| 0.17 |
|
| 0.06 |
|
| 0.02 | |||||||||||||||
Income (Loss) from Continuing Operations | $ | 0.81 | $ | (4.18 | ) | $ | 0.85 | ||||||||||||||||
Income (Loss) from Discontinued Operations | (0.15 | ) | 0.17 | 0.06 | |||||||||||||||||||
Net Income (Loss) |
| (4.01 | ) |
| 0.91 |
|
| 1.27 | 0.66 | (4.01 | ) | 0.91 | |||||||||||
Add back amortization of goodwill |
| — |
|
| 0.50 |
|
| 0.17 | – | – | 0.50 | ||||||||||||
Adjusted earnings (loss) per share | $ | (4.01 | ) | $ | 1.41 |
| $ | 1.44 | $ | 0.66 | $ | (4.01 | ) | $ | 1.41 | ||||||||
Average shares outstanding |
| 578,588 |
|
| 574,328 |
|
| 570,028 | 583,904 | 578,588 | 574,328 | ||||||||||||
Average shares outstanding assuming dilution |
| 578,588 |
|
| 580,214 |
|
| 580,076 | 586,491 | 578,588 | 580,214 | ||||||||||||
See theNotes to Consolidated Financial Statements
| 35 / SLB | 2003 FORM 10-K |
Part II, Item 8
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Stated in thousands) | (Stated in thousands) | (Stated in thousands) | ||||||||||||||||
| December 31, | 2003 | 2002 | ||||||||||||||||
December 31, | 2002 | 2001 | ||||||||||||||||
ASSETS | ||||||||||||||||||
Current Assets | ||||||||||||||||||
Cash | $ | 168,110 |
| $ | 177,704 |
| $ | 234,192 | $ | 168,110 | ||||||||
Short-term investments |
| 1,567,906 |
|
| 1,439,997 |
| 2,874,781 | 1,567,906 | ||||||||||
Receivables less allowance for doubtful accounts(2002—$172,871; 2001—$145,268) |
| 3,489,406 |
|
| 4,028,450 |
| ||||||||||||
Receivables less allowance for doubtful accounts | ||||||||||||||||||
(2003 – $128,199; 2002 – $172,871) | 2,568,425 | 3,489,406 | ||||||||||||||||
Inventories |
| 1,043,057 |
|
| 1,204,263 |
| 796,559 | 1,043,057 | ||||||||||
Deferred taxes |
| 435,887 |
|
| 321,767 |
| 315,350 | 435,887 | ||||||||||
Other current assets |
| 481,074 |
|
| 532,709 |
| 341,973 | 481,074 | ||||||||||
Assets held for sale | 3,237,841 | – | ||||||||||||||||
| 7,185,440 |
|
| 7,704,890 |
| 10,369,121 | 7,185,440 | |||||||||||
Fixed Income Investments, held to maturity |
| 407,500 |
|
| 576,000 |
| 223,300 | 407,500 | ||||||||||
Investments in Affiliated Companies |
| 687,524 |
|
| 648,183 |
| 776,965 | 687,524 | ||||||||||
Fixed Assets less accumulated depreciation |
| 4,663,756 |
|
| 4,827,879 |
| 3,799,711 | 4,663,756 | ||||||||||
Multiclient Seismic Data |
| 1,018,483 |
|
| 1,028,954 |
| 505,784 | 1,018,483 | ||||||||||
Goodwill |
| 4,229,993 |
|
| 6,260,969 |
| 3,284,254 | 4,229,993 | ||||||||||
Intangible Assets |
| 558,664 |
|
| 811,349 |
| 403,319 | 558,664 | ||||||||||
Deferred Taxes |
| 147,013 |
|
| 126,057 |
| 316,277 | 147,013 | ||||||||||
Other Assets |
| 536,822 |
|
| 342,086 |
| 362,595 | 536,822 | ||||||||||
$ | 19,435,195 |
| $ | 22,326,367 |
| $ | 20,041,326 | $ | 19,435,195 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
Current Liabilities | ||||||||||||||||||
Accounts payable and accrued liabilities | $ | 4,580,762 |
| $ | 4,506,634 |
| $ | 3,247,545 | $ | 4,580,762 | ||||||||
Estimated liability for taxes on income |
| 625,058 |
|
| 587,328 |
| 807,938 | 625,058 | ||||||||||
Dividend payable |
| 109,565 |
|
| 108,642 |
| 110,511 | 109,565 | ||||||||||
Long-term debt—current portion |
| 452,577 |
|
| 31,990 |
| ||||||||||||
Long-term debt – current portion | 889,678 | 452,577 | ||||||||||||||||
Bank & short-term loans |
| 682,956 |
|
| 983,191 |
| 521,490 | 682,956 | ||||||||||
Liabilities held for sale | 1,217,568 | – | ||||||||||||||||
| 6,450,918 |
|
| 6,217,785 |
| 6,794,730 | 6,450,918 | |||||||||||
Long-term Debt |
| 6,028,549 |
|
| 6,215,709 |
| 6,097,418 | 6,028,549 | ||||||||||
Postretirement Benefits |
| 544,456 |
|
| 504,797 |
| 614,850 | 544,456 | ||||||||||
Other Liabilities |
| 251,607 |
|
| 372,696 |
| 254,709 | 251,607 | ||||||||||
| 13,275,530 |
|
| 13,310,987 |
| 13,761,707 | 13,275,530 | |||||||||||
Minority Interest |
| 553,527 |
|
| 636,899 |
| 398,330 | 553,527 | ||||||||||
Stockholders’ Equity | ||||||||||||||||||
Common Stock |
| 2,170,965 |
|
| 2,045,437 |
| 2,258,488 | 2,170,965 | ||||||||||
Income retained for use in the business |
| 5,560,712 |
|
| 8,314,766 |
| 5,505,744 | 5,560,712 | ||||||||||
Treasury stock at cost |
| (1,578,358 | ) |
| (1,694,884 | ) | (1,508,239 | ) | (1,578,358 | ) | ||||||||
Accumulated other comprehensive income (loss) |
| (547,181 | ) |
| (286,838 | ) | ||||||||||||
Accumulated other comprehensive loss | (374,704 | ) | (547,181 | ) | ||||||||||||||
| 5,606,138 |
|
| 8,378,481 |
| 5,881,289 | 5,606,138 | |||||||||||
$ | 19,435,195 |
| $ | 22,326,367 |
| $ | 20,041,326 | $ | 19,435,195 | |||||||||
See theNotes to Consolidated Financial Statements
| 36 / SLB | 2003 FORM 10-K |
Part II, Item 8
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Stated in thousands) | (Stated in thousands) | (Stated in thousands) | ||||||||||||||||||||||
| Year Ended December 31, | 2003 | 2002 | 2001 | |||||||||||||||||||||
Year Ended December 31, | 2002 | 2001 | 2000 | |||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Income (loss) from continuing operations | $ | (2,417,529 | ) | $ | 490,635 |
| $ | 720,454 |
| $ | 472,557 | $ | (2,417,214 | ) | $ | 493,854 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Depreciation and amortization1 |
| 1,545,053 |
|
| 1,887,559 |
|
| 1,263,060 |
| 1,570,851 | 1,533,406 | 1,875,559 | ||||||||||||
Gain on the sale of Grant Prideco stock | (1,320 | ) | – | – | ||||||||||||||||||||
Non-cash charges and gains on sale of businesses |
| 3,196,923 |
|
| 271,174 |
|
| 2,706 |
| 439,976 | 3,196,923 | 271,174 | ||||||||||||
Gain on sale of drilling rigs |
| (86,858 | ) |
| — |
|
| — |
| – | (86,858 | ) | – | |||||||||||
Earnings of companies carried at equity, less dividends received |
| (64,280 | ) |
| (61,715 | ) |
| (39,805 | ) | (74,596 | ) | (64,280 | ) | (61,715 | ) | |||||||||
Deferred taxes |
| (48,702 | ) |
| 17,595 |
|
| 5,257 |
| (12,286 | ) | (48,702 | ) | 17,595 | ||||||||||
Provision for losses on accounts receivable |
| 66,425 |
|
| 56,619 |
|
| 32,301 |
| 53,303 | 66,425 | 56,619 | ||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||||||||||
Decrease (increase) in receivables |
| 542,669 |
|
| (907,535 | ) |
| (364,130 | ) | |||||||||||||||
(Increase) decrease in receivables | (74,118 | ) | 542,669 | (907,535 | ) | |||||||||||||||||||
Decrease (increase) in inventories |
| 72,383 |
|
| (259,290 | ) |
| (194,640 | ) | 96,606 | 72,383 | (259,290 | ) | |||||||||||
Decrease (increase) in other current assets |
| 47,938 |
|
| (8,048 | ) |
| (38,656 | ) | |||||||||||||||
(Increase) decrease in other current assets | (47,274 | ) | 47,938 | (8,048 | ) | |||||||||||||||||||
(Decrease) increase in accounts payable and accrued liabilities |
| (592,878 | ) |
| 204,751 |
|
| 493,104 |
| (535,121 | ) | (592,878 | ) | 204,751 | ||||||||||
Increase (decrease) in estimated liability for taxes on income |
| 28,470 |
|
| 12,626 |
|
| (12,069 | ) | |||||||||||||||
Increase in estimated liability for taxes on income | 175,857 | 28,470 | 12,626 | |||||||||||||||||||||
Increase in postretirement benefits |
| 39,659 |
|
| 28,417 |
|
| 24,914 |
| 70,394 | 39,659 | 28,417 | ||||||||||||
Other – net |
| (144,158 | ) |
| (162,602 | ) |
| (221,900 | ) | (21,830 | ) | (144,158 | ) | (162,602 | ) | |||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
| 2,185,115 |
|
| 1,570,186 |
|
| 1,670,596 |
| 2,112,999 | 2,173,783 | 1,561,405 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Purchases of fixed assets |
| (1,365,996 | ) |
| (2,044,008 | ) |
| (1,316,611 | ) | (1,025,264 | ) | (1,357,741 | ) | (2,036,508 | ) | |||||||||
Multiclient seismic data capitalized |
| (344,705 | ) |
| (416,188 | ) |
| (222,934 | ) | (149,765 | ) | (344,705 | ) | (416,188 | ) | |||||||||
Capitalization of intangible assets |
| (169,354 | ) |
| (29,782 | ) |
| (28,034 | ) | (77,104 | ) | (169,354 | ) | (29,782 | ) | |||||||||
Sales/retirements of fixed assets & other |
| 276,022 |
|
| 30,824 |
|
| 149,494 |
| 213,895 | 276,022 | 30,824 | ||||||||||||
Sale of Grant Prideco stock | 105,590 | – | – | |||||||||||||||||||||
PIGAP settlement | 58,000 | – | – | |||||||||||||||||||||
Proceeds from the sale of Hanover Compressor note | 176,955 | – | – | |||||||||||||||||||||
Acquisition of Sema plc |
| (132,155 | ) |
| (4,778,498 | ) |
| — |
| – | (132,155 | ) | (4,778,498 | ) | ||||||||||
Other business acquisitions |
| (44,431 | ) |
| (452,951 | ) |
| (1,075,446 | ) | – | (44,431 | ) | (452,951 | ) | ||||||||||
Other acquisition related payments |
| (70,340 | ) |
| — |
|
| — |
| – | (70,340 | ) | – | |||||||||||
Business divestitures |
| 259,271 |
|
| 902,953 |
|
| 154,843 |
| |||||||||||||||
Sale of drilling rigs |
| 95,000 |
|
| — |
|
| — |
| |||||||||||||||
Proceeds from business divestitures | 298,674 | 259,271 | 902,953 | |||||||||||||||||||||
Proceeds from the sale of drilling rigs | 58,100 | 95,000 | – | |||||||||||||||||||||
Option payment on sale of drilling rigs |
| 24,900 |
|
| — |
|
| — |
| – | 24,900 | – | ||||||||||||
Sale (purchase) of investments, net |
| 51,334 |
|
| 2,430,911 |
|
| 551,619 |
| (1,145,700 | ) | 51,334 | 2,430,911 | |||||||||||
NET CASH USED IN INVESTING ACTIVITIES |
| (1,420,454 | ) |
| (4,356,739 | ) |
| (1,787,069 | ) | (1,486,619 | ) | (1,412,199 | ) | (4,349,239 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Dividends paid |
| (433,134 | ) |
| (430,328 | ) |
| (426,465 | ) | (437,023 | ) | (433,134 | ) | (430,328 | ) | |||||||||
Proceeds from employee stock purchase plan |
| 107,810 |
|
| 78,965 |
|
| 69,089 |
| 132,741 | 107,810 | 78,965 | ||||||||||||
Proceeds from exercise of stock options |
| 67,275 |
|
| 42,795 |
|
| 160,281 |
| 39,752 | 67,275 | 42,795 | ||||||||||||
Proceeds from issuance of convertible debentures (net of fees) | 1,399,612 | – | – | |||||||||||||||||||||
Payment of debt extinguishment costs | (167,801 | ) | – | – | ||||||||||||||||||||
Proceeds from issuance of long-term debt |
| 933,709 |
|
| 4,815,028 |
|
| 956,641 |
| 2,041,304 | 933,709 | 4,815,028 | ||||||||||||
Payments of principal on long-term debt |
| (1,179,321 | ) |
| (2,092,670 | ) |
| (724,911 | ) | (3,399,773 | ) | (1,179,321 | ) | (2,092,670 | ) | |||||||||
Net (decrease) increase in short-term debt |
| (308,623 | ) |
| 370,608 |
|
| 113,608 |
| (167,150 | ) | (308,623 | ) | 370,608 | ||||||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
| (812,284 | ) |
| 2,784,398 |
|
| 148,243 |
| (558,338 | ) | (812,284 | ) | 2,784,398 | ||||||||||
Discontinued operations |
| 31,443 |
|
| 31,515 |
|
| 15,432 |
| (8,415 | ) | 34,520 | 32,796 | |||||||||||
Net (decrease) increase in cash before translation effect |
| (16,180 | ) |
| 29,360 |
|
| 47,202 |
| |||||||||||||||
Net increase (decrease) in cash before translation effect | 59,627 | (16,180 | ) | 29,360 | ||||||||||||||||||||
Translation effect on cash |
| 6,586 |
|
| (12,374 | ) |
| (19,073 | ) | 6,455 | 6,586 | (12,374 | ) | |||||||||||
Cash, beginning of year |
| 177,704 |
|
| 160,718 |
|
| 132,589 |
| 168,110 | 177,704 | 160,718 | ||||||||||||
Cash, end of year | $ | 168,110 |
| $ | 177,704 |
| $ | 160,718 |
| $ | 234,192 | $ | 168,110 | $ | 177,704 | |||||||||
| Includes multiclient seismic data costs. |
See theNotes to Consolidated Financial Statements
| 37 / SLB | 2003 FORM 10-K |
Part II, Item 8
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Stated in thousands) | (Stated in thousands) | (Stated in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | Common Stock | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Retained Income | Marked to Market | Pension Liability | Translation Adjustment | Comprehensive Income (Loss) | Issued | In Treasury | Retained Income | Marked to Market | Pension Liability | Translation Adjustment | Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
Issued | In Treasury | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2000 | $ | 1,820,186 | $ | (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 |
| 61,224 |
| 99,057 |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Employee stock purchase plan |
| 42,495 |
| 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 |
| 1,963,905 |
| (1,752,961 | ) |
| 8,223,476 |
|
| — |
|
| — |
|
| (139,204 | ) | $ | 732,550 |
| ||||||||||||||||||||||||||||||||||
Balance, January 1, 2001 | $ | 1,963,905 | $ | (1,752,961 | ) | $ | 8,223,476 | $ | – | $ | – | $ | (139,204 | ) | $ | 732,550 | ||||||||||||||||||||||||||||||||||||||
Translation adjustment |
| (171,930 | ) | $ | (171,930 | ) | (171,930 | ) | $ | (171,930 | ) | |||||||||||||||||||||||||||||||||||||||||||
RMS disposition |
| 73,865 |
|
| 73,865 |
| 73,865 | 73,865 | ||||||||||||||||||||||||||||||||||||||||||||||
Derivatives marked to market |
| (49,569 | ) |
| (49,569 | ) | (49,569 | ) | (49,569 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Sales to optionees less shares exchanged |
| 17,130 |
| 25,420 |
| 17,130 | 25,420 | |||||||||||||||||||||||||||||||||||||||||||||||
Shares granted to Directors |
| 156 |
| 89 |
| 156 | 89 | |||||||||||||||||||||||||||||||||||||||||||||||
Employee stock purchase plan |
| 46,397 |
| 32,568 |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from employee stock plans | 46,397 | 32,568 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| 522,217 |
|
| 522,217 |
| 522,217 | 522,217 | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.75 per share) |
| (430,927 | ) | (430,927 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit on stock options |
| 17,849 | 17,849 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2001 |
| 2,045,437 |
| (1,694,884 | ) |
| 8,314,766 |
|
| (49,569 | ) |
| — |
|
| (237,269 | ) | $ | 374,583 |
| 2,045,437 | (1,694,884 | ) | 8,314,766 | (49,569 | ) | – | (237,269 | ) | $ | 374,583 | |||||||||||||||||||||||
Translation adjustment |
| (55,422 | ) | $ | (55,422 | ) | (55,422 | ) | $ | (55,422 | ) | |||||||||||||||||||||||||||||||||||||||||||
Reed Hycalog disposition |
| 22,063 |
|
| 22,063 |
| 22,063 | 22,063 | ||||||||||||||||||||||||||||||||||||||||||||||
Derivatives marked to market |
| (33,291 | ) |
| (33,291 | ) | (33,291 | ) | (33,291 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability (US/UK Plans) |
| (313,564 | ) |
| (313,564 | ) | (313,564 | ) | (313,564 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Tax benefit on minimum pension liability |
| 110,000 |
|
| 110,000 |
| 110,000 | 110,000 | ||||||||||||||||||||||||||||||||||||||||||||||
Investment Grant Prideco stock |
| 9,871 |
|
| 9,871 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Investment in Grant Prideco stock | 9,871 | 9,871 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales to optionees less shares exchanged |
| 25,410 |
| 41,671 |
| 25,410 | 41,671 | |||||||||||||||||||||||||||||||||||||||||||||||
Shares granted to Directors |
| 129 |
| 65 |
| 129 | 65 | |||||||||||||||||||||||||||||||||||||||||||||||
Employee stock purchase plan |
| 58,056 |
| 49,754 |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from employee stock plans | 58,056 | 49,754 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| (2,319,995 | ) |
| (2,319,995 | ) | (2,319,995 | ) | (2,319,995 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.75 per share) |
| (434,059 | ) | (434,059 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Technoguide acquisition |
| 34,496 |
| 25,036 |
| 34,496 | 25,036 | |||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit on stock options |
| 7,437 | 7,437 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2002 | $ | 2,170,965 | $ | (1,578,358 | ) | $ | 5,560,712 |
| $ | (72,989 | ) | $ | (203,564 | ) | $ | (270,628 | ) | $ | (2,580,338 | ) | 2,170,965 | (1,578,358 | ) | 5,560,712 | (72,989 | ) | (203,564 | ) | (270,628 | ) | $ | (2,580,338 | ) | |||||||||||||||||||||
Translation adjustment | 201,503 | $ | 201,503 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives marked to market | 60,356 | 60,356 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability (US/UK Plans) | (114,236 | ) | (114,236 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit on minimum pension liability | 34,725 | 34,725 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of investment in Grant Prideco stock | (9,871 | ) | (9,871 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Sales to optionees less shares exchanged | 15,335 | 24,271 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares granted to Directors | 81 | 65 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from employee stock plans | 51,302 | 45,783 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of employee stock plans | 13,229 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 383,002 | 383,002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.75 per share) | (437,970 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit on stock options | 7,576 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2003 | $ | 2,258,488 | $ | (1,508,239 | ) | $ | 5,505,744 | $ | (22,504 | ) | $ | (283,075 | ) | $ | (69,125 | ) | $ | 555,479 | ||||||||||||||||||||||||||||||||||||
See theNotes to Consolidated Financial Statements
| 38 / SLB | 2003 FORM 10-K |
Part II, Item 8
SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS
ANTILLES) AND SUBSIDIARY COMPANIES
SHARES OF COMMON STOCK
Issued | In Treasury | Shares Outstanding | ||||||||||||
Balance, January 1, 2000 | 667,054,806 | (101,123,676 | ) | 565,931,130 | ||||||||||
Employee stock purchase plan | — | 1,431,309 |
| 1,431,309 | ||||||||||
Sold to optionees | 30,987 | 5,331,268 |
| 5,362,255 | ||||||||||
| Issued | In Treasury | Shares Outstanding | ||||||||||||
Balance, December 31, 2000 | 667,085,793 | (94,361,099 | ) | 572,724,694 | ||||||||||
Balance, January 1, 2001 | 667,085,793 | (94,361,099 | ) | 572,724,694 | ||||||||||
Employee stock purchase plan | — | 1,752,833 |
| 1,752,833 | – | 1,752,833 | 1,752,833 | |||||||
Shares granted to Directors | — | 4,800 |
| 4,800 | – | 4,800 | 4,800 | |||||||
Sold to optionees | 8,385 | 1,399,686 |
| 1,408,071 | ||||||||||
Shares sold to optionees | 8,385 | 1,399,686 | 1,408,071 | |||||||||||
Balance, December 31, 2001 | 667,094,178 | (91,203,780 | ) | 575,890,398 | 667,094,178 | (91,203,780 | ) | 575,890,398 | ||||||
Employee stock purchase plan | — | 2,677,842 |
| 2,677,842 | – | 2,677,842 | 2,677,842 | |||||||
Shares granted to Directors | — | 3,500 |
| 3,500 | – | 3,500 | 3,500 | |||||||
Sold to optionees | 10,490 | 2,243,400 |
| 2,253,890 | ||||||||||
Shares sold to optionees | 10,490 | 2,243,400 | 2,253,890 | |||||||||||
Acquisition of Technoguide | — | 1,347,485 |
| 1,347,485 | – | 1,347,485 | 1,347,485 | |||||||
Balance, December 31, 2002 | 667,104,668 | (84,931,553 | ) | 582,173,115 | 667,104,668 | (84,931,553 | ) | 582,173,115 | ||||||
Employee stock purchase plan | – | 2,464,088 | 2,464,088 | |||||||||||
Shares granted to Directors | – | 3,500 | 3,500 | |||||||||||
Shares sold to optionees | 1,320 | 1,306,305 | 1,307,625 | |||||||||||
Balance, December 31, 2003 | 667,105,988 | (81,157,660 | ) | 585,948,328 | ||||||||||
See theNotes to Consolidated Financial Statements
| 39 / SLB | 2003 FORM 10-K |
Part II, Item 8
Notes to Consolidated Financial Statements
1. Business Description
Founded in 1927, Schlumberger Limited is a global technology services company consisting of threefour business segments: first, Schlumberger Oilfield Services, one of the leading providers of technology services and solutions to the international petroleum industry; second, WesternGeco provides comprehensive worldwide reservoir imaging, monitoring, and development services, with extensive seismic crews and data processing centers as well as a large multiclient seismic library. Services range from 3D and time-lapse (4D) seismic surveys to multi-component surveys for delineating prospects and reservoir management; WesternGeco is 70% owned by Schlumberger and 30% owned by Baker Hughes; third, SchlumbergerSema, an IT services company providing consulting and systems integration services, and network and infrastructure solutions, primarily to the global energy sector, including oil and gas, and other regional markets spanning the telecommunications, finance and public sectors and third,fourth, the Other business segment which principally comprises the Axalto (Smart Cards Terminals,and Point-of-Sale Terminals), Electricity Meters, North AmericaBusiness Continuity, Infodata, Telecom Software Products, Water Services, Essentis and NPTest activities.Payphones businesses, all of which are in active divestiture negotiations.
On September 22, 2003, Schlumberger announced the signing of an agreement with Atos Origin for the sale of the SchlumbergerSema business. The sale closed on January 29, 2004.
2. 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.
Discontinued Operations
OnIn July 2003, Schlumberger completed the sale of its NPTest semiconductor testing business to a partnership led by Francisco Partners and Shah Management. The proceeds were $220 million in cash. Additionally, the partnership has a contingent obligation to make a further payment to Schlumberger upon a subsequent qualifying disposition or an initial public offering of NPTest by the partnership, under certain circumstances. The results of NPTest are reported asDiscontinued Operationsin theConsolidated Statement of Income and include a net loss of $12 million on the sale. The net assets were $202 million.
In August 2003, Schlumberger completed the sale of its Verification Systems business by a proceed-free management buyout. The results of Verification Systems are reported asDiscontinued Operations in theConsolidated Statement of Income and include a net loss of $18 million on the sale. The net assets were $17 million.
In October 2003, Schlumberger completed the sale of its e-City ‘pay & display’ parking solutions business to Apax Partners. The proceeds were $84 million in cash. The results of e-City are reported asDiscontinued Operationsin theConsolidated Statement of Income and include a net loss of $56 million on the sale. The net assets were $120 million, including a $65 million allocation of goodwill.
In December, 20, 2002, Schlumberger completed the sale of its Reed Hycalog drillbits business. The proceeds included $259 million in cash and 9.7 million shares of Grant Prideco common stock with a value of $103 million. The results for the Reed Hycalog operations are reported asDiscontinued Operations in theConsolidated Statement of Income and, in 2002, includesinclude results of operations of $32 million and gain on sale of $66 million. The net assets sold were approximately $185 million.
| 40 / SLB | 2003 FORM 10-K |
Part II, Item 8
Revenue and operating income (loss) from discontinued operatingoperations for 2003, 2002 2001 and 20002001 were as follows:
(Stated in millions) | ||||||
Revenue | Operating Income | |||||
2002 | $ | 212 | $ | 32 | ||
2001 | $ | 245 | $ | 32 | ||
2000 | $ | 195 | $ | 14 | ||
| (Stated in thousands) | ||||||||||||
| 2003 | 2002 | 2001 | ||||||||||
e-City: | ||||||||||||
Revenue | $ | 99,388 | $ | 124,500 | $ | 121,575 | ||||||
Operating income (loss) | $ | (4,328 | ) | $ | (1,224 | ) | $ | 7,826 | ||||
NPTest & Verification Systems: | ||||||||||||
Revenue | $ | 120,318 | $ | 240,113 | $ | 180,865 | ||||||
Operating income (loss) | $ | 967 | $ | 909 | $ | (11,045 | ) | |||||
Reed Hycalog: | ||||||||||||
Revenue | $ | – | $ | 212,433 | $ | 244,639 | ||||||
Operating income | $ | – | $ | 31,553 | $ | 31,582 | ||||||
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 inInvestments in Affiliated Companies. The pro rata share of Schlumberger after-tax earnings is included inInterest and Other Incomeother 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. On an on-going basis, Schlumberger evaluates its estimates, including those related to bad debts, valuation of inventories and investments, recoverability of goodwill and intangible assets, income tax provision and deferred taxes, profit assumptions on long-term percentage-of-completion contracts, contingencies and litigation and actuarial assumptions for employee benefit plans. Schlumberger bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Products 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 is 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.
| 41 / SLB | 2003 FORM 10-K |
Part II, Item 8
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.
Multiple Element Arrangement and Collectibility
Many sales are generated from complex contractual arrangements that require significant revenue recognition judgments, particularly in the areas of multiple element arrangements. Revenues from contracts with multiple element arrangements, such as those including installation and integration services, are recognized as each element is earned based on the relative fair value of each element and when there are no undeliveredthe delivered elements that are essentialhave stand alone value to the functionality of the delivered elements.
customers.
The assessment of collectibility is particularly critical in determining whether revenue should be recognized in the current market environment. As part of the revenue recognition process, Schlumberger determines whether trade and notes receivables are reasonably assured of collection based on various factors, including the ability to sell those receivables and whether there has been deterioration in the credit quality of customers that could result in the inability to sell the receivables. In situations where Schlumberger has the ability to sell the receivables without recourse, revenue is recognized to the extent of the value Schlumberger could reasonably expect to realize from the sale. Schlumberger defers revenue and related costs when it is uncertain as to whether it will be able to collect or sell the receivable. Schlumberger defers revenue but recognizes costs when it determines that the collection or sale of the receivable is unlikely.
Translation of Non-US Currencies
The Oilfield Services segmentand WesternGeco segments functional currency is primarily the US dollar. The SchlumbergerSema segment and Other segment 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 theStockholders’ Equity section of theConsolidated Balance Sheet.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’s policy is to hedge against unrealized gains and losses on a monthly basis. Included in the 20022003 results were transaction lossesgains of $2$1 million, compared with losses of $2 million and $7 million in 2002 and $4 million in 2001, and 2000, 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, 2002,2003, contracts were outstanding for the US dollar equivalent of $1,594 million$2.2 billion in various foreign currencies. These contracts mature on various dates in 2003.2004.
| 42 / SLB | 2003 FORM 10-K |
Part II, Item 8
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 at December 31, 20022003 were not significant.
For purposes of theConsolidated 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.
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 toCost 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 reviewed, at least annually, and adjustments to the value are made based upon the revised estimated revenues for the surveys.
Capitalized Software
The costs incurred for the development of computer software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established, generally when all of the planning, designing, coding and testing activities that are necessary in order to establish that the product can be produced to meet its design specifications including functions, features and technical performance requirements are completed. These capitalized costs are subject to an ongoing assessment of recoverability
based on anticipated future revenues and changes in hardware and software technologies. Costs that are capitalized include direct labor and related overheads.
Total capitalized internally developed software costs was $47 million at December 31, 2003 of which $33 million was deferred in 2003.
Amortization of capitalized software development costs begins when the product is available for general release. Amortization is provided on the lessergreater of a product-by-product basis on the straight-line method or the sales ratio method over the estimated useful life. Unamortized capitalized software development costs determined to be in excess of the net realizable value of the product are expensed immediately.
Schlumberger capitalizes certain costs of internally developed software. Capitalized costs include purchased materials and services, payroll and payroll related costs and interest costs. The costs of internally developed software is amortized on a straight-line basis over the estimated useful life which is principally 6 years.
| 43 / SLB | 2003 FORM 10-K |
Part II, Item 8
Impairment of Long-lived Assets
On an annual basis Schlumberger reviews the carrying value of its long-lived assets, including goodwill, intangible assets and intangible assets.investments. In addition, whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate,recoverable, a review is performed. 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.
In accordance with SFAS 142 (Goodwill and Other Intangible Assets), which was adopted by Schlumberger commencing January 1, 2002, goodwill ceased to be amortized.
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. Any effect of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. When it is more likely than not that a portion or all of the deferred tax asset will not be realized in the future, Schlumberger provides a corresponding valuation allowance against deferred tax assets.
Approximately $2.5$2.3 billion of consolidated income retained for use in the business on December 31, 20022003 represented undistributed earnings of consolidated subsidiaries and the pro rata Schlumberger share of 20%-50% –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.
Concentration of Credit Risk
Schlumberger’s financial instruments which potentially subject the company to concentration of credit risk consist primarily of accounts receivable. Schlumberger maintains an allowance for uncollectible accounts receivable based on expected collectibility and performs ongoing credit evaluations of its customers’ financial condition.
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, as adjusted for the interest on convertible debentures unless the adjustment is anti-dilutive, by the average number of common shares outstanding assuming dilution, the calculation of which assumes (i) 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. period, and (ii) the convertible debentures have been converted unless the effect is anti-dilutive.
| 44 / SLB | 2003 FORM 10-K |
Part II, Item 8
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 (loss) from Continuing Operations | Average Shares Outstanding | Earnings (loss) Per Share from Continuing Operations | ||||||||
2002 | ||||||||||
Basic | $ | (2,417,529 | ) | 578,588 | $ | (4.18 | ) | |||
Effects of dilution: | ||||||||||
Options | — |
| — |
| ||||||
Diluted1 | $ | (2,417,529 | ) | 578,588 | $ | (4.18 | ) | |||
2001 | ||||||||||
Basic | $ | 490,635 |
| 574,328 | $ | 0.85 |
| |||
Effects of dilution: | ||||||||||
Options | 5,886 |
| — |
| ||||||
Diluted | $ | 490,635 |
| 580,214 | $ | 0.85 |
| |||
2000 | ||||||||||
Basic | $ | 720,454 |
| 570,028 | $ | 1.26 |
| |||
Effects of dilution: | ||||||||||
Options | 10,048 |
| (0.01 | ) | ||||||
Diluted | $ | 720,454 |
| 580,076 | $ | 1.25 |
| |||
(Stated in thousands except per share amounts) | |||||||||||
| Income (loss) from Continuing Operations | Average Shares Outstanding | Earnings (loss) Per Share from Continuing Operations | |||||||||
2003 | |||||||||||
Basic | $ | 472,557 | 583,904 | $ | 0.81 | ||||||
Dilutive effect of convertible debentures | 15,938 | 10,566 | |||||||||
Dilutive effect of options | 2,587 | ||||||||||
| $ | 488,495 | 597,057 | $ | 0.82 | |||||||
less: Anti-dilutive effect of convertible debentures | (15,938 | ) | (10,566 | ) | (0.01 | ) | |||||
Diluted | $ | 472,557 | 586,491 | $ | 0.81 | ||||||
2002 | |||||||||||
Basic | $ | (2,417,214 | ) | 578,588 | $ | (4.18 | ) | ||||
Dilutive effect of options | – | ||||||||||
Diluted1 | $ | (2,417,214 | ) | 578,588 | $ | (4.18 | ) | ||||
2001 | |||||||||||
Basic | $ | 493,854 | 574,328 | $ | 0.86 | ||||||
Dilutive effect of options | 5,886 | ||||||||||
Diluted | $ | 493,854 | 580,214 | $ | 0.85 | ||||||
| There is no dilution of shares or earnings per share in 2002 due to the net loss. |
Adjusted Net Income
The following is a reconciliation of reported net income (loss) to adjusted net income (loss) following the adoption of SFAS 142 (Goodwill and Other Intangible Assets) on January 1, 2002 – seeNew Accounting Standards below.2002.
(Stated in thousands) | (Stated in thousands) | |||||||||||||||||||
(Stated in thousands) | 2003 | 2002 | 2001 | |||||||||||||||||
2002 | 2001 | 2000 | ||||||||||||||||||
Reported Net Income (Loss) | $ | (2,319,995 | ) | $ | 522,217 | $ | 734,596 | $ | 383,002 | $ | (2,319,995 | ) | $ | 522,217 | ||||||
Goodwill amortization |
| — |
|
| 291,574 |
| 94,746 | – | – | 291,574 | ||||||||||
Adjusted Net Income (Loss) | $ | (2,319,995 | ) | $ | 813,791 | $ | 829,342 | $ | 383,002 | $ | (2,319,995 | ) | $ | 813,791 | ||||||
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 was adopted by Schlumberger for acquisitions subsequent to June 30, 2001. SFAS 142 was adopted by Schlumberger commencing January 1, 2002. As required by SFAS 142, Schlumberger undertook an initial review of goodwill impairment in the first quarter of 2002 and completed an “event driven” review in the fourth quarter of 2002. The findings of the independent valuation indicated there was
an impairment writedown of $2.6 billion which was approved by the Board of Directors in December 2002 in conjunction with the approval of the new strategic plan for SchlumbergerSema.
Amortization of goodwill and workforce ceased with effect from January 1, 2002. Assembled workforce, net of deferred taxes, of $175 million was reclassified toGoodwill.
Amortization of goodwill and other intangibles included in Schlumberger’s results are as follows:
(Stated in millions) | |||||||||
Pretax | |||||||||
2002 | 2001 | 2000 | |||||||
Goodwill | $ | — | $ | 270 | $ | 96 | |||
Workforce |
| — |
| 32 |
| — | |||
Other intangibles |
| 72 |
| 45 |
| 5 | |||
$ | 72 | $ | 347 | $ | 101 | ||||
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 was adopted by Schlumberger commencing January 1, 2002 and did not have a material effect on its financial position or results of operations.
Effective January 1, 2002, Schlumberger adopted the FASB EITF Abstract 01-14, (Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred). Prior year revenue has been restated to include reimbursable costs billed to customers which had been classified as a contra expense and now must be classified as revenue. The reclassification was only required in the Oilfield Services (OFS) segment as the SchlumbergerSema segment was already in compliance with the new standard. OFSoperating revenue andcost of goods sold & services increased in 2001 by $557 million and in 2000 by $416 million. There was no effect on cash flow or net income.
On July 29, 2002, the Financial Accounting Standards Board issued SFAS 146 (Accounting for Costs Associated with Exit or Disposal Activities). The standard required companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, (Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity [including Certain Costs Incurred in a Restructuring]). SFAS 146 replaced Issue 94-3. Schlumberger will applyadopted SFAS 146 prospectively to exit or disposal activities initiated after December 31, 2002. As a result, in the future, charges related to restructuring plans may be recorded over multiple reporting periods as opposed to the date the plan was approved.
| 45 / SLB | 2003 FORM 10-K |
Part II, Item 8
In November 2002, FASB Interpretation No. 45 (Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others) was issued. It requires certain accounting and disclosures of guarantees to third parties including indebtedness. The statementinterpretation is effective on a prospective basis for guarantees issued or modified after December 31, 2002. Schlumberger does not believe that theThe implementation of this statement willinterpretation did not have a material effect on itsSchlumberger’s financial position or results of operations.
In January 2003, the Emerging Issues Task Force (EITF) issued No. 00-21 “(Accounting for Revenue Arrangements with Multiple Deliverables”). This EITF establishes the criteria for recognizing revenue in arrangements when several items are bundled into one agreement. EITF 00-21 does not allow revenue recognition unless the fair value of the undelivered element(s) is available and the element has stand-alone value to the customer. EITF 00-21 also provides guidance on allocating the total contract revenue to the
individual elements based upon the available fair value of each deliverable. Schlumberger is in the processThe implementation of determining if this pronouncement willdid not have a material impact on itsSchlumberger’s financial position or results of operations.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, (Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51). The primary objective of the interpretation is to provide guidance on the identification of, and financial reporting for entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities (VIE’s). FIN 46 provides guidance that determines (1) whether consolidation is required under the “controlling financial interest” model of Accounting Research Bulletin No. 51 (ARB 51),Consolidated Financial Statements, or other existing authoritative guidance, or, alternative, (2) whether the variable-interest model under FIN 46 should be used to account for existing and new entities. Schlumberger does not believe that the adoption of this statement will have a material effect on the financial position or results of operations.
In April 2003, the Financial Accounting Standards Board issued SFAS No. 149 (Amendment of Statement 133 on Derivative Instruments and Hedging Activities) which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133 (Accounting for Derivative Instruments and Hedging Activities). SFAS 149, which is to be applied prospectively, is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this new standard did not have a material impact on Schlumberger’s results of operations or financial position.
In May 2003, the Financial Accounting Standards Board, issued SFAS No. 150, (Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity). The Standard specifies that instruments within its scope embody obligations of the issues and therefore, the issuer must classify them as liabilities. The Standard was effective July 1, 2003, and had no material effect on Schlumberger’s financial position.
In January 2004, the Financial Accounting Standards Board issued FSP No. FAS 106-1 (Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003). The statement permits the deferral of accounting related to the effects of the legislation until the earlier of issuance of final accounting guidance by the FASB or a significant plan amendment/curtailment event requiring remeasurement, occurring after January 31, 2004. Schlumberger expects the new legislation will significantly reduce future postretirement medical costs.
3. Hanover Compressor TransactionCompany
In August 2001, Schlumberger sold its Oilfield Services worldwide gas compression activity to Hanover Compressor Company. The proceeds included common stock8.7 million shares of Hanover Compressor common stock, with a value at closing of $173 million, which is restricted from marketability until August 30, 2004, and a $150 million long-term subordinated note maturing December 15, 2005.
| 46 / SLB | 2003 FORM 10-K |
The market
Part II, Item 8
In the fourth quarter of 2003, Schlumberger sold the subordinated note for $177 million and realized a pretax gain of $32 million ($20 million after-tax).
At December 31, 2003 the carrying value of Schlumberger’s investment in Hanover Compressor common stock was $80 million as of December 31, 2002. Followingexceeded the decline inmarket value. As required by generally accepted accounting principles (SFAS 115), Schlumberger wrote down its investment to the fair market value of the stock below carrying value during the second quarter of 2002, Schlumberger has performed, and continues to perform, a periodic assessment in accordance with its policy to determine whether an other-than-temporary decline in fair value has occurred. Schlumberger evaluated the recoverability of its investment by reviewing recent information related to the industry and the operating results and financial position of Hanover Compressor and by considering Schlumberger’s requirement, ability and intent to hold the investment on a long-term basis. Schlumberger concluded that evidence existed$91.4 million at December 31, 2002 to support the recoverability2003 and recorded a pretax and after-tax charge of its carrying value, that there were no events or changes in circumstances specifically relating to the business prospects of Hanover Compressor, that the underlying business fundamentals are good with natural gas supplies reduced and higher natural gas prices in North America, that the decline in the market value of the stock is consistent with historical industry volatility and is largely attributable to the general market conditions. In addition, the recently announced Hanover cutbacks in workforce and capital expenditures coupled with no immediate debt maturities should provide adequate capital resources in the near-term. Schlumberger views the recent changes to Hanover Compressor’s senior management team as positive with respect to its investment. Accordingly, Schlumberger concluded that the decline in market value of its investment ($93 million) in Hanover Compressor as of December 31, 2002 was temporary in nature and has not reduced the cost basis of that investment. If the decline in value persists or should Schlumberger’s assessment change, Schlumberger would take a charge to its earnings for the amount that is deemed unrecoverable.
The $150 million long-term subordinated note has a mandatory prepayment upon the issuance, sale or other disposition by Hanover Compressor of any shares of capital stock or other equity interests pursuant to a public offering or a private placement otherwise prepayment is discretionary. As of December 31, 2002, Schlumberger considers the carrying value of the note to be fully collectible.
$81.2 million.
As part of the sale agreement, Schlumberger agreed that the financing of the PIGAP II joint venture in Venezuela would be non-recourse to the buyer and would be executed prior to December 31, 2002. Accordingly, Schlumberger was obligated, with respect to the financing, to guarantee 30% (approximately $80 million) until the project was completed in 2002 and, if as of December 31, 2002, refinancing had not become non-recourse to the buyer or the project had not achieved substantial completion, Hanover Compressor had an option to put its interest in the joint venture back to Schlumberger.
As Schlumberger originally deferred the gain on the sale of thePIGAP II joint venture in 2001, there would be no impact onVenezuela back to Schlumberger results of operations if certain financing conditions were not met. Hanover Compressor were todid not exercise itsthis option.
Subsequent event (unaudited)
As an outcome of the turmoil in Venezuela, although the project reached substantial completion, the non-recourse financing for the project was not achieved by December 31, 2002. On January 30, 2003, Hanover Compressor gave notice of its intention to exercise its right to put its ownership interest in the joint venture back to Schlumberger. The put is subject to certain consents and other conditions. Schlumberger’s obligation to provide a guarantee with respect to the financing was eliminated.
4. Charges – Continuing Operations
Schlumberger recorded the following charges/credits in continuing operations:
In December 2003, a pretax gain of $32 million ($20 million after-tax, $0.03 per share – diluted) resulting from the sale of the Hanover Compressor note. The pretax gain is classified inInterest and other incomein theConsolidated Statement of Income.
In December 2003, a pretax and after-tax charge of $81 million ($0.13 per share – diluted) relating to the write-down to fair market value of Schlumberger’s investment in Hanover Compressor common stock. The write-down was required by SFAS 115 as the decline in the market value of the stock is “other than temporary” and is classified inCost of goods sold and services in theConsolidated Statement of Income.
In September 2003, a pretax multiclient library impairment charge of $398 million ($205 million, $0.34 per share – diluted, after a tax credit of $106 million and a minority interest of $88 million), following an evaluation of current and expected future conditions in the seismic sector, a pretax seismic vessel impairment charge of $54 million ($38 million, $0.06 per share – diluted, after a minority interest credit of $16 million) and a $31 million pretax and after-tax gain ($0.05 per share – diluted) on the sale of a drilling rig. The pretax amounts are classified inCost of goods sold and services in theConsolidated Statement of Income.
Between June 12 and July 22, 2003 subsidiaries of Schlumberger launched and concluded tender offers to acquire three series of outstanding European bonds; $1.3 billion of principal was repurchased for a total cost of $1.5 billion, which included the premium, and issuing and tender costs. The total charge on the tenders was $168 million, of which $81.5 million was recorded in the second quarter of 2003, when the first tender closed, with the balance of $86.3 million recorded in the third quarter of 2003.
The total of the above 2003 charges was $440 million. A summary is as follows:
(Stated in millions) | ||||
Gain on sale of Hanover Compressor note | $ | (32 | ) | |
Write-down of Hanover Compressor stock | 81 | |||
Multiclient seismic library impairment | 398 | |||
Seismic vessel impairment | 54 | |||
Gain on sale of rig | (31 | ) | ||
Bond repurchase premium and costs | 168 | |||
Charges before tax and Minority interest | 638 | |||
Tax | (94 | ) | ||
Minority interest | (104 | ) | ||
| $ | 440 | |||
In December 2002, a net charge of $3,081 million ($5.30 per share). On December 10, 2002, Schlumberger announced that the Board of Directors had approved an updated strategy for its SchlumbergerSema business segment. The new strategic plan outlook, current business values and the reorganization of SchlumbergerSema constitute significant events that required an impairment analysis to be performed in accordance with FAS 142. SchlumbergerSema was ‘valued’ on a stand-alone basis; each reporting unit within SchlumbergerSema
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Part II, Item 8
was valued using a discounted cash flow analysis based on a long-term forecast prepared by SchlumbergerSema management with the assistance of a third party valuation expert. The implied multiples yielded by the discounted cash flow analysis were compared to observed trading multiples of comparable companies and recent transactions in the IT services industry to assess the fair value of the reporting units. The fair value was below the book value. As a result, goodwill was written down to its estimated fair value based on Schlumberger’s valuation. The impairment of goodwill mainly reflects the current difficulties of the telecommunications industry and the severely depressed market values of the IT companies serving SchlumbergerSema’s sector. Certain intangible assets were also identified and written down as part of this process.
Schlumberger recorded severance, facility and other costs in an effort to reduce costs at SchlumbergerSema and WesternGeco. These costs related to expenses that offer no future benefit to the ongoing operations of these businesses. During the fourth quarter, Schlumberger also recorded an impairment charge, to reflect a change in the business projections of the WesternGeco business, related to capitalized multiclient seismic library costs, a deferred tax valuation allowance and other costs.
The total of the above 2002 charges was $3,168 million. A summary, including the gain on the sale of drilling rigs of $87 million, is as follows:
Goodwill impairment | $ | 2,638 | ||
Intangibles impairment | 147 | |||
SchlumbergerSema severance & other | 97 | |||
WesternGeco severance & other | 117 | |||
Multiclient seismic library impairment | 184 | |||
Other | 42 | |||
Charges before tax and minority interest | 3,225 | |||
Tax1 | 33 | |||
Minority interest | (90 | ) | ||
| 3,168 | ||||
Gain on sale of drilling rigs | (87 | ) | ||
| $ | 3,081 | |||
| Includes deferred tax valuation allowance of $94 million. |
The above charges before tax and minority interest and the gain on sale of drilling rigs are recorded inCost of goods sold & services.
In March 2002, a charge of $29 million (pretax $30 million and minority interest credit of $1 million; $0.05 per share – diluted) related to the financial/economic crisis in Argentina where in January, the government eliminated all US dollar contracts and
converted US dollar denominated accounts receivable into pesos. As a result, Schlumberger’s currency exposure increased significantly. With currency devaluation, an exchange loss (net of hedging) on net assets, primarily customer receivables, was incurred. In addition, a provision was recorded for downsizing facilities and headcount. The small SchlumbergerSema exposure in Argentina was also provided for. The pretax change is classified inCost of goods sold and services in theConsolidated Statement of Income.
In MarchDecember 2001, a chargepretax credit of $25$119 million ($0.04(net – $5 million after-tax and minority interest, $0.01 per share – diluted) for in-process research and development related to, consisting primarily of the Bull CP8 acquisition.following:
| · | A credit of $223 million ($117 million after-tax) from the sale of the former Resource Management Services North American Water division. |
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 (Electricity and Water outside North America and worldwide Gas businesses). This charge included the writeoff of goodwill ($139 million) and cumulative translation adjustment ($79 million).
| · | 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 the prevailing business conditions. |
| · | A tax charge for reorganization costs of $29 million. |
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Part II, Item 8
| · | 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 write-down ($23 million after-tax and minority interest) for technological impairment related to certain Land seismic assets in the newly formed joint venture. |
In September 2001, a pretax credit of $42 million (after tax(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 (PIGAP II) would be non-recourse to the buyer and would be executed prior to December 31, 2002. Accordingly, Schlumberger was obligated with respect to the financing to guarantee 30% (approximately $80 million) until the project was completed in late 2002. If as of December 31, 2002 refinancing had 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 was deferred.
deferred and recognized in 2003.
In DecemberJune 2001, a pretax creditcharge of $119$280 million (net – $5 million after tax and minority interest, $0.01($0.48 per share – diluted), consisting primarily for the estimated impairment charge from the disposition of certain Resource Management Services businesses (Electricity and Water outside North America and worldwide Gas businesses). This charge included the following:write-off of goodwill ($139 million) and cumulative translation adjustment ($79 million).
In March 2001, a charge of $25 million ($0.04 per share – diluted) for in-process research and development related to the Bull CP8 acquisition.
The above 2001 pretax amounts are recorded: an aggregated $119 million charge inCost of goods sold and services, a $25 million charge inResearch & engineering and a $10 million credit inMinority 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:
The pretax gain on the sale of the Gas Services businesses is included inInterest & other income. The pretax Semiconductor Solutions and WesternGeco charges are included inCost of goods sold and services. A $9 million credit is included inMinority interest relating to the WesternGeco charges.
An analysis of the December 2002 pretax severance and facility charges is as follows:
| ($ stated in millions) | ($ stated in millions) | |||||||||||||||
(Stated in millions) | Severance | Facilities Amount | ||||||||||||||
Severance | Facilities | Amount | People | |||||||||||||
Amount | Headcount | Amount | ||||||||||||||
Charges | $ | 94.5 | 3,492 | $ | 42.8 | $ | 94.5 | 3,492 | $ | 42.8 | ||||||
Paid in December 2002 |
| 32.9 | 1,643 |
| 6.6 | 32.9 | 1,643 | 6.6 | ||||||||
Balance, December 31, 2002 | $ | 61.6 | 1,849 | $ | 36.2 | |||||||||||
Balance December 31, 2002 | 61.6 | 1,849 | 36.2 | |||||||||||||
Paid/reversed in 2003 | 60.6 | 1,841 | 25.1 | |||||||||||||
Balance December 31, 2003 | $ | 1.0 | 8 | $ | 11.1 | |||||||||||
The remaining severance costs are expected to be paid before September 30, 2003.
At December 31, 2003, the Severance balance of $1.0 million is classified asAccounts Payable and Accrued Liabilities and the Facilities balance of $11.1 million is classified inLiabilities held for sale on theConsolidated Balance Sheet.
The December 2001 charge included severance costs of $41 million (775 people) which have been paid.
The December 2000 charges included severance costs of $9 million (380 people) which have been paid.5. Acquisitions
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.
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On October 3, 2001, wholly owned subsidiaries of Schlumberger issued $1.9 billion European bonds (Euro 1.4 billion and £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 were being amortized on a straight-line basis in 2001. Effective January 1, 2002, with the adoption of SFAS 142 (seeNew Accounting Standards), amortization of goodwill and workforce ceased. Identifiable intangibles continue to be amortized on a straight-line basis over 10 years.Part II, Item 8
The aggregate value of goodwill and identifiable intangibles comprised the following:
| (Stated in billions) | ||||
Cost (including expenses) | $ | 5.15 | ||
Purchase accounting adjustments | 0.34 | |||
Net tangible assets acquired | (0.30 | ) | ||
| $ | 5.19 | |||
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. All remaining severance costs were paid in 2002.
For financial reporting purposes, Schlumberger included the results of operations of Sema in its consolidated accounts commencing April 1, 2001. If Sema had been included in the consolidated financial statements of Schlumberger from January 1, consolidated revenue for the twelve months ended December 31, 2001 would have increased by $538 million (unaudited) to $14.3 billion (unaudited) and consolidated net income would have decreased by approximately $140 million (unaudited), to $382 million (unaudited), related primarily to increased interest expense and amortization of intangibles, and 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 2002, subsidiaries of Schlumberger acquired the following:
| In March, Inside Reality, a Norwegian based company specializing in virtual reality technology for the oil and gas industry. The acquisition price was $18 million in cash. Assets acquired included intangible assets of $18 million. |
| In April, DBR International Inc., a Canadian based company which manufacturers fluid analysis equipment and provides fluid analysis consulting services to the oil and gas industry. The acquisition price was $12 million in cash. Assets acquired included $6 million of goodwill. |
| In April, |
| In December, Technoguide AS, a software leader in the reservoir modeling domain. The purchase price was $68 million comprising of $8 million in cash and 1.35 million shares of Schlumberger stock valued at $60 million. Assets acquired included goodwill of $23 million and $44 million of intangible assets (primarily Intellectual Property). |
These acquisitions were accounted for using the purchase method of accounting.
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, Infosynergy 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. |
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Part II, Item 8
| 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:
These acquisitions were accounted for using the purchase method of accounting.
ProformaPro forma results pertaining to the above acquisitions are not presented as the impact was not significant.
6. Sale of SchlumbergerSema to Atos Origin
On September 22, 2003, Schlumberger announced the signing of an agreement with Atos Origin for the sale of the SchlumbergerSema business.
On January 29, 2004 the sale transaction was completed. As consideration for the transaction, Schlumberger received €443 million ($550 million) in cash which included a working capital adjustment, and 19.3 million shares of common stock of Atos with a value of €1.02 billion ($1.275 billion), which represented approximately 29% of the outstanding common shares of Atos Origin after the transaction was completed. Schlumberger expects the result of the sale will be a gain which will be recorded as part ofDiscontinued Operationsin the first quarter of 2004.
On February 2, 2004 Schlumberger sold 9.6 million of the Atos Origin shares for a net consideration of €500 million ($625 million). As a result of this sale, Schlumberger’s investment was reduced to approximately 15% of the outstanding common shares of Atos Origin. Schlumberger will account for the remaining investment in Atos Origin on the cost method.
7. Investments in Affiliated Companies
Schlumberger and Smith International Inc. operate a drilling fluids joint venture of which Schlumberger owns a 40% interest and records income using the equity method of accounting. Schlumberger’s investment on December 31, 2003 and 2002 and 2001 was $592$657 million and $573$592 million, respectively. Schlumberger’s equity income from this joint venture in 20022003 was $52 million, $48 million in 2002 and $51 million in 2001 and $33 million in 2000.2001.
8. Investments
The Consolidated Balance Sheet reflects the Schlumberger investment portfolio separated between current and long term, based on maturity. Under normal circumstances it is the intent of Schlumberger to hold the investments until maturity, with the exception of investments which are considerconsidered trading (December 31, 2003 – $151 million; December 31, 2002 – $0: December 31, 2001 – $146 million)$0).
Fixed income investments mature as follows: $138of $223 million in 2004 and $270 millionmature in 2005.
On December 31, 2002,2003, there were no interest rate swap arrangements outstanding related to investments. Interest rate swap arrangements had no material effect on consolidated interest income.
9. Securitization
In September 2000, a wholly owned subsidiary of Schlumberger entered into an agreement to sell, on an ongoing basis, up to $220 million of an undivided interest in its accounts receivable, and subsequently amended up to $250 million. The amount of receivables sold under this agreement totaled $224 million at December 31, 2003 and $155 million at December 31, 2002 and $176 million at December 31, 2001.2002. Unless extended by amendment, the agreement expires in September 2003.2004.
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Part II, Item 8
10. Inventory
A summary of inventory follows:
(Stated in millions) | ||||||||||||
As at December 31, | 2002 | 2002 | ||||||||||
| (Stated in millions) | ||||||||||||
| As at December 31 | 2003 | 2002 | ||||||||||
Raw Materials & Field Materials | $ | 1,010 | $ | 1,087 | $ | 778 | $ | 1,010 | ||||
Work in Process |
| 118 |
| 180 | 96 | 118 | ||||||
Finished Goods |
| 138 |
| 220 | 62 | 138 | ||||||
| 1,266 |
| 1,487 | 936 | 1,266 | |||||||
Less reserves for obsolescence |
| 223 |
| 283 | 139 | 223 | ||||||
$ | 1,043 | $ | 1,204 | $ | 797 | $ | 1,043 | |||||
11. Assets held for sale and Liabilities held for sale
On September 22, 2003, Schlumberger announced the signing of an agreement, with Atos Origin, for the sale of its SchlumbergerSema business. On January 29, 2004 the sale transaction was completed. In accordance with generally accepted accounting principles, the assets and liabilities which will be eliminated from the SchlumbergerConsolidated Balance Sheet subsequent to the sale have been aggregated and presented on theConsolidated Balance Sheet at December 31, 2003 asAssets held for sale ($3.24 billion) andLiabilities held for sale ($1.22 billion).
An analysis of the Assets and Liabilities held for sale is as follows:
| (Stated in millions) | |||
Assets held for sale | |||
Receivables | $ | 978 | |
Inventories | 37 | ||
Other current assets | 159 | ||
Fixed assets | 481 | ||
Goodwill | 1,334 | ||
Intangible assets | 158 | ||
Deferred taxes | 35 | ||
Other assets | 56 | ||
| $ | 3,238 | ||
Liabilities held for sale | |||
Accounts payable and accrued liabilities | $ | 1,066 | |
Liability for taxes on income | 14 | ||
Other liabilities | 133 | ||
Minority interest | 5 | ||
| $ | 1,218 | ||
12. Fixed Assets
A summary of fixed assets follows:
| (Stated in millions) | ||||||||||||
(Stated in millions) | ||||||||||||
As at December 31, | 2002 | 2001 | 2003 | 2002 | ||||||||
Land | $ | 63 | $ | 82 | $ | 56 | $ | 63 | ||||
Buildings & Improvements |
| 1,225 |
| 1,050 | 1,239 | 1,225 | ||||||
Machinery & Equipment |
| 10,314 |
| 10,047 | 9,682 | 10,314 | ||||||
Total cost |
| 11,602 |
| 11,179 | 10,977 | 11,602 | ||||||
Less accumulated depreciation |
| 6,938 |
| 6,351 | 7,177 | 6,938 | ||||||
$ | 4,664 | $ | 4,828 | $ | 3,800 | $ | 4,664 | |||||
The estimated useful lives of Buildings & Improvements are primarily 30 to 40 years. For Machinery & Equipment, 11%12% is being depreciated over 16 to 25 years, 10% over 10 to 15 years and 79%78% over 2 to 9 years.
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Part II, Item 8
13. Multiclient Seismic Data
The change in the carrying amount of multiclient seismic data is as follows:
| (Stated in millions) | ||||||||||||||||
(Stated in millions) | ||||||||||||||||
| 2003 | 2002 | |||||||||||||||
2002 | 2001 | |||||||||||||||
Balance at beginning of year | $ | 1,029 |
| $ | 976 |
| $ | 1,018 | $ | 1,029 | ||||||
Capitalized in year |
| 345 |
|
| 416 |
| 150 | 345 | ||||||||
Charged to cost of sales |
| (172 | ) |
| (363 | ) | (263 | ) | (172 | ) | ||||||
Impairment, charged to income |
| (184 | ) |
| — |
| (399 | ) | (184 | ) | ||||||
Balance at end of year | $ | 1,018 |
| $ | 1,029 |
| $ | 506 | $ | 1,018 | ||||||
14. Goodwill
In June 2001, SFAS 142 (Goodwill and Other Intangible Assets) was issued, and adopted by Schlumberger commencing January 1, 2002. Amortization of goodwill and workforce ceased with effect from January 1, 2002. Assembled workforce, net of deferred taxes, of $175 million was reclassified toGoodwill.
Amortization of goodwill and other intangibles included in Schlumberger’s results are as follows:
| (Stated in millions) | |||||||||
| Pretax | |||||||||
| 2003 | 2002 | 2001 | |||||||
Goodwill | $ | – | $ | – | $ | 270 | |||
Workforce | – | – | 32 | ||||||
Other intangibles | 104 | 72 | 45 | ||||||
| $ | 104 | $ | 72 | $ | 347 | ||||
The change in the carrying amount of goodwill is as follows:
| (Stated in millions) | ||||||||||||||||
(Stated in millions) | ||||||||||||||||
| 2003 | 2002 | |||||||||||||||
2002 | 2001 | |||||||||||||||
Balance at beginning of year | $ | 6,261 |
| $ | 1,576 |
| $ | 4,230 | $ | 6,261 | ||||||
Reclassification of Assembled Workforce, net of deferred taxes1 |
| 175 |
|
| — |
| – | 175 | ||||||||
Impairment, charged to income |
| (2,638 | ) |
| — |
| – | (2,638 | ) | |||||||
Impact of change in exchange rates |
| 370 |
|
| (118 | ) | 488 | 370 | ||||||||
Amortization, charged to income |
| — |
|
| (261 | ) | ||||||||||
Other, including acquisitions and divestitures2 |
| 62 |
|
| 5,064 |
| ||||||||||
Reclassified toAssets held for sale | (1,334 | ) | – | |||||||||||||
Other, including acquisitions and divestitures | (100 | ) | 62 | |||||||||||||
Balance at end of year | $ | 4,230 |
| $ | 6,261 |
| $ | 3,284 | $ | 4,230 | ||||||
| 1. | Following adoption of SFAS 142 on January 1, 2002. |
The changes in the carrying amount of goodwill by business segment in 2003 is as follows:
| (Stated in millions) | |||||||||||||||||
Oilfield Services | Western- Geco | Schlumberger Sema | Other | Total | |||||||||||||
Balance at beginning of year | $ | 1,877 | $ | 215 | $ | 1,562 | $ | 576 | $ | 4,230 | |||||||
Other1 | 588 | 14 | (228 | ) | 14 | 388 | |||||||||||
Reclassified toAssets held for sale | – | – | (1,334 | ) | – | (1,334 | ) | ||||||||||
Balance at end of year | $ | 2,465 | $ | 229 | $ | – | $ | 590 | $ | 3,284 | |||||||
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Part II, Item 8
The changes in the carrying amount of goodwill by business segment in 2002 is as follows:
(Stated in millions) | |||||||||||||||
Oilfield Services | Schlumberger Sema | Other | Total | ||||||||||||
Balance at beginning of year | $ | 1,980 | $ | 3,952 |
| $ | 329 |
| $ | 6,261 |
| ||||
Reclassification of Assembled Workforce, net of deferred taxes |
| — |
| 175 |
|
| — |
|
| 175 |
| ||||
Impairment, charged to income |
| — |
| (2,618 | ) |
| (20 | ) |
| (2,638 | ) | ||||
Other1 |
| 112 |
| 53 |
|
| 267 |
|
| 432 |
| ||||
Balance at end of year | $ | 2,092 | $ | 1,562 |
| $ | 576 |
| $ | 4,230 |
| ||||
The changes in the carrying amount of goodwill by business segment in 2001 is as follows:
| (Stated in millions) | ||||||||||||||||||||||||||||||||||
(Stated in millions) | Oilfield Services | Western- Geco | Schlumberger Sema | Other | Total | |||||||||||||||||||||||||||||
Oilfield Services | Schlumberger Sema | Other | Total | |||||||||||||||||||||||||||||||
Balance at beginning of year | $ | 1,036 |
| $ | 213 |
| $ | 327 |
| $ | 1,576 |
| $ | 1,771 | $ | 209 | $ | 3,952 | $ | 329 | $ | 6,261 | ||||||||||||
Acquisition of Sema plc |
| 950 |
|
| 3,890 |
|
| — |
|
| 4,840 |
| ||||||||||||||||||||||
Amortization, charged to income |
| (62 | ) |
| (167 | ) |
| (32 | ) |
| (261 | ) | ||||||||||||||||||||||
Reclasification of Assembled Workforce, net of deferred taxes | – | – | 175 | – | 175 | |||||||||||||||||||||||||||||
Impairment, charged to income | – | – | (2,618 | ) | (20 | ) | (2,638 | ) | ||||||||||||||||||||||||||
Other1 |
| 56 |
|
| 16 |
|
| 34 |
|
| 106 |
| 106 | 6 | 53 | 267 | 432 | |||||||||||||||||
Balance at end of year | $ | 1,980 |
| $ | 3,952 |
| $ | 329 |
| $ | 6,261 |
| $ | 1,877 | $ | 215 | $ | 1,562 | $ | 576 | $ | 4,230 | ||||||||||||
| 1. | Including other acquisitions, divestitures and impact of change in exchange rates. |
15. Intangible Assets
A summary of intangible assets follows:
(Stated in millions) | ||||||||||||
| (Stated in millions) | ||||||||||||
| As at December 31, | 2003 | 2002 | ||||||||||
Dec. 31 2002 | Dec. 31 2001 | |||||||||||
Gross book value | $ | 953 | $ | 914 | $ | 796 | $ | 953 | ||||
Less: Accumulated amortization |
| 394 |
| 103 | 393 | 394 | ||||||
$ | 559 | $ | 811 | $ | 403 | $ | 559 | |||||
The amortization charged to income was $104 million in 2003 and $118 million in 2002. In accordance with SFAS 142 (see New Accounting Standards), $259 million (net of amortization) has been reclassified toGoodwill.
Intangible assets principally comprise patents, software, technology and other. At December 31, the gross book value, accumulated amortization and amortization periods of intangible assets were as follows:
(Stated in millions) | ||||||||||||||
2002 | 2001 | |||||||||||||
Gross Book Value | Accumulated Amortization | Gross Book Value | Accumulated Amortization | Amortization Periods | ||||||||||
Software | $ | 458 | $ | 164 | $ | 214 | $ | 44 | 5-10 years | |||||
Technology |
| 242 |
| 81 |
| 175 |
| 6 | 5-10 years | |||||
Patents |
| 174 |
| 124 |
| 143 |
| 29 | 5-10 years | |||||
Other1 |
| 79 |
| 25 |
| 382 |
| 24 | 1-15 years | |||||
$ | 953 | $ | 394 | $ | 914 | $ | 103 | |||||||
| (Stated in millions) | ||||||||||||||
| 2003 | 2002 | |||||||||||||
Gross Book Value | Accumulated Amortization | Gross Book Value | Accumulated Amortization | Amortization Periods | ||||||||||
Software | $ | 401 | $ | 146 | $ | 458 | $ | 164 | 5 – 10 years | |||||
Technology | 178 | 76 | 242 | 81 | 5 – 10 years | |||||||||
Patents | 171 | 143 | 174 | 124 | 5 – 10 years | |||||||||
Other | 46 | 28 | 79 | 25 | 1 – 15 years | |||||||||
| $ | 796 | $ | 393 | $ | 953 | $ | 394 | |||||||
The weighted average amortization period for all intangible assets is approximately 77.5 years.
Amortization charged to income for the subsequent five years is estimated, based on the December 31, 20022003 Gross Book Value, to be 2003 – $134 million, 2004 – $112$99 million, 2005 – $96$77 million, 2006 – $75$61 million, 2007 – $47 million and 20072008 – $56$37 million.
| 54 / SLB | 2003 FORM 10-K |
Part II, Item 8
16. Long-term Debt
A summary of long-term debt by currency, analyzed by Bonds, Commercial Paper (CP) and Other, at December 31 follows:
| (Stated in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
(Stated in millions) | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||
2002 | 2001 | Bonds | CP | Others | Total | Bonds | CP | Others | Total | |||||||||||||||||||||||||||||||||||||||
Bonds | CP | Others | Total | Bonds | CP | Others | Total | |||||||||||||||||||||||||||||||||||||||||
US dollar | $ | 997 | $ | 724 | $ | 407 | $ | 2,128 | $ | — | $ | 335 | $ | 2,859 | $ | 3,194 | $ | 2,422 | $ | 1,475 | $ | 335 | $ | 4,232 | $ | 997 | $ | 724 | $ | 407 | $ | 2,128 | ||||||||||||||||
Euro |
| 1,399 |
| 442 |
| 237 |
| 2,078 |
| 1,188 |
| — |
| 377 |
| 1,565 | 665 | 6 | 284 | 955 | 1,399 | 442 | 237 | 2,078 | ||||||||||||||||||||||||
UK pound |
| 676 |
| 579 |
| 122 |
| 1,377 |
| 615 |
| — |
| 586 |
| 1,201 | 339 | 24 | 135 | 498 | 676 | 579 | 122 | 1,377 | ||||||||||||||||||||||||
Canadian dollar |
| 116 |
| — |
| 75 |
| 191 |
| 115 |
| — |
| 14 |
| 129 | 93 | – | – | 93 | 116 | – | 75 | 191 | ||||||||||||||||||||||||
Japanese yen |
| — |
| — |
| 58 |
| 58 |
| — |
| — |
| 107 |
| 107 | – | – | 46 | 46 | – | – | 58 | 58 | ||||||||||||||||||||||||
Norwegian kroner | – | – | 221 | 221 | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||
Other |
| — |
| — |
| 197 |
| 197 |
| — |
| — |
| 20 |
| 20 | – | – | 52 | 52 | – | – | 197 | 197 | ||||||||||||||||||||||||
$ | 3,188 | $ | 1,745 | $ | 1,096 | $ | 6,029 | $ | 1,918 | $ | 335 | $ | 3,963 | $ | 6,216 | $ | 3,519 | $ | 1,505 | $ | 1,073 | $ | 6,097 | $ | 3,188 | $ | 1,745 | $ | 1,096 | $ | 6,029 | |||||||||||||||||
During January 2002, twoOn June 9, 2003, Schlumberger Limited issued $850 million aggregate principal amount of 1.5% Series A Convertible Debentures due June 1, 2023 and $450 million aggregate principal amount of 2.125% Series B Convertible Debentures due June 1, 2023. On July 2, 2003, Schlumberger Limited issued an additional $125 million aggregate principal amount of the Series A debentures pursuant to an option granted to the initial purchasers.
The debentures were sold to Citigroup Global Markets Inc. and Goldman, Sachs & Co. pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The debentures were resold, with registration rights, by the initial purchasers in transactions exempt from registration under Rule 144A of the Securities Act. The aggregate offering price of the debentures was $1.425 billion, the initial purchasers’ discount was $25.4 million and the net proceeds to Schlumberger Limited were $1.4 billion.
The Series A debentures and the Series B debentures are convertible, at the holders’ option, into shares of common stock of Schlumberger Limited. Holders of the Series A debentures may convert their debentures into common stock at a conversion rate of 13.8255 shares for each $1,000 principal amount of Series A debentures (equivalent to an initial conversion price of $72.33 per share). Holders of the Series B debentures may convert their debentures into common stock at a conversion rate of 12.5 shares for each $1,000 principal amount of Series B debentures (equivalent to an initial conversion price of $80.00 per share). Each conversion rate may be adjusted for certain events, but it will not be adjusted for accrued interest.
On or after June 6, 2008 (in the case of the Series A debentures) or June 6, 2010 (in the case of the Series B debentures), Schlumberger may redeem for cash all or part of the applicable series of debentures, upon notice to the holders, at the redemption prices of 100% of the principal amount of the debentures, plus accrued and unpaid interest to the date of redemption. On June 1, 2008, June 1, 2013, and June 1, 2018, holders of Series A debentures may require Schlumberger to repurchase their Series A debentures. On June 1, 2010, June 1, 2013 and June 1, 2018, holders of Series B debentures may require Schlumberger to repurchase their Series B debentures. The repurchase price will be 100% of the principal amount of the debentures plus accrued and unpaid interest to the repurchase date. The repurchase price for repurchases on June 1, 2008 (in the case of the Series A debentures) and June 1, 2010 (in the case of the Series B debentures) will be paid in cash. On the other repurchase dates, Schlumberger may choose to pay the repurchase price in cash or common stock or any combination of cash and common stock. In addition, upon the occurrence of a Fundamental Change, holders may require Schlumberger to repurchase all or a portion of their debentures, in cash or, at Schlumberger’s election, common stock valued at 99% of its market price or any combination of cash and common stock, at a repurchase price equal to 100% of the principal amount of the debentures plus accrued and unpaid interest to the redemption date. The debentures will mature on June 1, 2023 unless earlier redeemed or repurchased.
| 55 / SLB | 2003 FORM 10-K |
Part II, Item 8
Between June 12 and July 22, 2003, certain subsidiaries of Schlumberger in Europe initiatedlaunched and concluded a Euro commercial paper program,tender offer on three of its outstanding European bonds. The companies bought back $1.3 billion of principal of these bonds for a total cost of $1.5 billion, which is guaranteed by Schlumberger Limitedincludes the premium, and supported by a long-term credit facility. issuing and tender costs. The total charge on the tender was $168 million.
Commercial paper borrowings are classified as long-term debt to the extent of their backup by available and unused committed facilities maturing in more than one yearone-year and the intent to maintain these obligations for longer than one year.
On April 4, 2002, the principal US subsidiary of Schlumberger issued $1 billion of 10 year notes with a coupon rate of 6.50% in the US market. The notes were issued under rule 144A without registration rights for life. The fair market value at December 31, 2002 was $1,112 million.
At December 31, 2002, the borrowings in euro included $881 million of bonds at 5.25% due in 2008 and $518 million of bonds at 5.875% due in 2011 issued in the Euro market by the principal subsidiary in France. The aggregate fair market value at December 31, 2002 was $1,483 million.
At December 31, 2002, the borrowings in UK pound included $398 million of bonds at 6.25% due in 2008 and $278 million of bonds at 6.50% due in 2032 issued in the Euro market by the principal subsidiary in the UK. The aggregate fair market value at December 31, 2002 was $734 million.
The remainder of the long-term debt is at variable interest rates. Such rates are reset every six months or sooner. The carrying value of this long-term debt on December 31, 2002 approximates its fair market value. The weighted-average interest rate of the total debt outstanding on December 31, 2002 was 5.0%, including the effect of the interest rate swaps discussed below.
Long-term debt on December 31, 2002,2003, is due as follows: $410 million in 2004, $355follows $552 million in 2005, $315$314 million in 2006, $1,835$1,755 million in 2007, $1,394 million in 2008 and $3,114$2,082 million thereafter.
On December 31, 2002,2003, interest rate swap arrangements outstanding were: pay fixed/receive floating on US dollar debt of $800$500 million; pay fixed/receive floating on Japanese yen debt of $67$37 million. These arrangements mature at various dates to December 2009. Interest rate swap arrangements increased consolidated interest expense in 20022003 by $37$30 million.
17. Lines of Credit
On December 31, 2002,2003, wholly owned subsidiaries of Schlumberger had separate lines of credit agreements aggregating $7.7$6.7 billion with commercial banks, of which $7.3$6.5 billion was committed and $3.7$2.6 billion was available and unused. It included $4.6$3.7 billion of committed facilities, which support borrowings under commercial paper programs in the United States and Europe, of which $3.6 billion maturesmaturing in January 2007 and $1 billion which matured2007. On December 31, 2003 a principal subsidiary of Schlumberger in January 2003 was renewed forthe United States canceled its $500 million.million 364-day backstop facility. Interest rates and other terms of borrowing under these lines of credit vary from country to country.
18. Derivative Instruments and Hedging Activities
Commencing January 1, 2001, Schlumberger adopted SFAS 133 (Accounting for Derivative Instruments and Hedging Activities). Schlumberger uses derivative instruments such as interest rate swaps, currency
swaps, forward currency contracts and foreign currency options. Forward currency contracts provide a hedge against currency fluctuations on assets/liabilities denominated in other than a functional currency. Options are usually entered into as a hedge against currency variations on firm commitments generally involving the construction of long-lived assets.
Schlumberger maintains a foreign-currency risk management strategy that uses derivative instruments to protect its interests from unanticipated fluctuations in earnings and cash flows caused by volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to Schlumberger’s operations as exchange rate changes may affect profitability and cash flow. Schlumberger uses foreign currency forward exchange contracts, swaps and options. Schlumberger also maintains an interest rate risk management strategy that uses fixed rate debt and derivatives to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility.
Schlumberger’s specific goals are (1) to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain of its debt and (2) to lower (where possible) the cost of borrowed funds.
By using derivative financial instruments to hedge exposure to changes in exchange rates and interest rates, Schlumberger exposes itself to credit risk and market risk. Schlumberger minimizes the credit risk by entering into transactions with high-quality counterparties, limiting the exposure to each counterparty and monitoring the financial condition of its counterparties. Market risk is managed through the setting and monitoring of parameters that limit the types and degree of market risk which are acceptable.
At December 31, 2002,2003, Schlumberger recognized a net $83$23 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.
| 56 / SLB | 2003 FORM 10-K |
Part II, Item 8
19. Capital Stock
Schlumberger is authorized to issue 1,500,000,000 shares of common stock, par value $0.01 per share, of which 582,173,115585,948,328 and 575,890,398582,173,115 shares were outstanding on December 31, 20022003 and 2001,2002, 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.
20. Stock Compensation Plans
As of December 31, 2002,2003, Schlumberger had two types of stock-based compensation plans, which are described below. Effective January 1, 2003, Schlumberger adopted the fair value recognition provisions of SFAS Nos. 123 and 148. Schlumberger recorded stock option and discounted stock purchase plan (DSPP) expenses in theConsolidated Statement of Income starting in the third quarter of 2003 on a prospective basis for grants after January 1, 2003. The effect of this adoption on 2003 net income was $13 million ($0.02 per share). Schlumberger applies the intrinsic value method of 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.grants prior to January 1, 2003. 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) | ||||||||||
2002 | 2001 | 2000 | ||||||||
Net income (loss) | ||||||||||
As reported | $ | (2,320 | ) | $ | 522 | $ | 735 | |||
Pro forma | $ | (2,476 | ) | $ | 386 | $ | 633 | |||
Basic earnings (loss) per share | ||||||||||
As reported | $ | (4.01 | ) | $ | 0.91 | $ | 1.29 | |||
Pro forma | $ | (4.28 | ) | $ | 0.67 | $ | 1.11 | |||
Diluted earnings (loss) per share | ||||||||||
As reported | $ | (4.01 | ) | $ | 0.91 | $ | 1.27 | |||
Pro forma | $ | (4.28 | ) | $ | 0.67 | $ | 1.09 | |||
Net income (loss) As reported Pro forma adjustments: Cost of DSPP Cost of Stock Options Tax benefit Pro forma Basic earnings (loss) per share As reported Pro forma adjustments: Cost of DSPP Cost of Stock Options Tax benefit Pro forma Diluted earnings (loss) per share As reported Pro forma adjustments: Cost of DSPP Cost of Stock Options Tax benefit Pro forma(Stated in millions except per share amounts) 2003 2002 2001 $ 383 $ (2,320 ) $ 522 (18 ) (42 ) (29 ) (81 ) (120 ) (115 ) 8 6 8 $ 292 $ (2,476 ) $ 386 $ 0.66 $ (4.01 ) $ 0.91 (0.03 ) (0.07 ) (0.05 ) (0.14 ) (0.21 ) (0.20 ) 0.01 0.01 0.01 $ 0.50 $ (4.28 ) $ 0.67 $ 0.66 $ (4.01 ) $ 0.91 (0.03 ) (0.07 ) (0.05 ) (0.14 ) (0.21 ) (0.20 ) 0.01 0.01 0.01 $ 0.50 $ (4.28 ) $ 0.67
Stock Option Plans
During 2003, 2002, 2001 2000 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 generally ten years, and options generally vest in 20% increments over four or five years.years, and with respect to the July 2003 grant awards were capped at 125% of exercise price.
| 57 / SLB | 2003 FORM 10-K |
Part II, Item 8
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 2003, 2002 2001 and 2000:2001: dividend of $0.75; expected volatility of 32-36%34%-37% for 2003 grants, 32%-36% for 2002 grants and 32-35% for 2001 grants; risk-free interest rates for the 2003 grants of 2.83%-3.51% for officers and 27-33% for 2000 grants;all other employees; risk-free interest rates for the 2002 grants of 4.34%-5.25% for officers and 3.04%-4.73% for the 2002 grants to all other employees; 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 grantsand expected option lives of 5.75%-6.84%4.71 years for officers and 5.69%-6.72%other employees for the 20002003 grants, to all other employees; and expected option lives of 6.6 years for officers and 5.07 years for other employees for 2002 grants, 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.
A summary of the status of the Schlumberger stock option plans as of December 31, 2003, 2002 2001 and 2000,2001, and changes during the years ending on those dates is presented below:
2002 | 2001 | 2000 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||
Fixed Options | Shares | Weighted- average exercise price | Shares | Weighted- average exercise price | Shares | Weighted- average exercise price | Shares | Weighted- average exercise price | Shares | Weighted- average exercise price | Shares | Weighted- average exercise price | |||||||||||||||||||||||||||
Outstanding at beginning of year |
| 32,836,340 |
| $55.80 |
| 31,208,321 |
| $54.43 |
| 31,613,924 |
| $37.91 | 36,869,684 | $ | 57.03 | 32,836,340 | $ | 55.80 | 31,208,321 | $ | 54.43 | ||||||||||||||||||
Granted |
| 7,314,617 |
| $55.14 |
| 4,110,468 |
| $61.55 |
| 5,643,500 |
| $79.64 | 3,460,150 | $ | 45.04 | 7,314,617 | $ | 55.14 | 4,110,468 | $ | 61.55 | ||||||||||||||||||
Exercised |
| (2,296,593 | ) | $30.02 |
| (1,444,588 | ) | $31.88 |
| (5,447,870 | ) | $30.76 | (1,319,174 | ) | $ | 30.68 | (2,296,593 | ) | $ | 30.02 | (1,444,588 | ) | $ | 31.88 | |||||||||||||||
Forfeited |
| (984,680 | ) | $66.69 |
| (1,037,861 | ) | $71.27 |
| (601,233 | ) | $62.03 | (1,454,113 | ) | $ | 66.92 | (984,680 | ) | $ | 66.69 | (1,037,861 | ) | $ | 71.27 | |||||||||||||||
Outstanding at year-end |
| 36,869,684 |
| $57.03 |
| 32,836,340 |
| $55.80 |
| 31,208,321 |
| $54.43 | 37,556,547 | $ | 56.50 | 36,869,684 | $ | 57.03 | 32,836,340 | $ | 55.80 | ||||||||||||||||||
Options exercisable at year-end |
| 21,142,473 |
|
| 19,724,680 |
|
| 16,277,868 |
| 23,460,758 | 21,142,473 | 19,724,680 | |||||||||||||||||||||||||||
Weighted-average fair | $ | 20.22 |
| $ | 21.51 |
| $ | 30.03 |
| $ | 10.30 | $ | 20.22 | $ | 21.51 | ||||||||||||||||||||||||
The following table summarizes information concerning currently outstanding and exercisable options by five ranges of exercise prices on December 31, 2002:2003:
Options Outstanding | Options Exercisable | |||||||||||
Range of | Number outstanding as of 12/31/02 | Weighted- | Weighted- average exercise price | Number exercisable as of 12/31/02 | Weighted- average exercise price | |||||||
$ 3.831 - $22.073 | 114,170 | 2.71 | $ | 18.925 | 114,170 | $ | 18.925 | |||||
$24.142 - $30.710 | 5,354,259 | 2.18 | $ | 27.634 | 5,354,259 | $ | 27.634 | |||||
$30.795 - $44.843 | 4,290,878 | 3.97 | $ | 39.264 | 3,883,836 | $ | 38.990 | |||||
$46.075 - $65.330 | 16,516,490 | 7.96 | $ | 56.343 | 4,528,477 | $ | 55.207 | |||||
$71.315 - $82.348 | 10,593,887 | 6.28 | $ | 80.566 | 7,261,731 | $ | 80.811 | |||||
36,869,684 | 6.16 | $ | 57.030 | 21,142,473 | $ | 53.844 | ||||||
Range of exercise prices Number outstanding as of 12/31/03 Weighted- average remaining contractual life Weighted- average exercise price Number exercisable as of 12/31/03 Weighted- average exercise price $ 3.831 – $22.073 $24.142 – $30.710 $30.795 – $44.843 $46.020 – $65.330 $71.315 – $82.348 Options Outstanding Options Exercisable 86,503 1.83 $ 19.655 86,503 $ 19.655 4,426,622 1.39 $ 27.624 4,426,622 $ 27.624 4,637,754 3.94 $ 39.620 3,671,853 $ 39.197 18,470,275 7.39 $ 54.843 7,326,837 $ 55.694 9,935,393 5.28 $ 80.636 7,948,943 $ 80.659 37,556,547 5.68 $ 56.497 23,460,758 $ 56.141
Employee Stock Purchase Plan
Under the Schlumberger Discounted Stock Purchase Plan, Schlumberger is authorized to issue up to 22,012,245 shares of common stock to its employees. Under the terms of the Plan, employees can choose each year to have up to 10% of their annual earnings withheld to purchase Schlumberger common stock. TheEffective July 1, 2003 the purchase price of the stock is 85%was 92.5% of the lower of its beginning or end of the Plan year market price.price at six month intervals. Prior to July 1, 2003, the purchase price was 85% at one year intervals. Under the Plan, Schlumberger sold 2,464,088, 2,677,842 1,752,833 and 1,431,3091,752,833 shares to employees in 2003, 2002 and 2001, and 2000, respectively. ProformaPro forma 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 2003, 2002 2001 and 2000:2001: Dividend of $0.75; expected lifevolatility of one year; expected volatility of28% for 2003, 34% for 2002 and 36% for 2001 and 38% for 2000;2001; and risk-free interest rates of 0.75% for 2003, 1.74% for 2002, 3.03% for 2001, 5.71% for 2000.2001. The weighted-average fair value of those purchase rights granted in 2003, 2002 and 2001, was $7.910, $13.324 and 2000, was $13.324, $15.540, and $23.141, respectively.
| 58 / SLB | 2003 FORM 10-K |
Part II, Item 8
21. 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 2003, the pretax loss in the US included the WesternGeco multiclient impairment charge of $283 million and a net pretax charge of $32 million related to Hanover Compressor. In 2002, pretax book income in the US included gains from a business divestiture aggregating approximately $143 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) | |||||||||||||||||||||
(Stated in millions) | 2003 | 2002 | 2001 | ||||||||||||||||||
2002 | 2001 | 2000 | |||||||||||||||||||
United States | $ | 146 |
| $ | 700 | $ | 48 | $ | (177 | ) | $ | 149 | $ | 714 | |||||||
Outside United States |
| (2,376 | ) |
| 373 |
| 889 | 745 | (2,376 | ) | 373 | ||||||||||
Pretax income | $ | (2,230 | ) | $ | 1,073 | $ | 937 | $ | 568 | $ | (2,227 | ) | $ | 1,087 | |||||||
Schlumberger hashad net deferred tax assets of $583 million onat December 31, 20022003 of $632 million including a partial valuation allowance of $147$325 million relating to a certain European net operating loss, and $488$583 million onat December 31, 2001.2002. Significant components of net deferred tax assets at December 31, 2003 included postretirement and other long-term benefits ($213 million), current employee benefits ($183 million), fixed assets, inventory and other ($194 million) and net operating losses ($367 million less a partial valuation allowance of $325 million). At December 31, 2002, it included postretirement and other long-term benefits ($200 million), current employee benefits ($225 million), fixed assets, inventory and other ($123 million) and net operating losses ($182 million less a partial valuation allowance of $147 million). At December 31, 2001, it included postretirement and other long-term benefits ($186 million), current employee benefits ($93 million), fixed assets, inventory and other ($120 million) and net operating losses ($49 million).
The components of consolidated income tax expense from continuing operations were as follows:
(Stated in millions) | ||||||||||||
2002 | 2001 | 2000 | ||||||||||
Current: | ||||||||||||
United States - Federal | $ | 22 |
| $ | 332 |
| $ | 21 |
| |||
United States - State |
| 1 |
|
| 43 |
|
| 4 |
| |||
Outside United States |
| 182 |
|
| 179 |
|
| 186 |
| |||
$ | 205 |
| $ | 554 |
| $ | 211 |
| ||||
Deferred: | ||||||||||||
United States - Federal | $ | 28 |
| $ | 5 |
| $ | (4 | ) | |||
United States - State |
| 2 |
|
| 3 |
|
| (2 | ) | |||
Outside United States |
| (103 | ) |
| (8 | ) |
| 13 |
| |||
Valuation allowance |
| 147 |
|
| — |
|
| — |
| |||
$ | 74 |
| $ | — |
| $ | 7 |
| ||||
Consolidated taxes on income | $ | 279 |
| $ | 554 |
| $ | 218 |
| |||
(Stated in millions) Current: United States – Federal United States – State Outside United States Deferred: United States – Federal United States – State Outside United States Valuation allowance Consolidated taxes on income 2003 2002 2001 $ 96 $ 25 $ 342 19 1 43 191 182 179 $ 306 $ 208 $ 564 $ (128 ) $ 28 $ 5 (22 ) 2 3 (24 ) (103 ) (8 ) 77 147 – $ (97 ) $ 74 $ – $ 209 $ 282 $ 564
Schlumberger reported several charges/credits in continuing operations in each of the three years. These are more fully described in the noteCharges – Continuing Operations on page 45.48 of this Report. A reconciliation of the US statutory federal tax rate (35%) to the consolidated effective tax rate is:
| 2003 | 2002 | 2001 | ||||||||||||||||||||
2002 | 2001 | 2000 | ||||||||||||||||||||
US federal statutory (benefit) rate | (35 | )% | 35 | % | 35 | % | 35 | (35 | ) | 35 | ||||||||||||
US state income taxes | — | % | 2 | % | — | % | – | – | 2 | |||||||||||||
Non US income taxed at different rates | (6 | )% | (5 | )% | (12 | )% | (16 | ) | (6 | ) | (5 | ) | ||||||||||
Valuation allowance | 7 | % | — | % | — | % | 6 | 7 | – | |||||||||||||
Charges and credits | 47 | % | 20 | % | — | % | 12 | 47 | 20 | |||||||||||||
Effective income tax rate | 13 | % | 52 | % | 23 | % | 37 | 13 | 52 | |||||||||||||
Schlumberger’s effective tax rate, excluding charges and credits, was 26%25%, 32%26% and 23%33% in 2003, 2002 2001 and 20002001 respectively.
| 59 / SLB | 2003 FORM 10-K |
Part II, Item 8
22. Leases and Lease Commitments
Total rental expense was $532 million in 2003, $458 million in 2002 and $390 million in 2001 and $287 million in 2000.2001. Future minimum rental commitments under noncancelable leases for years ending December 31 are: $219 million in 2003; $187$344 million in 2004; $130$281 million in 2005; $109$241 million in 2006; and $117$191 million in 2007.2007; and $175 million in 2008. For the ensuing three five-year periods, these commitments decrease from $309$258 million to $19$3 million. The minimum rentals over the remaining terms of the leases aggregate to $29$24 million.
23. 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, the risk of personal injury, natural resource or property damage claims 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.
24. Segment Information
Schlumberger operates threefour reportable business segments: Oilfield Services (OFS), WesternGeco, SchlumbergerSema (SLSEMA) and Other.
The current SchlumbergerSema segment only includes operations that were sold to Atos Origin on January 29, 2004. The segment information has been reclassified to conform to the current year presentation.
The Oilfield Services segment falls into four clearly defined economic and geographical areas and is evaluated on the following basis: North America is a major self-contained market; Latin America comprises regional markets that share a common dependence on the United States; Europe is a major self-contained market that includes the CIS and West Africa, whose economy is increasingly linked to that of Europe; Middle East/East & Asia 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 WesternGeco segment provides comprehensive worldwide reservoir imaging, monitoring, and development services, with extensive seismic crews and data processing centers, as well as a large multiclient seismic library. Services range from 3D and time-lapse (4D) seismic surveys to multi-component surveys for delineating prospects and reservoir management. WesternGeco is 70% owned by Schlumberger and 30% owned by Baker Hughes.
The SchlumbergerSema segment falls into three clearly defined economic and geographic areas and is evaluated on the following basis: North and South America is a major self-contained market; Europe is a major
| 60 / SLB | 2003 FORM 10-K |
Part II, Item 8
self-contained market that includes the Middle East and Africa; Asia includes the remainder of the Eastern Hemisphere. The SchlumbergerSema segment is a leading information technology services company providing domain expertise and global capabilities delivered on a local basis. SchlumbergerSema has proven capabilities delivering consulting, systems integration, managed services and products serving the telecommunications, energy & utilities, finance, transport and public sector markets and oil and gas markets.
On September 22, 2003, Schlumberger announced the signing of an agreement with Atos Origin for the sale of the SchlumbergerSema business. The sale closed on January 29, 2004.
The Other segment comprises principally the Cards, Terminals,Axalto (Cards and Point-of-Sale Terminals), Electricity Meters, North AmericaBusiness Continuity, Infodata, Telecom Software Products, Water Services, Essentis and NPTestPayphones activities. In 2001, and 2000, also included areis the divested Resource Management Services businesses.
business.
Financial information for the years ended December 31, 2003, 2002 2001 and 2000,2001, by segment, is as follows:
(Stated in millions) | |||||||||||||||||||||||||||||
2 0 0 2 | |||||||||||||||||||||||||||||
Revenue | Income after tax & MI | Minority Interest | Tax Expense | Income before tax | Assets | Depn. & Amortn. | Capital Expenditure | ||||||||||||||||||||||
OFS | |||||||||||||||||||||||||||||
North America | $ | 2,780 |
| $ | 254 |
| $ | — |
| $ | 155 |
| $ | 409 |
| $ | 3,154 | $ | 456 | $ | 576 | ||||||||
Latin America |
| 1,471 |
|
| 148 |
|
| — |
|
| 27 |
|
| 175 |
|
| 1,443 |
| 175 |
| 143 | ||||||||
Europe/CIS/W. Africa |
| 2,678 |
|
| 245 |
|
| — |
|
| 77 |
|
| 322 |
|
| 1,919 |
| 291 |
| 311 | ||||||||
Middle East/Asia |
| 2,368 |
|
| 394 |
|
| — |
|
| 63 |
|
| 457 |
|
| 2,024 |
| 277 |
| 284 | ||||||||
Eliminations/Other |
| 50 |
|
| (54 | ) |
| 1 |
|
| 18 |
|
| (35 | ) |
| 2,762 |
| 58 |
| 126 | ||||||||
| 9,347 |
|
| 987 |
|
| 1 |
|
| 340 |
|
| 1,328 |
|
| 11,302 |
| 1,257 |
| 1,440 | |||||||||
SLSEMA | |||||||||||||||||||||||||||||
North & South America |
| 545 |
|
| (28 | ) |
| — |
|
| (15 | ) |
| (43 | ) |
| 625 |
| 40 |
| 88 | ||||||||
Europe/M. East/Africa |
| 2,317 |
|
| 121 |
|
| 2 |
|
| 45 |
|
| 168 |
|
| 2,541 |
| 121 |
| 95 | ||||||||
Asia |
| 213 |
|
| 2 |
|
| — |
|
| 3 |
|
| 5 |
|
| 369 |
| 34 |
| 27 | ||||||||
Eliminations/Other |
| (84 | ) |
| (74 | ) |
| (1 | ) |
| (21 | ) |
| (96 | ) |
| 393 |
| — |
| — | ||||||||
| 2,991 |
|
| 21 |
|
| 1 |
|
| 12 |
|
| 34 |
|
| 3,928 |
| 195 |
| 210 | |||||||||
OTHER |
| 1,442 |
|
| 14 |
|
| 2 |
|
| 4 |
|
| 20 |
|
| 1,451 |
| 76 |
| 32 | ||||||||
Corporate eliminations & Other |
| (306 | ) |
| (34 | ) |
| (4 | ) |
| (110 | ) |
| (148 | ) |
| 2,644 |
| 17 |
| 29 | ||||||||
$ | 13,474 |
| $ | 988 |
| $ | — |
| $ | 246 |
| $ | 19,325 | $ | 1,545 | $ | 1,711 | ||||||||||||
Interest Income |
| 68 |
| ||||||||||||||||||||||||||
Interest Expense |
| (364 | ) | ||||||||||||||||||||||||||
Charges |
| (3,168 | ) | ||||||||||||||||||||||||||
$ | (2,230 | ) | |||||||||||||||||||||||||||
(Stated in millions) OFS North America Latin America Europe/CIS/W. Africa Middle East & Asia Elims/Other WESTERNGECO SLSEMA North & South America Europe/M. East/Africa Asia Elims/Other OTHER Corporate eliminations & Other Interest Income Interest Expense Charges 2003 Revenue Income
after tax
& Min.
Int. Minority
Interest Tax
Expense Income
before tax
& Min. Int. Assets Depn. &
Amortn. Capital
Expenditure $ 2,626 $ 234 $ – $ 131 $ 365 $ 1,818 $ 265 $ 140 1,439 177 – 44 221 1,136 153 102 2,605 379 – 81 460 1,644 218 167 2,090 451 – 58 509 1,443 206 246 63 (47 ) – 28 (19 ) 3,482 30 114 8,823 1,194 – 342 1,536 9,523 872 769 1,183 (17 ) (7 ) 4 (20 ) 1,644 442 240 350 2 – 1 3 535 41 27 2,194 30 1 14 45 2,256 64 51 144 29 – 5 34 367 22 17 (11 ) (23 ) – 2 (21 ) 80 17 – 2,677 38 1 22 61 3,238 144 95 1,480 72 – 37 109 1,498 87 59 (270 ) 104 (108 ) (196 ) (200 ) 4,138 26 12 $ 13,893 $ 1,391 $ (114 ) $ 209 $ 20,041 $ 1,571 $ 1,175 49 (329 ) (638 ) $ 568
(Stated in millions) | |||||||||||||||||||||||||||||
2 0 0 1 | |||||||||||||||||||||||||||||
Revenue | Income after tax & MI | Minority Interest | Tax Expense | Income before tax | Assets | Depn. & Amortn. | Capital Expenditure | ||||||||||||||||||||||
OFS | |||||||||||||||||||||||||||||
North America | $ | 3,654 |
| $ | 534 |
| $ | — |
| $ | 318 |
| $ | 852 |
| $ | 3,070 | $ | 602 | $ | 999 | ||||||||
Latin America |
| 1,574 |
|
| 161 |
|
| — |
|
| 39 |
|
| 200 |
|
| 1,582 |
| 163 |
| 238 | ||||||||
Europe/CIS/W. Africa |
| 2,341 |
|
| 264 |
|
| — |
|
| 80 |
|
| 344 |
|
| 2,022 |
| 275 |
| 320 | ||||||||
Middle East/Asia |
| 2,162 |
|
| 388 |
|
| — |
|
| 67 |
|
| 455 |
|
| 1,741 |
| 257 |
| 396 | ||||||||
Eliminations/Other |
| 136 |
|
| (93 | ) |
| 35 |
|
| 10 |
|
| (48 | ) |
| 2,532 |
| 36 |
| 159 | ||||||||
| 9,867 |
|
| 1,254 |
|
| 35 |
|
| 514 |
|
| 1,803 |
|
| 10,947 |
| 1,333 |
| 2,112 | |||||||||
SLSEMA | |||||||||||||||||||||||||||||
North & South America |
| 523 |
|
| (25 | ) |
| — |
|
| (27 | ) |
| (52 | ) |
| 906 |
| 33 |
| 108 | ||||||||
Europe/M. East/Africa |
| 1,714 |
|
| 93 |
|
| — |
|
| 33 |
|
| 126 |
|
| 3,763 |
| 55 |
| 57 | ||||||||
Asia |
| 155 |
|
| 9 |
|
| — |
|
| 4 |
|
| 13 |
|
| 508 |
| 26 |
| 57 | ||||||||
Eliminations/Other |
| (134 | ) |
| (99 | ) |
| — |
|
| (21 | ) |
| (120 | ) |
| 2,321 |
| — |
| — | ||||||||
| 2,258 |
|
| (22 | ) |
| — |
|
| (11 | ) |
| (33 | ) |
| 7,498 |
| 114 |
| 222 | |||||||||
OTHER |
| 2,136 |
|
| 85 |
|
| 6 |
|
| 2 |
|
| 93 |
|
| 1,465 |
| 85 |
| 77 | ||||||||
Corporate eliminations & Other |
| (203 | ) |
| (303 | ) |
| (3 | ) |
| (114 | ) |
| (420 | ) |
| 2,416 |
| 356 |
| 49 | ||||||||
$ | 14,058 |
| $ | 1,014 |
| $ | 38 |
| $ | 391 |
| $ | 22,326 | $ | 1,888 | $ | 2,460 | ||||||||||||
Interest Income |
| 153 |
| ||||||||||||||||||||||||||
Interest Expense |
| (380 | ) | ||||||||||||||||||||||||||
Charges |
| (143 | ) | ||||||||||||||||||||||||||
$ | 1,073 |
| |||||||||||||||||||||||||||
| 61 / SLB | 2003 FORM 10-K |
(Stated in millions) | |||||||||||||||||||||||||||||
2 0 0 0 | |||||||||||||||||||||||||||||
Revenue | Income after tax & MI | Minority Interest | Tax Expense | Income before tax | Assets | Depn. & Amortn. | Capital Expenditure | ||||||||||||||||||||||
OFS | |||||||||||||||||||||||||||||
North America | $ | 2,459 |
| $ | 235 |
| $ | — |
| $ | 145 |
| $ | 380 |
| $ | 2,985 | $ | 403 | $ | 608 | ||||||||
Latin America |
| 1,192 |
|
| 64 |
|
| — |
|
| 22 |
|
| 86 |
|
| 1,305 |
| 186 |
| 212 | ||||||||
Europe/CIS/W. Africa |
| 1,666 |
|
| 160 |
|
| — |
|
| 57 |
|
| 217 |
|
| 1,689 |
| 221 |
| 259 | ||||||||
Middle East/Asia |
| 1,716 |
|
| 275 |
|
| — |
|
| 28 |
|
| 303 |
|
| 1,475 |
| 229 |
| 261 | ||||||||
Eliminations/Other |
| 220 |
|
| 22 |
|
| (1 | ) |
| 34 |
|
| 55 |
|
| 1,585 |
| — |
| 9 | ||||||||
| 7,253 |
|
| 756 |
|
| (1 | ) |
| 286 |
|
| 1,041 |
|
| 9,039 |
| 1,039 |
| 1,349 | |||||||||
SLSEMA | |||||||||||||||||||||||||||||
North & South America |
| 157 |
|
| (35 | ) |
| — |
|
| (32 | ) |
| (67 | ) |
| 637 |
| 15 |
| 15 | ||||||||
Europe/M. East/Africa |
| 61 |
|
| 2 |
|
| — |
|
| — |
|
| 2 |
|
| 100 |
| 1 |
| 2 | ||||||||
Asia |
| 20 |
|
| 1 |
|
| — |
|
| 1 |
|
| 2 |
|
| 5 |
| 1 |
| 1 | ||||||||
Eliminations/Other |
| — |
|
| (9 | ) |
| — |
|
| (3 | ) |
| (12 | ) |
| — |
| — |
| — | ||||||||
| 238 |
|
| (41 | ) |
| — |
|
| (34 | ) |
| (75 | ) |
| 742 |
| 17 |
| 18 | |||||||||
OTHER |
| 2,468 |
|
| 119 |
|
| 8 |
|
| 28 |
|
| 155 |
|
| 1,913 |
| 94 |
| 166 | ||||||||
Corporate eliminations & Other |
| (128 | ) |
| (134 | ) |
| — |
|
| (72 | ) |
| (206 | ) |
| 5,479 |
| 112 |
| 8 | ||||||||
$ | 9,831 |
| $ | 700 |
| $ | 7 |
| $ | 208 |
| $ | 17,173 | $ | 1,262 | $ | 1,541 | ||||||||||||
Interest Income |
| 297 |
| ||||||||||||||||||||||||||
Interest Expense |
| (273 | ) | ||||||||||||||||||||||||||
Charges |
| (2 | ) | ||||||||||||||||||||||||||
$ | 937 |
| |||||||||||||||||||||||||||
Part II, Item 8
($ millions) | |||||||||||||||||||||||||||||
| 2002 | |||||||||||||||||||||||||||||
| Revenue | Income after tax & Min. Int. | Minority Interest | Tax Expense | Income before tax & Min. Int. | Assets | Depn. & Amortn. | Capital Expenditure | ||||||||||||||||||||||
OFS | |||||||||||||||||||||||||||||
North America | $ | 2,308 | $ | 174 | $ | – | $ | 100 | $ | 274 | $ | 1,866 | $ | 280 | $ | 197 | |||||||||||||
Latin America | 1,318 | 143 | – | 26 | 169 | 1,143 | 157 | 124 | |||||||||||||||||||||
Europe/CIS/W. Africa | 2,496 | 305 | – | 78 | 383 | 1,629 | 215 | 285 | |||||||||||||||||||||
Middle East & Asia | 1,916 | 402 | – | 50 | 452 | 1,396 | 198 | 272 | |||||||||||||||||||||
Elims/Other | 133 | (26 | ) | – | 26 | – | 3,195 | 21 | 93 | ||||||||||||||||||||
| 8,171 | 998 | – | 280 | 1,278 | 9,229 | 871 | 971 | ||||||||||||||||||||||
WESTERNGECO | 1,476 | 4 | 1 | 66 | 71 | 2,324 | 388 | 515 | |||||||||||||||||||||
SLSEMA | |||||||||||||||||||||||||||||
North & South America | 356 | (36 | ) | – | (18 | ) | (54 | ) | 525 | 31 | 61 | ||||||||||||||||||
Europe/M. East/Africa | 1,927 | 93 | 2 | 37 | 132 | 2,263 | 64 | 42 | |||||||||||||||||||||
Asia | 150 | (1 | ) | (1 | ) | 2 | – | 341 | 22 | 17 | |||||||||||||||||||
Elims/Other | (24 | ) | (47 | ) | – | (14 | ) | �� | (61 | ) | 344 | 1 | – | ||||||||||||||||
| 2,409 | 9 | 1 | 7 | 17 | 3,473 | 118 | 120 | ||||||||||||||||||||||
OTHER | 1,334 | 11 | 2 | 5 | 18 | 1,386 | 68 | 68 | |||||||||||||||||||||
Corporate eliminations & Other | (272 | ) | 25 | (96 | ) | (76 | ) | (147 | ) | 3,023 | 88 | 28 | |||||||||||||||||
| $ | 13,118 | $ | 1,047 | $ | (92 | ) | $ | 282 | $ | 19,435 | $ | 1,533 | $ | 1,702 | |||||||||||||||
Interest Income | 68 | ||||||||||||||||||||||||||||
Interest Expense | (364 | ) | |||||||||||||||||||||||||||
Charges | (3,168 | ) | |||||||||||||||||||||||||||
| $ | (2,227 | ) | |||||||||||||||||||||||||||
($ millions) | |||||||||||||||||||||||||||||
| 2001 | |||||||||||||||||||||||||||||
| Revenue | Income after tax & Min. Int. | Minority Interest | Tax Expense | Income before tax & Min. Int. | Assets | Depn. & Amortn. | Capital Expenditure | ||||||||||||||||||||||
OFS | |||||||||||||||||||||||||||||
North America | $ | 2,847 | $ | 401 | $ | – | $ | 236 | $ | 637 | $ | 2,048 | $ | 244 | $ | 555 | |||||||||||||
Latin America | 1,456 | 148 | – | 35 | 183 | 1,307 | 142 | 177 | |||||||||||||||||||||
Europe/CIS/W. Africa | 2,134 | 308 | – | 77 | 385 | 1,676 | 180 | 284 | |||||||||||||||||||||
Middle East & Asia | 1,772 | 360 | – | 56 | 416 | 1,302 | 178 | 273 | |||||||||||||||||||||
Elims/Other | 172 | (40 | ) | – | 4 | (36 | ) | 1,957 | 31 | 177 | |||||||||||||||||||
| 8,381 | 1,177 | – | 408 | 1,585 | 8,290 | 775 | 1,466 | ||||||||||||||||||||||
WESTERNGECO | 1,702 | 79 | 35 | 107 | 221 | 2,843 | 559 | 676 | |||||||||||||||||||||
SLSEMA | |||||||||||||||||||||||||||||
North & South America | 381 | (29 | ) | – | (30 | ) | (59 | ) | 837 | 40 | 85 | ||||||||||||||||||
Europe/M. East/Africa | 1,447 | 72 | – | 27 | 99 | 3,532 | 36 | 37 | |||||||||||||||||||||
Asia | 110 | 6 | – | 2 | 8 | 489 | 19 | 43 | |||||||||||||||||||||
Elims/Other | (105 | ) | (54 | ) | – | (9 | ) | (63 | ) | 1,699 | – | – | |||||||||||||||||
| 1,833 | (5 | ) | – | (10 | ) | (15 | ) | 6,557 | 95 | 165 | |||||||||||||||||||
OTHER | 2,016 | 71 | 6 | 11 | 88 | 2,199 | 95 | 97 | |||||||||||||||||||||
Corporate eliminations & Other | (176 | ) | (458 | ) | (12 | ) | 48 | (422 | ) | 2,437 | 352 | 49 | |||||||||||||||||
| $ | 13,756 | $ | 864 | $ | 29 | $ | 564 | $ | 22,326 | $ | 1,876 | $ | 2,453 | ||||||||||||||||
Interest Income | 153 | ||||||||||||||||||||||||||||
Interest Expense | (380 | ) | |||||||||||||||||||||||||||
Charges | (143 | ) | |||||||||||||||||||||||||||
| $ | 1,087 | ||||||||||||||||||||||||||||
| 62 / SLB | 2003 FORM 10-K |
Part II, Item 8
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 including the WesternGeco minority interest expense.
level.
SchlumbergerSema net income eliminations include certain headquarters administrative costs which are not allocated geographically and other costs maintained at the SchlumbergerSema level.
Corporate income eliminations principally comprise the amortization of goodwill (in 2001 and 2000)2001) and other intangibles, as well as nonoperating expenses, such as certain intersegment charges and interest expense (except as shown above), which are not included in the segments’ income. Corporate assets largely comprise short-term investments and fixed income investments, held to maturity.
During the three years ended December 31, 2002,2003, no single customer exceeded 10% of consolidated revenue.
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 2003, 2002 and 2001 and 2000 was $3.8 billion, $4.0 billion and $5.1 billion, and $3.5 billion, respectively.
Interest expense excludes amounts which are included in the segments’ income (2002(2003 – $5 million: 2002 – $4 million: 2001 – $5 million: 2000 – $5 million).
Depreciation & Amortization and Capital Expenditure include Multiclient seismic data costs.
25. 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 funded withthrough a trusteetrust 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 contribution in 2004 is expected to be between $40 million and $150 million.
The assumed discount rate, compensation increases and return on plan assets used to determine pension expense in 2002 were 7.25%, 3% and 8.5%, respectively. In 2001, the assumptions were 7.5%, 4.5% and 9%, respectively. In 2000, the assumptions were 7.75%, 4.5% and 9%, respectively.as follows:
| 2003 | 2002 | 2001 | |||||||
Assumed discount rate | 6.75 | % | 7.25 | % | 7.50 | % | |||
Compensation increases | 3.00 | % | 3.00 | % | 4.50 | % | |||
Return on plan assets | 8.50 | % | 8.50 | % | 9.00 | % | |||
Net pension cost in the US for 2003, 2002 2001 and 2000,2001, included the following components:
(Stated in millions) | (Stated in millions) | (Stated in millions) | ||||||||||||||||||||||
| 2003 | 2002 | 2001 | ||||||||||||||||||||||
2002 | 2001 | 2000 | ||||||||||||||||||||||
Service cost - benefits earned during the period | $ | 51 |
| $ | 38 |
| $ | 32 |
| |||||||||||||||
Service cost – benefits earned during the period | $ | 56 | $ | 51 | $ | 38 | ||||||||||||||||||
Interest cost on projected benefit obligation |
| 90 |
|
| 84 |
|
| 76 |
| 93 | 90 | 84 | ||||||||||||
Expected return on plan assets (actual return: 2002 – $(114); 2001 – $(70); 2000 – $(2)) |
| (93 | ) |
| (101 | ) |
| (97 | ) | |||||||||||||||
Expected return on plan assets [actual return: 2003 – $177; 2002 – $(114); 2001 – $(70)] | (87 | ) | (93 | ) | (101 | ) | ||||||||||||||||||
Amortization of transition assets |
| — |
|
| (1 | ) |
| (1 | ) | – | – | (1 | ) | |||||||||||
Amortization of prior service cost/other |
| 7 |
|
| 7 |
|
| 5 |
| 5 | 7 | 7 | ||||||||||||
Amortization of unrecognized net gain |
| — |
|
| (4 | ) |
| (11 | ) | |||||||||||||||
Amortization of unrecognized net loss (gain) | 4 | – | (4 | ) | ||||||||||||||||||||
Net pension cost | $ | 55 |
| $ | 23 |
| $ | 4 |
| $ | 71 | $ | 55 | $ | 23 | |||||||||
| 63 / SLB | 2003 FORM 10-K |
Effective January 1, 2000, Schlumberger and its subsidiaries amended their pension plans to improve retirement benefits for active employees.Part II, Item 8
The change in the projected benefit obligation, plan assets and funded status of the plans on December 31, 20022003 and 2001,2002, was as follows:
(Stated in millions) | (Stated in millions) | (Stated in millions) | ||||||||||||||||
| 2003 | 2002 | |||||||||||||||||
2002 | 2001 | |||||||||||||||||
Projected benefit obligation at beginning of the year | $ | 1,254 |
| $ | 1,105 |
| $ | 1,441 | $ | 1,254 | ||||||||
Service cost |
| 51 |
|
| 38 |
| 56 | 51 | ||||||||||
Interest cost |
| 90 |
|
| 84 |
| 93 | 90 | ||||||||||
Actuarial losses |
| 123 |
|
| 96 |
| 94 | 123 | ||||||||||
Benefits paid |
| (77 | ) |
| (69 | ) | (82 | ) | (77 | ) | ||||||||
Amendments | (6 | ) | – | |||||||||||||||
Divestiture | (13 | ) | – | |||||||||||||||
Projected benefit obligation at end of the year | $ | 1,441 |
| $ | 1,254 |
| $ | 1,583 | $ | 1,441 | ||||||||
Plan assets at market value at beginning of the year | $ | 1,074 |
| $ | 1,212 |
| $ | 952 | $ | 1,074 | ||||||||
Actual return on plan assets |
| (114 | ) |
| (70 | ) | 177 | (114 | ) | |||||||||
Contribution |
| 69 |
|
| 1 |
| 69 | 69 | ||||||||||
Benefits paid |
| (77 | ) |
| (69 | ) | (82 | ) | (77 | ) | ||||||||
Divestiture | (9 | ) | – | |||||||||||||||
Plan assets at market value at end of the year | $ | 952 |
| $ | 1,074 |
| $ | 1,107 | $ | 952 | ||||||||
Excess of projected benefit obligation over assets | $ | (489 | ) | $ | (180 | ) | $ | (476 | ) | $ | (489 | ) | ||||||
Unrecognized net loss |
| 329 |
|
| 1 |
| 324 | 329 | ||||||||||
Unrecognized prior service cost |
| 22 |
|
| 27 |
| 11 | 22 | ||||||||||
Contribution receivable |
| (50 | ) |
| — |
| – | (50 | ) | |||||||||
Pension liability at end of the year | $ | (188 | ) | $ | (152 | ) | $ | (141 | ) | $ | (188 | ) | ||||||
Plan assets at market value at end of the year | $ | 902 |
| $ | — |
| $ | 1,107 | $ | 902 | ||||||||
Accumulated benefits obligation at end of the year |
| (1,336 | ) |
| — |
| (1,478 | ) | (1,336 | ) | ||||||||
Minimum liability |
| (434 | ) |
| — |
| (371 | ) | (434 | ) | ||||||||
Pension liability at end of the year |
| 188 |
|
| — |
| 141 | 188 | ||||||||||
Prior service cost |
| 22 |
|
| — |
| ||||||||||||
Unrecognized prior service cost | 11 | 22 | ||||||||||||||||
Charged to other comprehensive income (loss) | $ | (224 | ) | $ | — |
| $ | (219 | ) | $ | (224 | ) | ||||||
The combined market performance over the last twothree years hasand declining interest rates have decreased the value of assets held in the US pension plans and has correspondingly increased the amount by which the pension plans are under-funded. As a result of the decline in the value of the pension plan assets and a decline in the interest rates, which increases the present value of the benefit obligations, Schlumberger has recorded in the fourth quarter a cumulative non-cash pretax charge toStockholders’ Equity of $224 million.$219 million ($136 million after-tax). A recovery in market returns in future periods would reverse a portion of the charge.
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 6.75%, 3% and 8.5%, respectively, in 2002, and 7.25%, 4.5% and 9%, respectively, in 2001. Plan assets, excluding the contribution receivable, on December 31, 2002, consisted of common stocks ($524 million), cash or cash equivalents ($98 million), fixed income investments ($228 million) and other investments ($52 million). as follows:
| 2003 | 2002 | |||||
Assumed discount rate | 6.25 | % | 6.75 | % | ||
Compensation increases | 3.00 | % | 3.00 | % | ||
Return on plan assets | 8.50 | % | 8.50 | % | ||
On December 31, 2002,2003, there is no investment of the plan assets in Schlumberger common stock.
| 64 / SLB | 2003 FORM 10-K |
Part II, Item 8
The following is a breakdown of the plan assets:
(Stated in millions) | ||||||
| 2003 | 2002 | |||||
US Equity – Active | $ | 381 | $ | 301 | ||
US Equity – Indexed | 131 | 89 | ||||
Non-US Equity | 180 | 134 | ||||
Long-term fixed income | 257 | 228 | ||||
Cash or cash equivalents | 103 | 98 | ||||
Other investments | 55 | 52 | ||||
Contribution receivable | – | 50 | ||||
| $ | 1,107 | $ | 952 | |||
The asset allocation objectives are to diversify the portfolio among several asset classes to reduce volatility while maintaining an asset mix that provide the highest expected rate of return consistent with an acceptable level of risk. The investment strategies include a rebalancing of the asset mix as necessary to the previously defined levels and reassessing funding levels and asset allocation strategy at least annually. In order to increase diversification and limit management risk, Schlumberger generally does not allocate more than 15% of fund assets to a single investment manager.
The expected long-term rate of return on assets is 8.5%. This assumption represents the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The assumption has been determined by reflecting expectations regarding future rates of return for the portfolio considering the asset distribution and related historical rates of return. The appropriateness of the assumption is reviewed at least annually. The pension trust’s performance over the last 10 years has been an annualized return of 9.2%.
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 funded with trusteesthrough trusts in respect to past and current service. For all defined benefit plans, pension expense was $87 million, $58 million and $52 million in 2003, 2002 and $23 million in 2002, 2001, and 2000, 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 2002 were 5.75%, 4.0% and 9.0% respectively. In 2001, the assumptions were 6%, 4% and 9%, respectively.as follows:
| 2003 | 2002 | 2001 | |||||||
Assumed discount rate | 5.70 | % | 5.75 | % | 6.00 | % | |||
Compensation increases | 3.75% – 2.5 | % | 4.00 | % | 4.00 | % | |||
Return on plan assets | 8.50 | % | 9.00 | % | 9.00 | % | |||
Net pension cost in the UK plan for 2003, 2002 and 2001 (including the Sema plc plans) and 2000 (translated into US dollars at the average exchange rate for the periods), included the following components:
(Stated in millions) | (Stated in millions) | |||||||||||||||||||||||||||
(Stated in millions) | 2003 | 2002 | 2001 | |||||||||||||||||||||||||
2002 | 2001 | 2000 | ||||||||||||||||||||||||||
Service cost - benefits earned during the period | $ | 58 |
| $ | 47 |
| $ | 22 |
| |||||||||||||||||||
Service cost – benefits earned during the period | $ | 52 | $ | 58 | $ | 47 | ||||||||||||||||||||||
Interest cost on projected benefit obligation |
| 59 |
|
| 44 |
|
| 17 |
| 66 | 59 | 44 | ||||||||||||||||
Expected return on plan assets (actual return: 2002—($147); 2001—($47); 2000 ($28) |
| (91 | ) |
| (68 | ) |
| (34 | ) | |||||||||||||||||||
Expected return on plan assets [actual return: 2003 – $152; 2002 – $(147); 2001 – $(47)] | (90 | ) | (91 | ) | (68 | ) | ||||||||||||||||||||||
Amortization of unrecognized loss | 11 | – | – | |||||||||||||||||||||||||
Amortization of transition asset and other |
| 1 |
|
| (2 | ) |
| (5 | ) | – | 1 | (2 | ) | |||||||||||||||
Net pension cost | $ | 27 |
| $ | 21 |
| $ | — |
| $ | 39 | $ | 27 | $ | 21 | |||||||||||||
| 65 / SLB | 2003 FORM 10-K |
Part II, Item 8
The change in the projected benefit obligation, plan assets and funded status of the plan (translated into US dollars at year-end exchange rates) was as follows:
(Stated in millions) | ||||||||||||||||
(Stated in millions) | (Stated in millions) | |||||||||||||||
| 2003 | 2002 | |||||||||||||||
2002 | 2001 | |||||||||||||||
Projected benefit obligation at beginning of the year | $ | 989 |
| $ | 311 |
| $ | 1,142 | $ | 989 | ||||||
Acquisition of Sema |
| — |
|
| 580 |
| ||||||||||
Service cost |
| 58 |
|
| 47 |
| 52 | 58 | ||||||||
Interest cost |
| 59 |
|
| 44 |
| 66 | 59 | ||||||||
Contributions by Plan participants |
| 7 |
|
| — |
| 7 | 7 | ||||||||
Actuarial (gains) losses |
| (45 | ) |
| 55 |
| ||||||||||
Loss (gain) on exchange |
| 106 |
|
| (2 | ) | ||||||||||
Transfer in | 18 | – | ||||||||||||||
Actuarial losses (gains) | 165 | (45 | ) | |||||||||||||
Currency effect | 152 | 106 | ||||||||||||||
Benefits paid |
| (25 | ) |
| (21 | ) | (32 | ) | (25 | ) | ||||||
Disposals |
| (7 | ) |
| (25 | ) | – | (7 | ) | |||||||
Projected benefit obligation at end of the year | $ | 1,142 |
| $ | 989 |
| $ | 1,570 | $ | 1,142 | ||||||
Plan assets at market value at beginning of the year | $ | 868 |
| $ | 385 |
| $ | 815 | $ | 868 | ||||||
Acquisition of Sema |
| — |
|
| 540 |
| ||||||||||
Actual return on plan assets |
| (147 | ) |
| (47 | ) | 152 | (147 | ) | |||||||
Gain (loss) on exchange |
| 81 |
|
| (5 | ) | ||||||||||
Currency effect | 106 | 81 | ||||||||||||||
Employer contributions |
| 39 |
|
| 31 |
| 47 | 39 | ||||||||
Employee contributions |
| 7 |
|
| 6 |
| 7 | 7 | ||||||||
Transfer in | 15 | – | ||||||||||||||
Benefits paid |
| (25 | ) |
| (21 | ) | (32 | ) | (25 | ) | ||||||
Disposals |
| (8 | ) |
| (21 | ) | (2 | ) | (8 | ) | ||||||
Plan assets at market value at end of the year | $ | 815 |
| $ | 868 |
| $ | 1,108 | $ | 815 | ||||||
Excess of projected benefit obligation over assets | $ | (327 | ) | $ | (121 | ) | $ | (462 | ) | $ | (327 | ) | ||||
Unrecognized net loss |
| 351 |
|
| 131 |
| 498 | 351 | ||||||||
Unrecognized prior service cost |
| 1 |
|
| 1 |
| – | 1 | ||||||||
Unrecognized net asset at transition date |
| (2 | ) |
| (1 | ) | (1 | ) | (2 | ) | ||||||
Pension asset | $ | 23 |
| $ | 10 |
| $ | 35 | $ | 23 | ||||||
Assets of under-funded plans at market value at end of the year | $ | 335 |
| $ | — |
| $ | 882 | $ | 335 | ||||||
Accumulated benefit obligation of under-funded plans at end of the year |
| (495 | ) |
| — |
| (1,097 | ) | (495 | ) | ||||||
Minimum liability of under-funded plans |
| (160 | ) |
| — |
| (215 | ) | (160 | ) | ||||||
Pension liability of under-funded plans |
| 70 |
|
| — |
| 6 | 70 | ||||||||
Charged to other comprehensive income (loss) | $ | (90 | ) | $ | — |
| $ | (209 | ) | $ | (90 | ) | ||||
The combined market performance over the last twothree years hasand declining interest rates have decreased the value of assets held in the UK pension plans and has correspondingly increased the amount by which the pension plans are under-funded. As a result of the decline in the value of the pension plan assets and a decline in the interest rates, which increased the present value of the benefit obligations, Schlumberger has recorded in the fourth quarter a cumulative non-cash pretax charge toStockholders’ Equity of $90 million.$209 million ($147 million after-tax). A recovery in market returns in future periods would reverse a portion of the charge.
The assumed discount rate and rate of compensation increases used to determine the projected benefit obligation were 5.70% and 3.75%-2.55% respectively in 2002, and 5.75% and 4%, respectively in 2001. Plan assets consisted of common stocks ($610 million), cash or cash equivalents ($64 million) and fixed income investments ($141 million). Noneas follows:
| 2003 | 2002 | |||||
Assumed discount rate | 5.60 | % | 5.70 | % | ||
Compensation increases | 4% – 3.5 | % | 3.75% – 2.55 | % | ||
| 66 / SLB | 2003 FORM 10-K |
Part II, Item 8
The following is a breakdown of the segregated plan assets represented Schlumberger common stock.assets:
(Stated in millions) | ||||||
| 2003 | 2002 | |||||
Equity securities | $ | 818 | $ | 610 | ||
Fixed income securities | 178 | 95 | ||||
Index linked gilts | 56 | 46 | ||||
Real estate | 17 | 15 | ||||
Other investments | 39 | 49 | ||||
| $ | 1,108 | $ | 815 | |||
The trustees of all the UK plans determine their investment strategy with regard to the liability profile of each Fund on an individual basis and have determined benchmarks which they believe provides an adequate balance between maximizing the return on the assets and minimizing the risk of failing to meet the liabilities over the long-term.
Overall, the trustees of each plan aim to have a sufficiently diversified portfolio of appropriate liquidity, which will generate income and capital growth to meet, together with new contributions from members and the employers, the cost of current and future liabilities which each plan provides. They achieve this by using active investment managers who are set specific benchmarks and various restrictions to avoid undue concentration of assets. As the plans mature, the Trustees review the appropriateness of their investment strategy.
The overall expected return on assets assumption is derived as the weighted average of the expected returns from each of the main asset classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward looking views of the financial markets (as suggested by the yields available) and the views of investment organizations. Consideration is also given to the rate of return expected to be available for reinvestment. The pension trusts’ performance over the last 10 years has been an annualized return of 5.3%.
For defined contribution plans, funding and cost are generally based upon a predetermined percentage of employee compensation. Charges to expense in 2003, 2002 and 2001, and 2000, were $47 million, $44 million $32 million and $22$32 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 $137 million, $143 million and $192 million in 2003, 2002 and $114 million in 2002, 2001, and 2000, 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 $70 million, $79 million and $68 million in 2003, 2002 and $60 million in 2002, 2001, and 2000, 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 6.75% in 2003, 7.25% in 2002 and 7.5% in 2001 and 7.75% in 2000.2001. The overall medical cost trend rate assumption is 9.5%10.8% graded to 5% over the next six years and 5% thereafter.
| 67 / SLB | 2003 FORM 10-K |
Part II, Item 8
Net periodic postretirement benefit cost in the US for 2003, 2002 2001 and 2000,2001, included the following components:
(Stated in millions) | (Stated in millions) | ||||||||||||||||||||
(Stated in millions) | 2003 | 2002 | 2001 | ||||||||||||||||||
2002 | 2001 | 2000 | |||||||||||||||||||
Service cost – benefits earned during the period | $ | 21 | $ | 13 |
| $ | 10 |
| $ | 28 | $ | 21 | $ | 13 | |||||||
Interest cost on accumulated postretirement benefit obligation |
| 41 |
| 32 |
|
| 28 |
| 53 | 41 | 32 | ||||||||||
Amortization of unrecognized net gain and other |
| 4 |
| (1 | ) |
| (3 | ) | |||||||||||||
Amortization of unrecognized net loss (gain) and other | 11 | 4 | (1 | ) | |||||||||||||||||
$ | 66 | $ | 44 |
| $ | 35 |
| $ | 92 | $ | 66 | $ | 44 | ||||||||
The change in accumulated postretirement benefit obligation and funded status on December 31, 20022003 and 2001,2002, was as follows:
(Stated in millions) | ||||||||
2002 | 2001 | |||||||
Accumulated postretirement benefit obligation at beginning of the year | $ | 478 |
| $ | 398 |
| ||
Service cost |
| 21 |
|
| 13 |
| ||
Interest cost |
| 41 |
|
| 32 |
| ||
Actuarial losses (gains) |
| 121 |
|
| 53 |
| ||
Benefits paid |
| (21 | ) |
| (18 | ) | ||
Other |
| 36 |
|
| — |
| ||
Accumulated postretirement benefit obligation at the end of the year |
| 676 |
|
| 478 |
| ||
Unrecognized net gain |
| (105 | ) |
| 14 |
| ||
Unrecognized prior service cost/other |
| (27 | ) |
| 13 |
| ||
Postretirement benefit liability on December 31 | $ | 544 |
| $ | 505 |
| ||
(Stated in millions) Accumulated postretirement benefit obligation at beginning of the year Service cost Interest cost Actuarial losses Benefits paid Other Accumulated postretirement benefit obligation at the end of the year Unrecognized net loss Unrecognized prior service cost/other Postretirement benefit liability on December 31 2003 2002 $ 676 $ 478 28 21 53 41 202 121 (26 ) (21 ) – 36 933 676 (326 ) (105 ) (2 ) (27 ) $ 605 $ 544
The components of the accumulated postretirement benefit obligation on December 31, 20022003 and 2001,2002, were as follows:
(Stated in millions) | (Stated in millions) | |||||||||||
(Stated in millions) | 2003 | 2002 | ||||||||||
2002 | 2001 | |||||||||||
Retirees | $ | 277 | $ | 237 | $ | 404 | $ | 277 | ||||
Fully eligible |
| 110 |
| 67 | 162 | 110 | ||||||
Actives |
| 289 |
| 174 | 367 | 289 | ||||||
$ | 676 | $ | 478 | $ | 933 | $ | 676 | |||||
The assumed discount rate used to determine the accumulated postretirement benefit obligation was 6.25% for 2003 and 6.75% for 2002 and 7.25% for 2001.
2002.
If the assumed medical cost trend rate was increased by one percentage point, health care cost in 20022003 would have been $76$99 million, and the accumulated postretirement benefit obligation would have been $806 million$1.12 billion on December 31, 2002.
2003.
If the assumed medical cost trend rate was decreased by one percentage point, health care cost in 20022003 would have been $52$67 million, and the accumulated postretirement benefit obligation would have been $574$790 million on December 31, 2002.2003.
| 68 / SLB | 2003 FORM 10-K |
Part II, Item 8
26. Supplementary Information
Operating revenue and related cost of goods sold and services for continuing operations comprised the following:
(Stated in millions) | ||||||||||||||||||
(Stated in millions) | (Stated in millions) | |||||||||||||||||
Year ended December 31, | 2002 | 2001 | 2000 | 2003 | 2002 | 2001 | ||||||||||||
Operating revenue | ||||||||||||||||||
Products | $ | 3,898 | $ | 4,651 | $ | 4,029 | $ | 3,947 | $ | 3,605 | $ | 4,421 | ||||||
Services |
| 9,576 |
| 9,407 |
| 5,802 | 9,946 | 9,513 | 9,335 | |||||||||
$ | 13,474 | $ | 14,058 | $ | 9,831 | $ | 13,893 | $ | 13,118 | $ | 13,756 | |||||||
Direct operating costs | ||||||||||||||||||
Goods sold | $ | 1,950 | $ | 2,692 | $ | 2,431 | $ | 2,656 | $ | 1,749 | $ | 2,540 | ||||||
Services |
| 8,474 |
| 7,813 |
| 5,205 | 8,122 | 8,441 | 7,766 | |||||||||
$ | 10,424 | $ | 10,505 | $ | 7,636 | $ | 10,778 | $ | 10,190 | $ | 10,306 | |||||||
Cash paid for interest and income taxes for continuing operations was as follows:
(Stated in millions) | |||||||||
Year ended December 31, | 2002 | 2001 | 2000 | ||||||
Interest | $ | 373 | $ | 363 | $ | 268 | |||
Income taxes | $ | 251 | $ | 298 | $ | 231 | |||
(Stated in millions) Interest Income taxesYear ended December 31, 2003 2002 2001 $ 354 $ 373 $ 363 $ 150 $ 251 $ 298
Accounts payable and accrued liabilities are summarized as follows:
(Stated in millions) | ||||||||||||
(Stated in millions) | (Stated in millions) | |||||||||||
As at December 31, | 2002 | 2001 | 2003 | 2002 | ||||||||
Payroll, vacation and employee benefits | $ | 957 | $ | 929 | $ | 773 | $ | 957 | ||||
Trade |
| 999 |
| 1,184 | 800 | 999 | ||||||
Taxes, other than income |
| 245 |
| 312 | 160 | 245 | ||||||
Accrued expenses |
| 1,266 |
| 1,697 | 1,026 | 1,266 | ||||||
Other |
| 1,114 |
| 385 | 489 | 1,114 | ||||||
$ | 4,581 | $ | 4,507 | $ | 3,248 | $ | 4,581 | |||||
Interest and other income includes the following:
(Stated in millions) | ||||||||||||||||||
(Stated in millions) | (Stated in millions) | |||||||||||||||||
Year ended December 31, | 2002 | 2001 | 2000 | 2003 | 2002 | 2001 | ||||||||||||
Interest income | $ | 69 | $ | 159 | $ | 302 | $ | 52 | $ | 69 | $ | 159 | ||||||
Equity in net earnings of affiliated companies |
| 64 |
| 62 |
| 39 | 75 | 64 | 62 | |||||||||
Gain on sale of business |
| — |
| — |
| 82 | ||||||||||||
Gain on sale of Hanover Compressor note | 32 | – | – | |||||||||||||||
Gain on sale of investments | 2 | – | – | |||||||||||||||
Gain on sale of financial instruments |
| 6 |
| 21 |
| — | 5 | 6 | 21 | |||||||||
$ | 139 | $ | 242 | $ | 423 | $ | 166 | $ | 139 | $ | 242 | |||||||
Allowance for doubtful accounts is as follows:
(Stated in millions) | ||||||||||||||||
(Stated in millions) | (Stated in millions) | |||||||||||||||
Year ended December 31, | 2002 | 2001 | 2003 | 2002 | ||||||||||||
Balance at beginning of year | $ | 145 |
| $ | 107 |
| $ | 173 | $ | 145 | ||||||
Provision in year |
| 66 |
|
| 57 |
| 55 | 66 | ||||||||
Written off in year |
| (47 | ) |
| (43 | ) | (65 | ) | (47 | ) | ||||||
Reclassified toAssets held for Sale | (36 | ) | – | |||||||||||||
Other1 |
| 9 |
|
| 24 |
| 1 | 9 | ||||||||
Balance at end of year | $ | 173 |
| $ | 145 |
| $ | 128 | $ | 173 | ||||||
| Includes business acquisitions and |
| 69 / SLB | 2003 FORM 10-K |
Part II, Item 8
Report of Independent Auditors
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’stockholder’s equity and of cash flows present fairly, in all material respects, the financial position of Schlumberger Limited and its subsidiaries at December 31, 20022003 and 2001,2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002,2003, 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.
As discussed in Note 20 to the noteNew Accounting StandardsConsolidated Financial Statements, in 2003 the Company changed its accounting method for stock options.
As discussed in Note 14 to the Consolidated Financial Statements, in 2002 the Company changed its accounting method for goodwill.
/s/ | ||
PricewaterhouseCoopers LLP New York, New York
|
| 70 / SLB | 2003 FORM 10-K |
Part II, Item 8, 9, 9A
(UNAUDITED)
The following table summarizes Schlumberger’s results for each of the four quarters for the years ended December 31, 20022003 and 2001.2002. Revenue and Gross margin, which equals operating revenue less cost of goods sold and services, has been restated to exclude discontinued operations.
(Stated in millions except per share amounts) | |||||||||||||||||||
Gross Margin | Net Income | Earnings per share7 | |||||||||||||||||
Revenue | Basic | Diluted | |||||||||||||||||
Quarters-2002 | |||||||||||||||||||
First1 | $ | 3,257 | $ | 695 |
| $ | 172 |
| $ | 0.30 |
| $ | 0.30 |
| |||||
Second |
| 3,337 |
| 740 |
|
| 196 |
|
| 0.34 |
|
| 0.34 |
| |||||
Third |
| 3,446 |
| 712 |
|
| 173 |
|
| 0.30 |
|
| 0.30 |
| |||||
Fourth2 |
| 3,434 |
| (2,433 | ) |
| (2,861 | ) |
| (4.92 | ) |
| (4.92 | ) | |||||
$ | 13,474 | $ | (286 | ) | $ | (2,320 | ) | $ | (4.01 | ) | $ | (4.01 | ) | ||||||
Quarters-2001 | |||||||||||||||||||
First3 | $ | 2,951 | $ | 701 |
| $ | 235 |
| $ | 0.41 |
| $ | 0.41 |
| |||||
Second4 |
| 3,712 |
| 550 |
|
| (93 | ) |
| (0.16 | ) |
| (0.16 | ) | |||||
Third5 |
| 3,710 |
| 899 |
|
| 195 |
|
| 0.34 |
|
| 0.34 |
| |||||
Fourth6 |
| 3,685 |
| 893 |
|
| 185 |
|
| 0.32 |
|
| 0.32 |
| |||||
$ | 14,058 | $ | 3,043 |
| $ | 522 |
| $ | 0.91 |
| $ | 0.91 |
| ||||||
��
(Stated in millions except per share amounts) | |||||||||||||||||||
| Revenue | Gross Margin | Net Income | Earnings per share6 | ||||||||||||||||
| Basic | Diluted | ||||||||||||||||||
Quarters-2003 | |||||||||||||||||||
First | $ | 3,263 | $ | 662 | $ | 149 | $ | 0.26 | $ | 0.26 | |||||||||
Second1 | 3,485 | 727 | 112 | 0.19 | 0.19 | ||||||||||||||
Third2 | 3,474 | 325 | (55 | ) | (0.09 | ) | (0.09 | ) | |||||||||||
Fourth3 | 3,671 | 759 | 177 | 0.30 | 0.30 | ||||||||||||||
| $ | 13,893 | $ | 2,473 | $ | 383 | $ | 0.66 | $ | 0.66 | ||||||||||
Quarters-2002 | |||||||||||||||||||
First4 | $ | 3,167 | $ | 660 | $ | 172 | $ | 0.30 | $ | 0.30 | |||||||||
Second | 3,242 | 706 | 196 | 0.34 | 0.34 | ||||||||||||||
Third | 3,358 | 681 | 173 | 0.30 | 0.30 | ||||||||||||||
Fourth5 | 3,351 | (2,455 | ) | (2,861 | ) | (4.92 | ) | (4.92 | ) | ||||||||||
| $ | 13,118 | $ | (408 | ) | $ | (2,320 | ) | $ | (4.01 | ) | $ | (4.01 | ) | ||||||
| Includes debt extinguishment cost of $81 million ($0.14 per share – diluted). |
| 2. | Includes a net, after-tax charge of $298 million ($0.49 per share – diluted). |
| 3. | Includes a net, after-tax charge of $61 million ($0.10 per share – diluted). |
| 4. | Includes an after-tax charge of $29 million ($0.05 per share – diluted). |
| Includes a net, after-tax charge of $3,081 million ($5.30 per share). |
| The addition of earnings per share by quarter may not equal total earnings per share for the year. |
| * | Mark of Schlumberger |
Item 9Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
NONE
Item 9A Controls and Procedures
At the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of Schlumberger’s management, including the Chief Executive officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of Schlumberger’s disclosure controls and procedures pursuant to Rule 13a – 15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the CEO and CFO have concluded that Schlumberger’s disclosure controls and procedures were effective as of December 31, 2003 to ensure that information required to be disclosed by Schlumberger in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There has been no change in our internal controls over financial reporting that occurred during the year ended December 31, 2003 that has materially affected or is reasonably likely to materially affect, our internal controls over financial reporting.
| 71 / SLB | 2003 FORM 10-K |
Part III, Item 10, 11, 12, 13, 14
Item 10Directors and Executive Officers of Schlumberger
See Part I (on pages 7-8 of this Report)8 and 9) for Item 10 information regarding Executive Officers of Schlumberger. The information with respect to the remaining portion of Item 10 is set forth in the first section under the caption, “Election of Directors”, in Schlumberger’s Proxy Statement to be filed for the April 11, 200314, 2004 Annual General Meeting, and is incorporated by reference.
The information set forth under “Executive Compensation” (other than that set forth under the subcaptions “Corporate Performance Graph” and “Compensation Committee Report on Executive Compensation”) in Schlumberger’s Proxy Statement to be filed for the April 11, 200314, 2004 Annual General Meeting, is incorporated by reference.
Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information with respect to Item 12 is set forth in Schlumberger’s Proxy Statement to be filed for the April 11, 200314, 2004 Annual General Meeting under the caption, “Security Ownership of Certain Beneficial Owners and Management,” and such information is incorporated herein by reference.
Equity Compensation Plan Information
The table below setsinformation with respect to “Equity Compensation Plan Information” is set forth in Schlumberger’s Proxy Statement to be filed for the following information as of the end of the Schlumberger’s 2002 fiscal year for (i) all compensation plans previously approved by our shareholders and (ii) all compensation plans not previously approved by our shareholders:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of such outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||
Equity compensation plans approved by security holders | 36,869,684 | $ | 57.036 | 6,399,366 |
| |||
Equity compensation plans not approved by security holders | N/A |
| N/A | 16,700 | 1 | |||
Total | 36,869,684 | $ | 57.03 | 6,416,066 |
| |||
Equity compensation plans approved by our shareholders include the Schlumberger 1989 Stock Incentive Plan as amended, the Schlumberger 1994 Stock Option Plan as amended, the Schlumberger 1998 Stock Option Plan as amended, and the Schlumberger 2001 Stock Option Plan. The only equity compensation plan that has not been approved by our shareholders is the Schlumberger Stock and Deferral Plan for Non-Employee Directors.
Schlumberger established the Stock and Deferral Plan for Non-Employee Directors on April 19, 2001. When established, there were 25,000 shares of Schlumberger common stock available for grant14, 2004 Annual General Meeting under the plan. Non-employee directors are automatically granted 500 shares of Schlumberger common stock as of the last day of the month following the first Board meeting after Schlumberger’s regular annual shareholders meeting. Non-employee directors are entitled to defer the receipt of the annual stock award until up to one year after their termination as a director. During the period of deferral, non-employee directors are credited with any dividends paid on shares of Schlumberger common stock in the interim,caption “Equity Compensation Plan Information” and such dividends are paid out in cash, without interest at the same time that the shares are ultimately delivered. The Planinformation is administeredincorporated herein by a Committee appointed by the Board.reference.
Item 13Certain Relationships and Related Transactions
Information regarding this item may be found on page 1, the last two sentences of footnote 2, in Schlumberger’s Proxy Statement to be filed for the April 11, 200314, 2004 Annual General Meeting and is incorporated by reference.
Item 14Controls Principal Accounting Fees and ProceduresServices
WithinInformation concerning the 90-day period prior tofees billed by our independent auditor and the filingnature of this Annual Report, an evaluation was carried out underservices comprising the supervision and with the participation of Schlumberger’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),fees for each of the effectivenesstwo most recent fiscal years in each of the designfollowing categories: (i) audit fees, (ii) audit – related fees, (iii) tax fees and operation(iv) all other fees, is set forth in the Audit Committee Report segment of the Proxy Statement and is incorporated herein reference.
Information concerning Schlumberger’s disclosure controlsAudit Committee policies and procedures pursuantpertaining to Rule 13a – 14pre-approval of audit and non-audit services rendered by our independent auditor is set forth in the Audit Committee segment of the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the CEOProxy Statement and CFO have concluded that Schlumberger’s disclosure controls and procedures are effective to ensure that information required to be disclosedis incorporated herein by Schlumberger in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in Schlumberger’s internal controls or in other factors that could significantly affect these controls.
| 72 / SLB | 2003 FORM 10-K |
Part IV, Item 15
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this report:
| ||||||||
Page(s) | ||||||||
| (1) | Financial Statements | |||||||
Consolidated Statement of Income for the three years ended December 31, |
| |||||||
Consolidated Balance Sheet at December 31, |
| |||||||
Consolidated Statement of Cash Flows for the three years ended December 31, |
| |||||||
Consolidated Statement of Stockholders’ Equity for the three years ended December 31, |
| |||||||
| ||||||||
| Auditors |
| |||||||
| Quarterly Results (Unaudited) |
|
| ||||||
Financial statements of 20% – 50% owned companies accounted for under the equity method and unconsolidated | ||||||||
| (2) |
| Financial Statement Schedules not required | ||||||
| (3) |
| The following Exhibits are filed or incorporated by reference as indicated in the Index to Exhibits: | ||||||
Deed of Incorporation as last amended on May 4, 2001 | Exhibit 3(a) | |||||||
By-Laws as last amended on April | Exhibit 3(b) | |||||||
Indenture, dated as of June 9, 2003, by and between Schlumberger and Citibank N.A., as Trustee | Exhibit | |||||||
First Supplemental Indenture, dated as of June 9, 2003, by and between Schlumberger and Citibank, N.A., as Trustee | Exhibit 4.4 | |||||||
Schlumberger is party to a number of | ||||||||
Schlumberger 1994 Stock Option Plan* as amended on January 5, 1995 | Exhibit | |||||||
Schlumberger 1994 Stock Option Plan* Second Amendment | Exhibit 10(b) | |||||||
Schlumberger 1994 Stock Option Plan* Third Amendment | Exhibit 10(c) | |||||||
Schlumberger Limited Supplementary Benefit Plan* as amended on January 1, 1995 | Exhibit 10(d) | |||||||
Schlumberger 1989 Stock Incentive Plan* as amended | Exhibit 10(e) | |||||||
Schlumberger 1989 Stock Incentive Plan* Third Amendment | Exhibit 10(f) | |||||||
| ||||||||
Schlumberger Restoration Savings Plan | Exhibit 10(g) | |||||
Schlumberger 1998 Stock Option Plan* | Exhibit 10(h) | |||||
Schlumberger 1998 Stock Option Plan* First Amendment | Exhibit 10(i) | |||||
| * | Compensatory plan required to be filed as an exhibit. |
| 73 / SLB | 2003 FORM 10-K |
Part IV, Item 15
1997 Long-Term Incentive Plan of Camco International Inc.; Long-Term Incentive Plan of Camco International Inc. Production Operators Corp. 1992 Long-Term Incentive Plan; Camco 1996 Savings Related Share Option Scheme; Camco International Inc. Amended and Restated Stock Option Plan for Non-Employee Directors | Exhibit 10(j) | |||||||
Schlumberger 2001 Stock Option Plan* | Exhibit | |||||||
Schlumberger Stock and Deferral Plan for Non-Employee Directors* | Exhibit | |||||||
Subsidiaries | Exhibit 21 | |||||||
Consent of Independent Accountants | Exhibit 23 | |||||||
Powers of Attorney (a)
| Exhibit | |||||||
(b) Tony Isaac – dated January 29, 2004 | Exhibit 24(b) | |||||||
Certification of Chief Executive Officer pursuant to Form of Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Exhibit 31(a) | |||||||
Certification of Chief Financial Officer pursuant to Form of Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Exhibit 31(b) | |||||||
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Exhibit | |||||||
Certification | Exhibit | |||||||
Additional Exhibit: Form S-8 Undertakings | Exhibit | |||||||
| (4) |
| The following reports were filed on Form 8-K during the last quarter of the period covered by this 10-K report: | ||||||
| Report 8-K dated September 22, 2003, filed as of October 16, 2003 to furnish pro forma financial information with respect to (i) the sale of the SchlumbergerSema businesses and (ii) the probable sale of Atos shares to reduce the Company’s ownership in Atos to 19%. | ||||||||
| Report 8-K dated October 21, 2003, filed as of October 22, 2003 to report Schlumberger’s Third Quarter Press Release, Question and Answer document and related non-GAAP financial measures. | ||||||||
| Report 8-K dated December 9, 2003, filed as of December 9, 2003 to report the signing of an agreement to acquire PetroAlliance Services Company Limited. | ||||||||
| * | Compensatory plan required to be filed as an exhibit. |
| 74 / SLB | 2003 FORM 10-K |
| ||||||
| ||||||
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 3, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
INDEX TO EXHIBITS Exhibit Page Deed of Incorporation as last amended on May 4, 2001 incorporated by reference to Form 10-Q for the period ended June 30, 2001 3(a) — By-Laws as last amended on April 19, 2001, incorporated by reference to Form 10-Q for the period ended June 30, 2001 3(b) — Schlumberger 1994 Stock Option Plan, as amended on January 5, 1995, incorporated by reference to Exhibit 10(a) to Form 10-K for year 1995 10(a) — Schlumberger 1994 Stock Option Plan – Second Amendment incorporated by reference to Exhibit 10(b) to Form 10-K for the year 1999 10(b) — Schlumberger 1994 Stock Option Plan – Third Amendment incorporated by reference to Exhibit 10(c) to Form 10-K for the year 1999 10(c) — Schlumberger Limited Supplementary Benefit Plan, as amended, on January 1, 1995, incorporated by reference to Exhibit 10(b) to Form 10-K for 1996 10(d) — Schlumberger 1989 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10(c) to Form 10-K for year 1995 10(e) — Schlumberger 1989 Stock Incentive Plan – Third Amendment incorporated by reference to Exhibit 10(f) to Form 10-K for the year 1999 10(f) — Schlumberger Restoration Savings Plan, incorporated by reference to Exhibit 10(f) to Form 10-K for year 1995 10(g) — Schlumberger 1998 Stock Option Plan, incorporated by reference to Exhibit 10(g) to Form 10-K for year 1997 10(h) — Schlumberger 1998 Stock Option Plan – First Amendment incorporated by reference to Exhibit 10(i) to Form 10-K for the year 1999 10(i) — 1997 Long-Term Incentive Plan of Camco International Inc.; Long-Term Incentive Plan of Camco International Inc.; Production Operators Corp. 1992 Long-Term Incentive Plan; Camco 1996 Savings Related Share Option Scheme; Camco International Inc. Amended and Restated Stock Option Plan for Nonemployee Directors; incorporated by reference to Exhibit 10 to Form S-8 of August 31, 1998 10(j) — Schlumberger 2001 Stock Option Plan, incorporated by reference to Form 10-Q for the period ended March 31, 2001 10(k) — Schlumberger Stock and Deferral Plan for Non-Employee Directors, incorporated by reference to Exhibit 10(l) to Form 10-K for the year 2001 10(l) — Subsidiaries 21 79 Consent of Independent Accountants 23 80
INDEX TO EXHIBITS
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