Notes to Consolidated Financial Statements
1. Business Description
Schlumberger Limited (Schlumberger N.V., incorporated in the Netherlands Antilles) and its
subsidiaries form the worlds leading oilfield services company, supplying technology, project management, and information solutions that optimize performance in the oil and gas industry. Schlumberger consists of two business segments: Oilfield
Services (OFS) and WesternGeco. Oilfield Services is the worlds premier oilfield service company, supplying a wide range of technology services and solutions to the international petroleum industry. The Oilfield Services segment
provides virtually all exploration and production services required during the life of an oil and gas reservoir. 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.
2. Summary of Accounting Policies
The
Consolidated Financial Statements
of Schlumberger Limited
(Schlumberger) have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation
The accompanying
Consolidated Financial Statements
include the accounts of Schlumberger, its wholly owned subsidiaries, and subsidiaries over which it exercises a
controlling financial interest. All significant intercompany transactions and balances have been eliminated. Investments in entities in which Schlumberger does not have a controlling financial interest, but over which it has significant influence
are accounted for using the equity method. Schlumbergers share of the after-tax earnings of equity method investees is included in
Interest and other income
. Investments in which Schlumberger does not have the ability to exercise
significant influence are accounted for using the cost method. Both equity and cost method investments are classified in
Investments in Affiliated Companies
.
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 collectibility of accounts receivable, valuation of inventories and investments, recoverability of goodwill and intangible assets, income taxes, multiclient seismic data, contingencies 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.
43
Part II, Item 8
Revenue Recognition
Oilfield Services
Services and Products Revenue
Schlumberger recognizes revenue for services and products based upon purchase orders, contracts or other persuasive evidence of an arrangement with the customer that include fixed or determinable prices. Revenue is
recognized for services when they are rendered and collectibility is reasonably assured. Revenue is recognized for products upon delivery, customer acceptance and when collectibility is reasonably assured.
Software Revenue
Revenue derived from the sale of licenses of Schlumberger software may include installation, maintenance, 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, the fee is fixed or 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.
The percentage of completion method of accounting is applied to contracts whereby software is being customized to a customers specifications.
WesternGeco
Revenue from all services is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable and collectibility is reasonably assured.
Revenue from contract services performed on a dayrate basis is recognized as the service is performed. Revenue from other contract services, including pre-funded multiclient surveys, is recognized as the seismic data is acquired and/or processed on
a proportionate basis as work is performed. This method requires revenue to be recognized based upon quantifiable measures of progress, such as square kilometers acquired. Multiclient data surveys are licensed or sold to customers on a
non-transferable basis. Revenue on completed multiclient data surveys is recognized upon obtaining a signed licensing agreement and providing customers access to such data.
Multiple Deliverable Arrangements
Revenue in both segments may be generated from contractual arrangements that include multiple deliverables, including certain Integrated Project Management contracts.
Revenue from these arrangements is recognized as each item is delivered based on their relative fair value and when the delivered items have stand-alone value to the customer.
Other
Taxes assessed by governmental authorities that are imposed concurrently on specific revenue-producing transaction, such as sales and value added taxes, are excluded from
revenue in the
Consolidated Statement of Income.
44
Part II, Item 8
Translation of Non-United States Currencies
Schlumbergers functional currency is primarily the US dollar. All assets and
liabilities recorded in functional currencies other than US dollars are translated at current exchange rates. The resulting adjustments are charged or credited directly to the
Stockholders Equity
section of the
Consolidated Balance
Sheet
. Revenue and expenses are translated at the weighted-average exchange rates for the period. All realized and unrealized transaction gains and losses are included in income in the period in which they occur. Transaction losses of $17
million, $20 million, and $13 million were recognized in 2007, 2006 and 2005, respectively.
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 that are
considered trading (December 31, 2007$184 million; December 31, 2006$164 million). Both
Short-term investments
and
Fixed Income Investments, held to maturity
are comprised primarily of money market funds, eurodollar
time deposits, certificates of deposit and commercial paper, euronotes and eurobonds, and are substantially denominated in US dollars. They are stated at cost plus accrued interest, which approximates market. Short-term investments that are
designated as trading are stated at market. The unrealized gains/losses on investments designated as trading were not significant at both December 31, 2007 and 2006.
For purposes of the
Consolidated Statement of Cash Flows
, Schlumberger does not consider short-term investments to be cash equivalents as a significant portion of them have original maturities in excess of
three months.
Long-term fixed income investments of $440 million mature as follows: $152 million in 2009, $81 million in 2010, $84 million
in 2011 and $123 million in 2012.
Inventories
Inventories are stated at average cost or at market, whichever is lower. Inventory consists
of materials, supplies and finished goods. Costs included in inventories consist of materials, direct labor and manufacturing overhead.
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 of oilfield technical equipment manufactured or assembled by subsidiaries of Schlumberger. Expenditures for 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
The multiclient library consists of completed and in-process seismic surveys that are
licensed on a nonexclusive basis. This data may be acquired and/or processed by Schlumberger or subcontractors. Multiclient surveys are primarily generated utilizing Schlumberger resources. Schlumberger capitalizes costs directly incurred in
acquiring and processing the multiclient seismic data. Such costs are charged to
Cost of goods sold and services
based on the percentage of the total costs to the estimated total revenue that Schlumberger expects to receive from the sales of
such data. However, except as described in Note 4
Acquisitions
regarding the accounting for multiclient seismic data at the time of the purchase of the WesternGeco minority interest, under no circumstance will an individual survey carry a net
book value greater than a 4- year straight-line amortized value.
45
Part II, Item 8
The carrying value of the multiclient library is reviewed for impairment
annually as well as when an event or change in circumstance indicating impairment may have occurred. Adjustments to the carrying value are recorded when it is determined that estimated future cash flows, which involves significant judgment on the
part of Schlumberger, would not be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumbergers estimated future cash flows could result in impairment charges in a future period.
Goodwill, Other Intangibles and Long-lived Assets
Schlumberger records as goodwill the excess of purchase price over the fair value of the
tangible and identifiable intangible assets acquired. Statement of Financial Accounting Standards 142,
Goodwill and Other Intangible Assets
(SFAS 142), requires goodwill to be tested for impairment annually as well as when an event or change
in circumstance indicates an impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of Schlumbergers individual reporting units to their carrying amount to determine if there is a potential goodwill
impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.
For purposes of performing the impairment test for goodwill as required by SFAS 142,
Schlumbergers reporting units are primarily the geographic areas comprising the Oilfield Services segment in addition to the WesternGeco segment. Schlumberger estimates the fair value of these reporting units using a discounted cash flow
analysis and/or applying various market multiples. From time to time a third-party valuation expert may be utilized to assist in the determination of fair value. Determining the fair value of a reporting unit is a matter of judgment and often
involves the use of significant estimates and assumptions. Schlumbergers estimates of the fair value of each of its reporting units were significantly in excess of their respective carrying values for 2007, 2006 and 2005. Schlumberger performs
the annual goodwill impairment test of its WesternGeco reporting unit on October 1
st
of every year while the reporting units comprising the Oilfield
Services segment are tested as of December 31
st
.
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for
impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the assets recorded
value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involve significant estimates
on the part of management. In order to estimate the fair value of a long-lived asset, Schlumberger may engage a third-party to assist with the valuation. If there is a material change in economic conditions or other circumstances influencing the
estimate of future cash flows or fair value, Schlumberger could be required to recognize impairment charges in the future.
Schlumberger
capitalizes certain costs of internally developed software. Capitalized costs include purchased materials and services, payroll and payroll related costs. The costs of internally developed software are amortized on a straight-line basis over the
estimated useful life, which is principally 5 to 7 years. Other intangible assets consist primarily of technology and customer relationships acquired in business combinations. Acquired technology is generally amortized over periods ranging from 5 to
15 years and acquired customer relationships are generally amortized over periods ranging from 7 years to 20 years.
46
Part II, Item 8
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.
Schlumbergers tax filings are subject to regular audit by the tax authorities in most of the jurisdictions in which it conducts
business. These audits may result in assessments for additional taxes which are resolved with the authorities or, potentially, through the courts. Tax liabilities are recorded based on estimates of additional taxes which will be due upon the
conclusion of these audits. Estimates of these tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulation, it is
possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, Schlumberger will record additional tax expense or tax benefit in the year in which such resolution
occurs.
Approximately $12.6 billion of consolidated income retained for use in the business on December 31, 2007 represented
undistributed earnings of consolidated subsidiaries and Schlumbergers share of equity method investees. 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
Schlumbergers assets that are exposed to concentrations of credit risk consist
primarily of cash, short-term investments, fixed income investments held to maturity, and receivables from clients and derivative financial instruments. Schlumberger places its cash, short-term investments and fixed income investments held to
maturity with financial institutions and corporations, and limits the amount of credit exposure with any one of them. Schlumberger regularly evaluates the creditworthiness of the issuers in which it invests. The receivables from clients are spread
over many countries and customers. Schlumberger maintains an allowance for uncollectible accounts receivable based on expected collectibility and performs ongoing credit evaluations of its customers financial condition. By using derivative
financial instruments to hedge exposure to changes in exchange rates and interest rates, Schlumberger exposes itself to credit 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.
Research & Engineering
All research and
engineering expenditures are expensed as incurred, including costs relating to patents or rights that may result from such expenditures.
47
Part II, Item 8
Earnings per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the year.
Diluted earnings per share is calculated by first adding back to net income the interest expense on the convertible debentures and then dividing this adjusted net income by the sum of (i) unvested restricted stock units; and (ii) the
weighted average number of common shares outstanding assuming dilution. The weighted average number of common shares outstanding assuming dilution assumes (a) that all stock options which are in the money are exercised at the beginning of the
period and that the proceeds are used by Schlumberger to purchase shares at the average market price for the period, and (b) the conversion of the convertible debentures.
If the impact of adding the interest expense on the convertible debentures back to net income and including the shares from the assumed conversion of the
convertible debentures has an anti-dilutive effect on the diluted earnings per share calculation, then the effects of the convertible debentures are excluded from the calculation.
The following is a reconciliation from basic earnings per share to diluted earnings per share from continuing operations for each of the last three years:
|
|
|
|
|
|
|
|
|
(Stated in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
Income
from
Continuing
Operations
|
|
Weighted
Average
Shares
Outstanding
|
|
Earnings
Per Share
from
Continuing
Operations
|
2007:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5,176,516
|
|
1,187,944
|
|
$
|
4.36
|
|
|
|
|
|
|
|
|
|
Assumed conversion of debentures
|
|
|
23,671
|
|
28,986
|
|
|
|
Assumed exercise of stock options
|
|
|
|
|
20,868
|
|
|
|
Unvested restricted stock
|
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
5,200,187
|
|
1,238,675
|
|
$
|
4.20
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3,709,851
|
|
1,181,683
|
|
$
|
3.14
|
|
|
|
|
|
|
|
|
|
Assumed conversion of debentures
|
|
|
28,788
|
|
38,210
|
|
|
|
Assumed exercise of stock options
|
|
|
|
|
21,874
|
|
|
|
Unvested restricted stock
|
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
3,738,639
|
|
1,242,196
|
|
$
|
3.01
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2,198,995
|
|
1,178,576
|
|
$
|
1.87
|
|
|
|
|
|
|
|
|
|
Assumed conversion of debentures
|
|
|
28,788
|
|
38,210
|
|
|
|
Assumed exercise of stock options
|
|
|
|
|
12,930
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2,227,783
|
|
1,229,716
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
Employee stock options to purchase
approximately 809,500 and 628,000 shares of common stock at December 31, 2007 and 2006, respectively, were outstanding but not included in the computation of diluted earnings per share because the option exercise price was greater than the
average market price of the common stock, and therefore, the effect on diluted earnings per share would have been anti-dilutive. At December 31, 2005 the average market price was greater than the exercise price of all outstanding stock options,
therefore there were no options excluded from the computation of diluted earnings per share for 2005.
48
Part II, Item 8
Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
141 (revised 2007),
Business Combinations
(SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest (previously referred to as minority interest) in the acquiree. The provisions of SFAS 141(R) are effective for business combinations occurring on or after January 1, 2009.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements
,
an Amendment of ARB No. 51
(SFAS 160)
.
This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the loss of control of a subsidiary. Upon its adoption on January 1, 2009,
noncontrolling interests will be classified as equity in the Schlumberger financial statements.
SFAS 160 also changes the way the
consolidated income statement is presented by requiring net income to include the net income for both the parent and the noncontrolling interest, with disclosure of both amounts on the consolidated statement of income. The calculation of earnings
per share will continue to be based on income amounts attributable to the parent. The provisions of this standard must be applied retrospectively upon adoption.
3. Charges and Credits
Schlumberger recorded the following Charges and Credits in 2007, 2006 and 2005:
2007
Fourth quarter of 2007:
|
·
|
|
Schlumberger sold certain workover rigs for $32 million, resulting in a pretax gain of $25 million ($17 million after-tax) which is classified in
Interest and
other income
in the
Consolidated Statement of Income
.
|
2006
Second quarter of 2006:
|
·
|
|
As discussed in further detail in Note 4
Acquisitions
, Schlumberger acquired the remaining 30% minority interest in WesternGeco held by Baker Hughes
Incorporated for $2.4 billion in cash during the second quarter of 2006. In connection with this transaction, a pretax and after-tax charge of $21 million was recorded, representing the portion of the purchase price that was allocated to in-process
research and development. Schlumberger recorded an additional $6 million of in-process research and development charges, primarily related to a small acquisition which was also completed in the second quarter of 2006. These amounts were determined
by identifying research and development projects that had not yet reached technological feasibility at the time of the acquisition. These charges are classified in
Research & engineering
in the
Consolidated Statement of
Income.
|
|
·
|
|
Schlumberger recorded a pretax and after-tax loss of $9 million relating to the liquidation of certain investments in connection with the funding of the previously
mentioned WesternGeco transaction. These losses are classified in
Interest and other income
in the
Consolidated Statement of Income.
|
|
·
|
|
In connection with the settlement of the WesternGeco visa matter described in Note 17
Contingencies
, a pretax charge of $10 million ($7 million after-tax and
minority interest) was recorded in the second quarter of 2006 and is classified in
Cost of goods sold and services
in the
Consolidated Statement of Income
.
|
49
Part II, Item 8
The following is a summary of 2006 Charges and Credits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
|
|
Tax
|
|
Minority
Interest
|
|
|
Net
|
|
|
|
|
|
Charges & Credits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- WesternGeco in-process R&D charge
|
|
$
|
21.0
|
|
$
|
|
|
$
|
|
|
|
$
|
21.0
|
- Loss on liquidation of investments to fund WesternGeco transaction
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
9.4
|
- WesternGeco visa settlement
|
|
|
9.7
|
|
|
0.3
|
|
|
(3.2
|
)
|
|
|
6.8
|
- Other in-process R&D charges
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
Net Charges
|
|
$
|
45.7
|
|
$
|
0.3
|
|
$
|
(3.2
|
)
|
|
$
|
42.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Fourth quarter of 2005:
Schlumberger sold its investment in Hanover Compressor Company common stock for net proceeds of $110 million, resulting in a pretax and
after-tax gain of $21 million. The pretax gain is classified in
Interest and other income
in the
Consolidated Statement of Income
.
Third quarter of 2005:
Schlumberger recorded a pretax and after-tax gain of approximately $18 million relating to the resolution of a contingency associated with the March 2005 sale of its facility in Montrouge, France. This gain is
classified in
Interest and other income
in the
Consolidated Statement of Income
.
First quarter of 2005:
In March 2005,
Schlumberger sold its facility in Montrouge, France for $230 million, resulting in a pretax and after-tax gain of $146 million, which is classified in
Interest and other income
in the
Consolidated Statement of Income
. Schlumberger also
recorded other real estate related pretax charges of $12 million ($11 million after-tax), which are classified in
Cost of goods sold and services
in the
Consolidated Statement of Income
.
The following is a summary of 2005 Charges and Credits:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
|
|
|
Charges & Credits
|
|
|
|
|
|
|
|
|
|
|
|
|
- Gain on sale of Hanover Compressor stock
|
|
$
|
(20.9
|
)
|
|
$
|
|
|
|
$
|
(20.9
|
)
|
- Gain on sale of Montrouge facility
|
|
|
(163.4
|
)
|
|
|
|
|
|
|
(163.4
|
)
|
- Other real estate related charges
|
|
|
12.1
|
|
|
|
(0.8
|
)
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
Net Credits
|
|
$
|
(172.2
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(173.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Acquisitions
Acquisition of Eastern Echo Holding Plc
On December 10, 2007, Schlumberger completed the acquisition of Eastern Echo Holding
Plc (Eastern Echo) for $838 million in cash. Eastern Echo is a Dubai-based marine seismic company that does not currently have any operations, but has signed contracts for the construction of six seismic vessels. The first four vessels
are scheduled to be delivered in January, March, May and July of 2009, while the remaining two are scheduled to be delivered January and March of 2010.
50
Part II, Item 8
The purchase price has been allocated to the net assets acquired based upon
their estimated fair values as follows:
|
|
|
|
|
(Stated in millions)
|
|
|
|
Cash and short-term investments
|
|
$
|
266
|
|
Other current assets
|
|
|
23
|
|
Fixed income investments, held to maturity
|
|
|
54
|
|
Vessels under construction
|
|
|
735
|
|
Accounts payable and accrued liabilities
|
|
|
(17
|
)
|
Long-term debt
|
|
|
(182
|
)
|
Deferred tax liability
|
|
|
(41
|
)
|
|
|
Total purchase price
|
|
$
|
838
|
|
|
|
|
|
|
Acquisition of WesternGeco
Minority Interest
On April 28, 2006, Schlumberger acquired the
remaining 30% minority interest in WesternGeco from Baker Hughes Incorporated for $2.4 billion in cash. Schlumberger also incurred direct acquisition costs of $6 million in connection with this transaction. As a result of this transaction,
Schlumberger owns 100% of WesternGeco.
The purchase price has been allocated to the proportionate share of net assets acquired based upon
their estimated fair values as follows:
|
|
|
|
|
(Stated in millions)
|
|
|
|
Book value of minority interest acquired
|
|
$
|
460
|
|
|
|
Fair value adjustments:
|
|
|
|
|
Technology (weighted average life of 15 years)
|
|
|
293
|
|
Customer relationships (life of 20 years)
|
|
|
153
|
|
Vessels (weighted average remaining life of 11 years)
|
|
|
84
|
|
Other fixed assets (weighted average remaining life of 3 years)
|
|
|
10
|
|
Multiclient seismic data (maximum life of 3 years)
|
|
|
41
|
|
Other identifiable intangible assets (life of 15 years)
|
|
|
49
|
|
In-process research and development (expensed immediately see Note 3)
|
|
|
21
|
|
Deferred income taxes
|
|
|
(43
|
)
|
Goodwill
|
|
|
1,338
|
|
|
|
Total purchase price
|
|
$
|
2,406
|
|
|
|
|
|
|
The amount allocated to goodwill
represents the excess of the purchase price over the fair value of the net assets acquired. Approximately $0.8 billion of the $1.3 billion of goodwill is estimated to be tax deductible. In addition, approximately $650 million of the goodwill created
as a result of this transaction has been allocated to the Oilfield Services business segment in recognition of the estimated present value of future synergies paid for in this transaction that will directly benefit that segment.
Vessels and other fixed assets
In analyzing the fair value of the WesternGeco vessels, it was determined that the remaining estimated useful lives of these assets exceeded
the remaining estimated life currently being used to calculate depreciation expense. Therefore, the estimated remaining useful lives of the vessels were extended an additional 4 years (on a weighted average basis) as of the date of the acquisition.
The impact of the fair value adjustments for all fixed assets, combined with the change in estimate regarding the depreciable lives of the vessels, resulted in a net reduction in depreciation expense of approximately $2 million in 2006.
51
Part II, Item 8
Multiclient seismic data
The carrying value of the multiclient library immediately after the acquisition increased to $243 million from $202 million, reflecting the
impact of the $41 million fair value adjustment. These capitalized costs will be charged to
Cost of goods sold and services
based on the percentage of the total costs on the balance sheet to the estimated total revenue that Schlumberger
expects to receive from the sales of such data. Schlumberger policy has been that under no circumstance will an individual survey carry a net book value greater than a 4-year straight-line amortized value. After consideration of the estimated number
of future years that revenues are expected to be derived from the multiclient seismic data at the time of the acquisition, Schlumberger concluded that the remaining minimum amortization period should be 3 years for all surveys in the multiclient
seismic library at the time of the transaction, effectively resetting the minimum amortization period. Therefore, the $243 million of capitalized multiclient seismic data costs will be charged to expense over a period no longer than the next 3 years
from the date of the transaction. Surveys comprising the $202 million of multiclient seismic data costs prior to this transaction had a weighted average remaining life for purposes of computing the minimum amortization of approximately 1.8 years.
Given the current emphasis on requiring multiclient projects to be significantly prefunded before the project commences, Schlumberger currently estimates that the majority of revenues to be derived from sales of new surveys will be achieved within a
4-year period. Therefore, Schlumberger will continue its policy that under no circumstance will an individual survey carry a net book value greater than a 4-year straight-line amortized value for all surveys added to the library after the date of
this transaction.
The net impact of the $41 million fair value adjustment combined with the resetting of the minimum amortization period
resulted in an approximate $28 million net reduction in multiclient amortization expense in 2006 as compared to what multiclient amortization expense would have been had this transaction not been consummated.
Acquisition of PetroAlliance Minority Interest
On December 9, 2003, Schlumberger announced that it had signed an agreement to acquire
PetroAlliance Services Company Limited (PetroAlliance Services) over a 3-year period based on a formula determined at that time. Schlumberger acquired 26% of PetroAlliance Services in the second quarter of 2004 for $12 million in cash
and 843,740 shares of Schlumberger common stock valued at $24 million. During the second quarter of 2005, Schlumberger acquired an additional 25% of PetroAlliance Services for $40 million in cash and 2,300,646 shares of Schlumberger common stock
valued at $79 million bringing its total ownership interest to 51%. During the second quarter of 2006, Schlumberger acquired the remaining 49% of PetroAlliance Services that it did not own for $165 million in cash and 4,730,960 shares of
Schlumberger common stock valued at approximately $330 million. The aggregate purchase price paid for PetroAlliance Services over the 3-year period was $650 million.
Schlumberger began consolidating the results of PetroAlliance Services in the second quarter of 2005. This investment had previously been accounted under the equity method.
The $495 million purchase price paid in the second quarter of 2006 has been allocated to the proportionate share of net assets acquired based upon their
estimated fair values as follows:
|
|
|
|
|
(Stated in millions)
|
|
|
|
Book value of minority interest acquired
|
|
$
|
33
|
|
|
|
Fair value adjustments:
|
|
|
|
|
Customer relationships (life of 12 years)
|
|
|
69
|
|
Other identifiable intangible assets (life of 5 years)
|
|
|
7
|
|
Deferred income taxes
|
|
|
(18
|
)
|
Goodwill
|
|
|
404
|
|
|
|
Total purchase price
|
|
$
|
495
|
|
|
|
|
|
|
52
Part II, Item 8
The amount allocated to goodwill represents the excess of the purchase price over the fair
value of the net assets acquired. The goodwill is not tax deductible.
Other
Acquisitions
Schlumberger has made other acquisitions and minority
interest investments, none of which were significant on an individual basis, for cash payments of $306 million during 2007, $356 million during 2006, and $56 million during 2005.
Under the terms of certain past acquisitions, Schlumberger had obligations to pay additional consideration if specific conditions were met. Schlumberger
made cash payments of $63 million during 2006 and $21 million during 2005, with respect to certain transactions that were consummated in prior years, which were recorded as additional goodwill.
Pro forma results pertaining to the above acquisitions, including the WesternGeco and PetroAlliance Services transactions, are not presented as the impact
was not significant.
5. Investments in Affiliated Companies
The MI-SWACO drilling fluids joint venture is owned 40% by Schlumberger
and 60% by Smith International, Inc. Schlumberger records income relating to this venture using the equity method of accounting. Schlumbergers investment in the joint venture on December 31, 2007 and 2006 was $1.2 billion and $970
million, respectively. Schlumbergers equity income from this joint venture in 2007 was $174 million, $135 million in 2006 and $83 million in 2005. Schlumberger received cash distributions from the joint venture of $40 million in 2007 and $28
million in 2005. There were no such distributions in 2006.
Schlumbergers joint venture agreement with Smith International, Inc.
contains a provision under which either party to the joint venture may offer to sell its entire interest in the venture to the other party at a cash purchase price per percentage interest specified in an offer notice. If the offer to sell is
not accepted, the offering party will be obligated to purchase the entire interest of the other party at the same price per percentage interest as the prices specified in the offer notice.
6. Inventory
A summary of inventory follows:
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
As at December 31,
|
|
2007
|
|
2006
|
|
|
|
Raw Materials & Field Materials
|
|
$
|
1,521
|
|
$
|
1,186
|
Work in Process
|
|
|
147
|
|
|
127
|
Finished Goods
|
|
|
145
|
|
|
91
|
|
|
|
|
|
|
|
1,813
|
|
|
1,404
|
Less reserves for obsolescence
|
|
|
175
|
|
|
157
|
|
|
|
|
|
|
$
|
1,638
|
|
$
|
1,247
|
|
|
|
|
|
|
|
53
Part II, Item 8
7. Fixed Assets
A summary of fixed assets follows:
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
As at December 31,
|
|
2007
|
|
2006
|
|
|
|
Land
|
|
$
|
78
|
|
$
|
87
|
Buildings & improvements
|
|
|
1,365
|
|
|
1,100
|
Machinery & equipment
|
|
|
15,121
|
|
|
12,725
|
Vessels under construction
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
17,345
|
|
|
13,912
|
Less accumulated depreciation
|
|
|
9,337
|
|
|
8,336
|
|
|
|
|
|
|
$
|
8,008
|
|
$
|
5,576
|
|
|
|
|
|
|
|
The estimated useful
lives of Buildings & Improvements are primarily 30 to 40 years. For Machinery & Equipment, 6% is being depreciated over 16 to 25 years, 5% over 10 to 15 years and 89% over 2 to 9 years determined on a gross book value basis.
Depreciation and amortization expense relating to fixed assets was $1.526 billion, $1.232 billion and $1.092 billion in 2007, 2006 and
2005, respectively.
8. Multiclient Seismic Data
The change in the carrying amount of multiclient seismic data is as
follows:
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Balance at beginning of year
|
|
$
|
227
|
|
|
$
|
222
|
|
Capitalized in year
|
|
|
260
|
|
|
|
180
|
|
Fair value adjustment (see Note 4)
|
|
|
|
|
|
|
41
|
|
Charged to cost of goods sold & services
|
|
|
(305
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
$
|
182
|
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
|
9. Goodwill
The changes in the carrying amount of goodwill by business segment in
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
Oilfield
Services
|
|
Western
Geco
|
|
Total
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
4,049
|
|
$
|
940
|
|
$
|
4,989
|
Additions
|
|
|
129
|
|
|
17
|
|
|
146
|
Impact of change in exchange rates
|
|
|
7
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
4,185
|
|
$
|
957
|
|
$
|
5,142
|
|
|
|
|
|
|
|
|
|
|
The changes in the
carrying amount of goodwill by business segment in 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
Oilfield
Services
|
|
Western
Geco
|
|
Total
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
2,676
|
|
$
|
246
|
|
$
|
2,922
|
Acquisition of WesternGeco minority interest
|
|
|
653
|
|
|
685
|
|
|
1,338
|
Acquisition of PetroAlliance minority interest
|
|
|
404
|
|
|
|
|
|
404
|
Other additions
|
|
|
301
|
|
|
9
|
|
|
310
|
Impact of change in exchange rates
|
|
|
15
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
4,049
|
|
$
|
940
|
|
$
|
4,989
|
|
|
|
|
|
|
|
|
|
|
54
Part II, Item 8
10. Intangible Assets
Intangible assets principally comprise software, technology and customer relationships. At
December 31, the gross book value and accumulated amortization of intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Gross
Book Value
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross
Book Value
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
|
|
|
|
|
|
Software
|
|
$
|
341
|
|
$
|
204
|
|
$
|
137
|
|
$
|
376
|
|
$
|
191
|
|
$
|
185
|
Technology
|
|
|
437
|
|
|
89
|
|
|
348
|
|
|
455
|
|
|
97
|
|
|
358
|
Customer Relationships
|
|
|
354
|
|
|
34
|
|
|
320
|
|
|
264
|
|
|
12
|
|
|
252
|
Other
|
|
|
128
|
|
|
30
|
|
|
98
|
|
|
127
|
|
|
14
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,260
|
|
$
|
357
|
|
$
|
903
|
|
$
|
1,222
|
|
$
|
314
|
|
$
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
was $124 million in 2007, $113 million in 2006 and $75 million in 2005.
The weighted average amortization period for all intangible assets
is approximately 12 years.
Amortization expense for the subsequent five years is estimated to be as follows: 2008 $122 million,
2009 $99 million, 2010 $87 million, 2011 $82 million and 2012 $79 million.
11. Long-term Debt and Debt Facility Agreements
Convertible Debentures
During 2003, Schlumberger Limited issued $975 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.
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 27.651 shares for each $1,000 principal amount of Series A debentures (equivalent to an initial
conversion price of $36.165 per share). Holders of the Series B debentures may convert their debentures into common stock at a conversion rate of 25.000 shares for each $1,000 principal amount of Series B debentures (equivalent to an initial
conversion price of $40.00 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 (defined as a change in control or a termination of trading of Schlumbergers common stock), holders may require Schlumberger to repurchase all or a portion of their debentures for an amount equal to 100% of the principal amount of the
debentures plus accrued and unpaid interest to the repurchase date. The repurchase price may be paid in cash, Schlumberger common stock (or if Schlumberger is not the surviving entity in a merger, the securities of the surviving entity) or a
combination of cash and the applicable securities, at Schlumbergers option. The applicable securities will be valued at 99% of their market price.
55
Part II, Item 8
Schlumbergers option to pay the repurchase price with securities is
subject to certain conditions. The debentures will mature on June 1, 2023 unless earlier redeemed or repurchased.
During 2007, $622
million of the Series A debentures and $34 million of the Series B debentures were converted into 18 million shares of Schlumberger common stock.
At December 31, 2007, there were $353 million of the Series A debentures and $416 million of the Series B debentures outstanding. The fair value of the Series A and Series B debentures at December 31, 2007
was $956 million and $1.02 billion, respectively.
Other Long-Term Debt
A summary of other long-term debt by currency, analyzed by Bonds and Notes,
Commercial Paper (CP) and Other, at December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Bonds and
Notes
|
|
CP
|
|
Other
|
|
Total
|
|
Bonds and
Notes
|
|
CP
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
US dollar
|
|
$
|
1,420
|
|
$
|
522
|
|
$
|
207
|
|
$
|
2,149
|
|
$
|
1,177
|
|
$
|
548
|
|
$
|
130
|
|
$
|
1,855
|
Euro
|
|
|
372
|
|
|
|
|
|
69
|
|
|
441
|
|
|
652
|
|
|
|
|
|
46
|
|
|
698
|
UK pound
|
|
|
|
|
|
166
|
|
|
|
|
|
166
|
|
|
33
|
|
|
156
|
|
|
25
|
|
|
214
|
Canadian dollar
|
|
|
255
|
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
|
129
|
|
|
129
|
Norwegian kroner
|
|
|
|
|
|
|
|
|
368
|
|
|
368
|
|
|
|
|
|
|
|
|
343
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,047
|
|
$
|
688
|
|
$
|
644
|
|
$
|
3,379
|
|
$
|
1,862
|
|
$
|
704
|
|
$
|
673
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds and Notes
consist of the following at December 31,
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
2007
|
|
2006
|
|
|
|
6.5% Notes due 2012
|
|
$
|
647
|
|
$
|
648
|
Guaranteed Floating Rate Notes due 2009
|
|
|
591
|
|
|
529
|
5.875% Guaranteed Bonds due 2011
|
|
|
372
|
|
|
333
|
5.14% Guaranteed Notes due 2010
|
|
|
255
|
|
|
|
10.875% Senior Secured Bonds due 2012
|
|
|
182
|
|
|
|
5.25% Guaranteed Bonds due 2008
|
|
|
|
|
|
319
|
6.25% Guaranteed Bonds due 2008
|
|
|
|
|
|
33
|
|
|
|
|
|
|
$
|
2,047
|
|
$
|
1,862
|
|
|
|
|
|
|
|
In September 2006,
Schlumberger Finance B.V. issued 400 million Guaranteed Floating Rate Notes due 2009. Interest is payable quarterly at the rate of 10 basis points over 3-month Euribor. Schlumberger entered into an agreement to swap these Euro notes for
US dollars on the date of issue until maturity, effectively making this US dollar denominated debt on which Schlumberger Finance B.V. will pay interest in US dollars at the rate of 3-month LIBOR plus 0.0875%. The carrying value of these Notes
approximated their fair value at December 31, 2007.
The fair value of the $647 million of Schlumberger Technology Corporation 6.5%
Notes due 2012 was $689 million at December 31, 2007.
The fair value of the $372 million of Schlumberger SA euro denominated 5.875%
Guaranteed Bonds due 2011 was $386 million at December 31, 2007.
The fair value of the $255 million of Schlumberger Canada Limited
5.14% Guaranteed Notes due 2010, which are Canadian dollar denominated, approximated its carrying value as at December 31, 2007.
56
Part II, Item 8
In connection with the Eastern Echo acquisition (see Note 4,
Acquisitions
), Schlumberger assumed 10.875% Senior Secured Bonds due May 2012 with par value of $160 million. The fair value of these both at the time of the acquisition was approximately $182 million and the carrying value approximated their
fair value at December 31, 2007. These bonds can be redeemed at the following defined dates at the following multiples of par value:
|
|
|
|
May 2009 May 2010
|
|
106
|
%
|
May 2010 May 2011
|
|
104
|
%
|
May 2011 Maturity
|
|
102
|
%
|
Commercial paper
borrowings are classified as long-term debt to the extent of their backup by available and unused committed credit facilities maturing in more than one year and Schlumbergers intent to maintain these obligations for longer than one year.
Commercial paper borrowings outstanding at December 31, 2007 and 2006 include certain notes issued in currencies other than the US
dollar which were swapped for US dollars on the date of issue until maturity.
The weighted average interest rate on variable rate debt as
of December 31, 2007 was 5.1%.
Other Long-term Debt
as of December 31, 2007, which excludes the Convertible Debentures, is
due as follows: $606 million in 2009, $520 million in 2010, $737 million in 2011 and $1.516 billion in 2012.
Debt Facility Agreements
On December 31,
2007, wholly-owned subsidiaries of Schlumberger had separate debt facility agreements aggregating $4.6 billion with commercial banks, of which $3.8 billion was committed and $2.3 billion was available and unused. This included $2.5 billion of
committed facilities which support commercial paper programs in the United States and Europe, and mature in April 2012. Interest rates and other terms of borrowing under these lines of credit vary from country to country.
12. Derivative Instruments and Hedging Activities
Schlumberger uses derivative instruments such as interest rate swaps, currency swaps,
forward currency contracts and foreign currency options.
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. Forward currency contracts provide a hedge against currency fluctuations either on
assets/liabilities denominated in other than a functional currency or on expenses. Schlumberger also maintains an interest rate risk management strategy that uses a mix of variable- and fixed-rate debt together with interest rate swaps, where
appropriate, to fix or lower borrowing costs.
Schlumberger does not enter into foreign currency or interest rate derivatives for
speculative purposes.
On December 31, 2007, interest rate swap arrangements outstanding were pay floating/receive fixed on US dollar
debt of $40 million. These arrangements mature at various dates to December 2009. Interest rate swap arrangements decreased consolidated interest expense in 2007 by $0.4 million.
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 offsets the unrealized currency gains or losses on those assets and
liabilities. On December 31, 2007, contracts were outstanding for the US dollar equivalent of $2.6 billion in various foreign currencies. These contracts mature on various dates in 2008.
At December 31, 2007, Schlumberger recognized a cumulative net $32 million gain in Stockholders Equity relating to derivative instruments and
hedging activities. This gain was primarily due to the revaluation of foreign currency forward contracts at December 31, 2007.
57
Part II, Item 8
13. Capital Stock
Schlumberger is authorized to issue 3,000,000,000 shares of common stock, par value $0.01
per share, of which 1,195,616,324 and 1,177,893,459 shares were outstanding on December 31, 2007 and 2006, respectively. Schlumberger is also authorized to issue 200,000,000 shares of 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 are entitled to one vote for each share of stock held.
14. Stock Compensation Plans
Schlumberger has three types of stock-based compensation programs: stock options, a
restricted stock and restricted stock unit program (collectively referred to as restricted stock) and a discounted stock purchase plan (DSPP).
Effective January 1, 2003, Schlumberger adopted the fair value recognition provisions of SFAS Nos. 123 (
Accounting for Stock-Based Compensation
) and 148 (
Accounting for Stock-Based
Compensation-Transition and Disclosure an amendment of FASB Statement No. 123
). Accordingly, Schlumberger began recording stock option and DSPP expense in the
Consolidated Statement of Income
on a prospective basis for grants
after January 1, 2003.
In December 2004, the FASB issued SFAS 123R
(Share-Based Payment).
The standard amends SFAS 123 and
concludes that services received from employees in exchange for stock-based compensation results in a cost to the employer that must be recognized in the financial statements. The cost of such awards should be measured at fair value at the date of
grant.
Schlumberger adopted SFAS 123R effective January 1, 2006, and is applying the modified prospective method, whereby compensation
cost will be recognized for the unvested portion of awards granted during the period from January 1, 1995 to December 31, 2002. Such costs are recognized in the financial statements of Schlumberger over the remaining vesting periods. Under
this method, prior periods are not revised for comparative purposes.
Had compensation cost for stock-based awards granted prior to
January 1, 2003 been determined based on the fair value at the grant dates, consistent with the fair value method of SFAS 123, Schlumbergers net income and earnings per share in 2005 would have been the pro forma amounts indicated below:
|
|
|
|
|
(Stated in millions, except per share amounts)
|
|
|
|
|
|
2005
|
|
Net income
|
|
|
|
|
As reported
|
|
$
|
2,207
|
|
Pro forma adjustments:
|
|
|
|
|
Cost of stock options
|
|
|
(40
|
)
|
|
|
Pro forma
|
|
$
|
2,167
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
As reported
|
|
$
|
1.87
|
|
Pro forma adjustments:
|
|
|
|
|
Cost of stock options
|
|
|
(0.03
|
)
|
|
|
Pro forma
|
|
$
|
1.84
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
As reported
|
|
$
|
1.82
|
|
Pro forma adjustments:
|
|
|
|
|
Cost of stock options
|
|
|
(0.03
|
)
|
|
|
Pro forma
|
|
$
|
1.79
|
|
|
|
|
|
|
58
Part II, Item 8
Stock Options
Key employees are granted stock options under Schlumberger stock option plans. For all of the stock options granted, the exercise price of each option
equals the average of the high and low sales prices of Schlumberger stock on the date of grant; an options maximum term is generally ten years, and options generally vest in increments over four or five years. The gain on the awards granted
during the period from July 2003 to January 2006 is capped at 125% of the exercise price. Awards granted subsequent to January 2006 do not have a cap on any potential gain and generally vest in increments over five years.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions and resulting weighted-average fair value per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Dividend yield
|
|
|
1.1
|
%
|
|
|
0.8
|
%
|
|
|
1.3
|
%
|
Expected volatility
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
Risk free interest rates
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
|
|
3.8
|
%
|
Expected option life
|
|
|
6.9 years
|
|
|
|
6.1 years
|
|
|
|
4.5 years
|
|
Weighted-average fair value per share
|
|
$
|
25.94
|
|
|
$
|
20.03
|
|
|
$
|
7.12
|
|
The following table
summarizes information concerning outstanding and exercisable options by five ranges of exercise prices as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS OUTSTANDING
|
|
OPTIONS EXERCISABLE
|
Range of
exercise
prices
|
|
Number
outstanding as
of 12/31/07
|
|
Weighted-
average
remaining
contractual life
|
|
Weighted-
average
exercise
price
|
|
Number
exercisable
as of 12/31/07
|
|
Weighted-
average
exercise
price
|
|
|
|
|
|
|
$19.04 $27.87
|
|
9,757,898
|
|
3.94
|
|
$
|
25.83
|
|
9,493,938
|
|
$
|
25.97
|
$27.94 $32.62
|
|
8,667,826
|
|
5.99
|
|
$
|
31.95
|
|
4,800,653
|
|
$
|
31.77
|
$34.83 $54.24
|
|
11,575,507
|
|
6.40
|
|
$
|
48.28
|
|
5,266,365
|
|
$
|
43.98
|
$58.46 $92.70
|
|
5,402,051
|
|
8.95
|
|
$
|
63.41
|
|
219,241
|
|
$
|
64.13
|
$110.78 $110.78
|
|
315,500
|
|
9.80
|
|
$
|
110.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,718,782
|
|
6.05
|
|
$
|
41.02
|
|
19,780,197
|
|
$
|
32.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average
remaining contractual life of stock options exercisable as of December 31, 2007 was 4.46 years.
The following table summarizes stock
option activity during the years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Shares
|
|
|
Weighted-
average
exercise
price
|
|
Shares
|
|
|
Weighted-
average
exercise
price
|
|
Shares
|
|
|
Weighted-
average
exercise
price
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
48,678,601
|
|
|
$
|
36.36
|
|
52,978,806
|
|
|
$
|
31.39
|
|
60,124,050
|
|
|
$
|
29.92
|
Granted
|
|
4,398,500
|
|
|
$
|
66.48
|
|
9,055,140
|
|
|
$
|
55.86
|
|
7,302,980
|
|
|
$
|
33.34
|
Exercised
|
|
(13,788,401
|
)
|
|
$
|
34.89
|
|
(11,277,006
|
)
|
|
$
|
29.89
|
|
(11,004,696
|
)
|
|
$
|
24.28
|
Forfeited
|
|
(3,569,918
|
)
|
|
$
|
31.74
|
|
(2,078,339
|
)
|
|
$
|
29.53
|
|
(3,443,528
|
)
|
|
$
|
32.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at year-end
|
|
35,718,782
|
|
|
$
|
41.02
|
|
48,678,601
|
|
|
$
|
36.36
|
|
52,978,806
|
|
|
$
|
31.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate
intrinsic value of stock options outstanding as of December 31, 2007 was approximately $2.1 billion. The aggregate intrinsic value of stock options exercisable as of December 31, 2007 was approximately $1.3 billion.
The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005, was approximately $607 million, $366 million
and $193 million, respectively.
59
Part II, Item 8
Restricted Stock
On April 12, 2006, the stockholders of Schlumberger approved amendments to Schlumbergers 2005 Stock Option Plan. These amendments
included providing for the grant of restricted stock with respect to up to 3,000,000 shares of common stock, and providing that restricted stock may not be granted to executive officers of Schlumberger unless the grants are subject to
performance-based vesting.
Restricted stock awards generally vest at the end of three years, with the exception of certain grants which
vest over a two-year period with a two-year holding period. There have not been any grants to date that are subject to performance-based vesting.
The following table summarizes information about restricted stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Restricted
Stock
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
Restricted
Stock
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
Unvested at beginning of year
|
|
636,800
|
|
|
$
|
65.21
|
|
|
|
|
$
|
|
Granted
|
|
285,800
|
|
|
|
64.71
|
|
661,000
|
|
|
|
65.22
|
Forfeited
|
|
(38,000
|
)
|
|
|
63.12
|
|
(24,200
|
)
|
|
|
65.41
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at end of year
|
|
884,600
|
|
|
$
|
65.14
|
|
636,800
|
|
|
$
|
65.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted Stock Purchase Plan
Under the terms of the DSPP, employees can choose to have up to 10% of their
annual earnings withheld to purchase Schlumberger common stock. The purchase price of the stock is 92.5% of the lower of the stock price at the beginning or end of the plan period at six-month intervals.
The fair value of the employees purchase rights under the DSPP was estimated using the Black-Scholes model with the following assumptions and
resulting weighted average fair value per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Dividend yield
|
|
|
0.9
|
%
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
Expected volatility
|
|
|
34
|
%
|
|
|
25
|
%
|
|
|
26
|
%
|
Risk free interest rates
|
|
|
5.0
|
%
|
|
|
3.9
|
%
|
|
|
2.1
|
%
|
Weighted average fair value per share
|
|
$
|
11.52
|
|
|
$
|
6.19
|
|
|
$
|
4.76
|
|
Total Stock-based Compensation Expense
The following summarizes stock-based
compensation expense recognized in income:
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
Stock options
|
|
$
|
94
|
|
$
|
90
|
|
$
|
28
|
Restricted stock
|
|
|
19
|
|
|
9
|
|
|
|
DSPP
|
|
|
23
|
|
|
15
|
|
|
12
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
136
|
|
$
|
114
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2007, there was $238 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements. Approximately $102 million is expected to be recognized in 2008, $78 million is expected to be
recognized in 2009, $31 million in 2010, $23 million in 2011 and $4 million in 2012.
60
Part II, Item 8
15. Income Tax Expense
Schlumberger and its subsidiaries operate in more than 100 taxing jurisdictions where
statutory tax rates generally vary from 0% to 50%.
As more fully described in Note 3
Charges and Credits
, Schlumberger recorded a
pretax credit outside the United States in 2007 of $25 million, pretax charges in 2006 of $46 million ($19 million in the United States; $27 million outside the United States) and net pretax credits in 2005 of $172 million ($19 million of net
credits in the United States; $153 million of credits outside the United States).
Pretax book income subject to United States and
non-United States income taxes for each of the three years ended December 31, was as follows:
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
United States
|
|
$
|
1,754
|
|
$
|
1,582
|
|
$
|
892
|
Outside United States
|
|
|
4,870
|
|
|
3,366
|
|
|
2,080
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
6,624
|
|
$
|
4,948
|
|
$
|
2,972
|
|
|
|
|
|
|
|
|
|
|
The components of net
deferred tax assets were as follows:
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
Postretirement and other long-term benefits
|
|
$
|
244
|
|
$
|
394
|
Current employee benefits
|
|
|
29
|
|
|
31
|
Fixed assets, inventory and other
|
|
|
124
|
|
|
151
|
|
|
|
|
|
|
$
|
397
|
|
$
|
576
|
|
|
|
|
|
|
|
The above deferred
tax assets at December 31, 2007 and 2006 are net of valuation allowances relating to net operating losses in certain countries of $214 million and $218 million, respectively. The deferred tax assets are also net of valuation allowances relating
to a capital loss carryforward of $144 million at December 31, 2007 ($151 million at December 31, 2006) which expires in 2009 and 2010, and a foreign tax credit carryforward of $55 million at December 31, 2007 ($55 million at
December 31, 2006) which expires in 2009 through 2012.
The components of consolidated income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
538
|
|
|
$
|
495
|
|
|
$
|
256
|
|
United States State
|
|
|
54
|
|
|
|
49
|
|
|
|
24
|
|
Outside United States
|
|
|
834
|
|
|
|
641
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,426
|
|
|
$
|
1,185
|
|
|
$
|
652
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
(3
|
)
|
|
$
|
8
|
|
|
$
|
12
|
|
United States State
|
|
|
8
|
|
|
|
12
|
|
|
|
2
|
|
Outside United States
|
|
|
38
|
|
|
|
(10
|
)
|
|
|
77
|
|
Valuation allowance
|
|
|
(21
|
)
|
|
|
(5
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated taxes on income
|
|
$
|
1,448
|
|
|
$
|
1,190
|
|
|
$
|
682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Part II, Item 8
A reconciliation of the United States statutory federal tax rate
(35%) to the consolidated effective tax rate is:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
US statutory federal rate
|
|
35
|
%
|
|
35
|
%
|
|
35
|
%
|
US state income taxes
|
|
1
|
|
|
1
|
|
|
1
|
|
Non-US income taxed at different rates
|
|
(12
|
)
|
|
(10
|
)
|
|
(8
|
)
|
Effect of equity method investment
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Minority partners share of LLC earnings
|
|
|
|
|
|
|
|
(1
|
)
|
Charges and credits
|
|
|
|
|
|
|
|
(2
|
)
|
Other
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
22
|
%
|
|
24
|
%
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
Schlumberger adopted
the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109
(FIN 48) on January 1, 2007. This interpretation clarifies the accounting
for uncertain tax positions and requires companies to recognize the impact of a tax position in their financial statements, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The
adoption of FIN 48 did not have any impact on the total liabilities or stockholders equity of Schlumberger.
A reconciliation of the
beginning and ending amount of liabilities associated with uncertain tax positions is as follows:
|
|
|
|
|
(Stated in millions)
|
|
|
|
Balance at January 1, 2007
|
|
$
|
730
|
|
Additions based on tax positions related to the current year
|
|
|
187
|
|
Additions for tax positions of prior years
|
|
|
16
|
|
Impact of changes in exchange rates
|
|
|
21
|
|
Settlements with tax authorities
|
|
|
(8
|
)
|
Reductions for tax positions of prior years
|
|
|
(55
|
)
|
Reductions due to the lapse of the applicable statute of limitations
|
|
|
(33
|
)
|
|
|
Balance at December 31, 2007
|
|
$
|
858
|
|
|
|
|
|
|
Included in the
Schlumberger
Consolidated Balance Sheet
at December 31, 2007 is approximately $858 million of liabilities associated with uncertain tax positions in the over 100 jurisdictions in which Schlumberger conducts business, a number of which
have tax laws that are not fully defined and are evolving. This amount excludes $130 million of accrued interest and penalties. All but $25 million of the unrecognized tax benefits, if recognized, would impact the Schlumberger effective tax rate.
Schlumberger classifies interest and penalties relating to uncertain tax positions within
Taxes on income
in the
Consolidated
Statement of Income
. During 2007, Schlumberger recognized approximately $36 million in interest and penalties.
The following table
summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the most significant jurisdictions in which Schlumberger operates:
|
|
|
Canada
|
|
2002 2007
|
Mexico
|
|
2002 2007
|
Russia
|
|
2004 2007
|
Saudi Arabia
|
|
2001 2007
|
United Kingdom
|
|
2004 2007
|
United States
|
|
2003 2007
|
62
Part II, Item 8
In certain of the jurisdictions noted above, Schlumberger operates through
more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important
to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.
Due to the geographic breadth of the Schlumberger operations, numerous tax audits may be ongoing throughout the world at any point in time. Tax
liabilities are recorded based on estimates of additional taxes which will be due upon the conclusion of these audits. Estimates of these tax liabilities are made based upon prior experience and are updated in light of changes in facts and
circumstances. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event,
Schlumberger will record additional tax expense or tax benefit in the period in which such resolution occurs.
16. Leases and Lease Commitments
Total rental expense was $913 million in 2007, $686 million in 2006, and $532 million in 2005. Future minimum rental commitments under noncancelable operating leases for each of the next five years are as follows:
|
|
|
|
(Stated in millions)
|
|
|
2008
|
|
$
|
213
|
2009
|
|
|
165
|
2010
|
|
|
110
|
2011
|
|
|
77
|
2012
|
|
|
58
|
Thereafter
|
|
|
279
|
|
|
|
$
|
902
|
|
|
|
|
17. Contingencies
The
Consolidated Balance Sheet
includes accruals for estimated future
expenditures, relating to contractual obligations associated with business divestitures that have been completed. It is possible that the ultimate expenditures may differ from the amounts recorded. In the opinion of management, such differences are
not expected to be material relative to Schlumbergers consolidated liquidity, financial position or future results of operations.
In
July 2007, Schlumberger received an inquiry from the United States Department of Justice (DOJ) related to the DOJs investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other
companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. Schlumberger is cooperating with the DOJ and is conducting its own investigation with respect to these services.
In December 2004, WesternGeco L.L.C. and Schlumberger Technology Corporation received federal grand jury subpoenas issued by the United
States District Court for the Southern District of Texas. The subpoenas sought documents relating to possible fraud in obtaining visas for foreign crewmembers working on vessels operating on the Outer Continental Shelf of the Gulf of Mexico. On
June 16, 2006, WesternGeco L.L.C. entered into an agreement with the United States Attorneys Office for the Southern District of Texas resolving the issues raised in the federal investigation. Under the terms of the agreement, WesternGeco
L.L.C. accepted responsibility for U.S. visa violations and agreed to pay a monetary penalty of $18 million and reimburse the United States Government for $1.6 million in investigation expenses. Additionally, WesternGeco L.L.C. entered into a
twelve-month Deferred Prosecution Agreement (DPA), during which time its Gulf of Mexico activities were subject to monitoring by the United States Government. At the conclusion of this twelve-month period on
63
Part II, Item 8
June 16, 2007, WesternGeco L.L.C. was determined to have complied with the terms of the DPA. As a result, the DPA expired and no prosecution arising
from the investigation will be brought. Moreover, WesternGeco has developed and implemented a comprehensive visa and immigration compliance program designed to prevent a recurrence of improper visa practices.
Schlumberger and its subsidiaries are party to various legal proceedings. A liability is accrued when a loss is both probable and can be reasonably
estimated. At this time the ultimate disposition of these proceedings is not presently determinable and therefore, it is not possible to estimate the amount of loss or range of possible losses that might result from an adverse judgment or settlement
in any of these matters. However, in the opinion of management, any liability that might ensue would not be material in relation to Schlumbergers consolidated liquidity, financial position or future results of operations.
18. Segment Information
Schlumberger operates two business segments: Oilfield Services and WesternGeco.
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 oil and gas industry; Europe is a major self-contained market that includes the CIS and Africa, whose economy is increasingly linked to
that of Europe; Middle 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 OFS segment
provides virtually all exploration and production services required during the life of an oil and gas reservoir.
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.
Effective January 1, 2007, a
component of the Middle East & Asia Area has been reallocated to the Europe/CIS/Africa Area and certain activities have been reallocated between OFS and WesternGeco. Historical segment information has been reclassified to conform to
the new presentation.
Effective January 1, 2008, a component of the Middle East & Asia Area has been reallocated to the
Europe/CIS/Africa Area. Commencing with Schlumbergers Form 10-Q and earnings press release for the quarter ending March 31, 2008, historical segment information will be reclassified to conform to the new presentation.
64
Part II, Item 8
Financial information for the years ended December 31, 2007, 2006 and
2005, by segment, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Revenue
|
|
Income
after tax
& Min.
Int.
|
|
|
Minority
Interest
|
|
|
Tax
Expense
|
|
|
Income
before tax
& Min. Int.
|
|
|
Assets
|
|
Depn. &
Amortn.
|
|
Capital
Expenditure
|
|
|
|
|
|
|
|
|
|
|
OFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
5,345
|
|
$
|
1,040
|
|
|
$
|
|
|
|
$
|
497
|
|
|
$
|
1,537
|
|
|
$
|
2,841
|
|
$
|
367
|
|
$
|
591
|
|
Latin America
|
|
|
3,295
|
|
|
616
|
|
|
|
|
|
|
|
139
|
|
|
|
755
|
|
|
|
2,123
|
|
|
185
|
|
|
292
|
|
Europe/CIS/Africa
|
|
|
6,590
|
|
|
1,554
|
|
|
|
|
|
|
|
326
|
|
|
|
1,880
|
|
|
|
3,727
|
|
|
451
|
|
|
920
|
|
Middle East & Asia
|
|
|
4,881
|
|
|
1,528
|
|
|
|
|
|
|
|
185
|
|
|
|
1,713
|
|
|
|
3,078
|
|
|
393
|
|
|
772
|
|
Elims/Other
|
|
|
195
|
|
|
22
|
|
|
|
|
|
|
|
52
|
|
|
|
74
|
|
|
|
3,022
|
|
|
5
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,306
|
|
|
4,760
|
|
|
|
|
|
|
|
1,199
|
|
|
|
5,959
|
|
|
|
14,791
|
|
|
1,401
|
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WESTERNGECO
|
|
|
2,963
|
|
|
766
|
|
|
|
1
|
|
|
|
293
|
|
|
|
1,060
|
|
|
|
3,036
|
|
|
546
|
|
|
619
|
|
Corporate items and eliminations
|
|
|
8
|
|
|
(267
|
)
|
|
|
(1
|
)
|
|
|
(44
|
)
|
|
|
(312
|
)
|
|
|
3,981
|
|
|
7
|
|
|
15
|
|
Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,277
|
|
$
|
5,259
|
|
|
$
|
|
|
|
$
|
1,448
|
|
|
|
|
|
|
$
|
27,853
|
|
$
|
1,954
|
|
$
|
3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
|
Charges & credits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
Revenue
|
|
|
Income
after tax
& Min.
Int.
|
|
|
Minority
Interest
|
|
Tax
Expense
|
|
|
Income
before tax
& Min. Int.
|
|
|
Assets
|
|
Depn. &
Amortn.
|
|
Capital
Expenditure
|
|
|
|
|
|
|
|
|
|
OFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
5,273
|
|
|
$
|
1,053
|
|
|
$
|
|
|
$
|
551
|
|
|
$
|
1,604
|
|
|
$
|
2,577
|
|
$
|
310
|
|
$
|
623
|
Latin America
|
|
|
2,563
|
|
|
|
403
|
|
|
|
|
|
|
92
|
|
|
|
495
|
|
|
|
1,487
|
|
|
151
|
|
|
233
|
Europe/CIS/Africa
|
|
|
5,054
|
|
|
|
1,074
|
|
|
|
2
|
|
|
215
|
|
|
|
1,291
|
|
|
|
2,731
|
|
|
343
|
|
|
579
|
Middle East & Asia
|
|
|
3,724
|
|
|
|
1,071
|
|
|
|
|
|
|
124
|
|
|
|
1,195
|
|
|
|
2,392
|
|
|
308
|
|
|
610
|
Elims/Other
|
|
|
148
|
|
|
|
33
|
|
|
|
|
|
|
26
|
|
|
|
59
|
|
|
|
2,591
|
|
|
18
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,762
|
|
|
|
3,634
|
|
|
|
2
|
|
|
1,008
|
|
|
|
4,644
|
|
|
|
11,778
|
|
|
1,130
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WESTERNGECO
|
|
|
2,476
|
|
|
|
527
|
|
|
|
42
|
|
|
243
|
|
|
|
812
|
|
|
|
1,770
|
|
|
425
|
|
|
531
|
Corporate items and eliminations
|
|
|
(8
|
)
|
|
|
(290
|
)
|
|
|
5
|
|
|
(61
|
)
|
|
|
(346
|
)
|
|
|
3,388
|
|
|
6
|
|
|
17
|
Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,230
|
|
|
$
|
3,871
|
|
|
$
|
49
|
|
$
|
1,190
|
|
|
|
|
|
|
$
|
22,832
|
|
$
|
1,561
|
|
$
|
2,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
Charges & credits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Part II, Item 8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
Revenue
|
|
|
Income
after
tax &
Min.
Int.
|
|
|
Minority
Interest
|
|
Tax
Expense
|
|
|
Income
before
tax &
Min.
Int.
|
|
|
Assets
|
|
Depn. &
Amortn.
|
|
Capital
Expenditure
|
|
|
|
|
|
|
|
|
|
OFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,760
|
|
|
$
|
609
|
|
|
$
|
|
|
$
|
324
|
|
|
$
|
933
|
|
|
$
|
1,534
|
|
$
|
279
|
|
$
|
376
|
Latin America
|
|
|
2,209
|
|
|
|
261
|
|
|
|
|
|
|
69
|
|
|
|
330
|
|
|
|
1,330
|
|
|
145
|
|
|
153
|
Europe/CIS/Africa
|
|
|
3,725
|
|
|
|
626
|
|
|
|
8
|
|
|
141
|
|
|
|
775
|
|
|
|
2,126
|
|
|
293
|
|
|
356
|
Middle East & Asia
|
|
|
2,841
|
|
|
|
717
|
|
|
|
|
|
|
83
|
|
|
|
800
|
|
|
|
1,842
|
|
|
259
|
|
|
395
|
Elims/Other
|
|
|
112
|
|
|
|
(35
|
)
|
|
|
|
|
|
24
|
|
|
|
(11
|
)
|
|
|
2,322
|
|
|
29
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,647
|
|
|
|
2,178
|
|
|
|
8
|
|
|
641
|
|
|
|
2,827
|
|
|
|
9,154
|
|
|
1,005
|
|
|
1,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WESTERNGECO
|
|
|
1,663
|
|
|
|
121
|
|
|
|
60
|
|
|
114
|
|
|
|
295
|
|
|
|
1,380
|
|
|
339
|
|
|
268
|
Corporate items and eliminations
|
|
|
(1
|
)
|
|
|
(183
|
)
|
|
|
23
|
|
|
(73
|
)
|
|
|
(233
|
)
|
|
|
4,301
|
|
|
7
|
|
|
2
|
Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,309
|
|
|
$
|
2,116
|
|
|
$
|
91
|
|
$
|
682
|
|
|
|
|
|
|
$
|
18,077
|
|
$
|
1,351
|
|
$
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
Charges & credits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilfield Services
Elims/Other include certain headquarters administrative costs which are not allocated geographically, manufacturing and certain other operations, and costs maintained at the Oilfield Services level.
Corporate items principally comprise nonoperating expenses, such interest on postretirement benefits, stock-based compensation costs, corporate expenses
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, 2007, 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. Revenue in the United States in 2007,
2006 and 2005 was $5.6 billion, $5.2 billion and $3.5 billion, respectively.
Interest expense excludes amounts which are included in the
segments income (2007 $7 million: 2006 $6 million: 2005 $10 million).
Depreciation & Amortization
and Capital Expenditure include Multiclient seismic data costs.
66
Part II, Item 8
19. Pension and Other Benefit Plans
Adoption of SFAS 158
Effective December 31, 2006, Schlumberger adopted the provisions of SFAS 158 (
Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)
). SFAS 158 requires Schlumberger to recognize the funded status (i.e., the difference between the fair value of plan assets and the benefit obligation) of
its defined benefit pension and other postretirement plans (collectively postretirement benefit plans) in its
Consolidated Balance Sheet
, with a corresponding adjustment to
Accumulated Other Comprehensive Income
, net of
tax.
The adjustment to
Accumulated Other Comprehensive Income
at adoption represents the net unrecognized actuarial losses and
unrecognized prior service costs which were previously netted against Schlumbergers postretirement benefit plans funded status in the
Consolidated Balance Sheet
pursuant to the provisions of SFAS 87 (
Employers Accounting
for Pensions)
and SFAS 106
(Employers Accounting for Postretirement Benefits Other Than Pensions
). These amounts are subsequently recognized as net periodic postretirement cost consistent with Schlumbergers historical
accounting policy for amortizing such amounts. The adoption of SFAS 158 had no effect on Schlumbergers
Consolidated Statement of Income
for any prior periods, and it will not affect Schlumbergers operating results in future
periods.
Upon the adoption of SFAS 158 on December 31, 2006, Schlumbergers total liabilities increased by approximately 2% and
stockholders equity decreased by approximately 3%. The impact on Schlumbergers total assets was insignificant.
United States Defined Benefit Pension Plans
Schlumberger and its United States subsidiary sponsor several defined benefit pension plans that cover substantially all employees hired prior to October 1, 2004.
The benefits are based on years of service and compensation on a career-average pay basis. The funding policy with respect to qualified pension plans is to annually contribute amounts that are based upon a number of factors including the actuarial
accrued liability, amounts that are deductible for income tax purposes, legal funding requirements and available cash flow.
The assumed
discount rate, compensation increases and return on plan assets used to determine pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Assumed discount rate
|
|
6.00
|
%
|
|
5.75
|
%
|
|
6.00
|
%
|
Compensation increases
|
|
4.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
Return on plan assets
|
|
8.50
|
%
|
|
8.50
|
%
|
|
8.50
|
%
|
Net pension cost in
the United States for 2007, 2006 and 2005, included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Service cost benefits earned during the period
|
|
$
|
58
|
|
|
$
|
59
|
|
|
$
|
53
|
|
Interest cost on projected benefit obligation
|
|
|
120
|
|
|
|
112
|
|
|
|
108
|
|
Expected return on plan assets [actual return: 2007 $212; 2006 $224; 2005 $132]
|
|
|
(147
|
)
|
|
|
(134
|
)
|
|
|
(109
|
)
|
Amortization of prior service cost
|
|
|
7
|
|
|
|
8
|
|
|
|
8
|
|
Amortization of net loss
|
|
|
26
|
|
|
|
27
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
|
$
|
64
|
|
|
$
|
72
|
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Part II, Item 8
Included in
Accumulated Other Comprehensive Income
at
December 31, 2007 are the following non-cash pretax charges which have not yet been recognized in net periodic pension cost. Also presented is the estimated portion of each component of
Accumulated Other Comprehensive Income
which is
expected to be recognized as a component of net periodic benefit cost during the year ending December 31, 2008.
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
Amt. recognized in
Acc. Other
Comp. Income
at Dec 31, 2007
|
|
Amount expected
to be charged
to net periodic
cost in 2008
|
Net actuarial losses
|
|
$
|
111
|
|
$
|
11
|
Prior service cost
|
|
$
|
53
|
|
$
|
7
|
The changes in the
projected benefit obligation, plan assets and funded status of the plans on December 31, 2007 and 2006, were as follows:
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Projected benefit obligation at beginning of the year
|
|
$
|
2,006
|
|
|
$
|
1,984
|
|
Service cost
|
|
|
58
|
|
|
|
59
|
|
Interest cost
|
|
|
120
|
|
|
|
112
|
|
Actuarial (gain)/losses
|
|
|
(57
|
)
|
|
|
(89
|
)
|
Benefits paid
|
|
|
(97
|
)
|
|
|
(95
|
)
|
Amendments
|
|
|
|
|
|
|
2
|
|
Other
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
Projected benefit obligation at end of the year
|
|
$
|
2,030
|
|
|
$
|
2,006
|
|
|
|
|
|
|
|
|
|
|
Plan assets at market value at beginning of the year
|
|
$
|
1,913
|
|
|
$
|
1,588
|
|
Actual return on plan assets
|
|
|
212
|
|
|
|
224
|
|
Contributions
|
|
|
152
|
|
|
|
204
|
|
Benefits paid
|
|
|
(97
|
)
|
|
|
(95
|
)
|
Administrative expense
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
Plan assets at market value at end of the year
|
|
$
|
2,170
|
|
|
$
|
1,913
|
|
|
|
|
|
|
|
|
|
|
Overfunded/(underfunded) position at end of year
|
|
$
|
140
|
|
|
$
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
The
overfunded/(underfunded) position represents the difference between the plan assets and the projected benefit obligation (PBO). The PBO represents the actuarial present value of benefits based on employee service and compensation and
includes an assumption about future compensation levels.
The $140 million overfunded position of the United States defined benefit pension
plan at December 31, 2007 is included in
Other Assets
in the accompanying
Consolidated Balance Sheet
.
The $93 million
underfunded position at December 31, 2006 is included in
Postretirement Benefits
in the accompanying
Consolidated Balance Sheet
.
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 as follows:
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Assumed discount rate
|
|
6.50
|
%
|
|
6.00
|
%
|
Compensation increases
|
|
4.00
|
%
|
|
3.00
|
%
|
Return on plan assets
|
|
8.50
|
%
|
|
8.50
|
%
|
68
Part II, Item 8
The following is a breakdown of the plan assets:
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
2007
|
|
2006
|
|
|
|
US equity securities
|
|
$
|
990
|
|
$
|
905
|
Non-US equity securities
|
|
|
433
|
|
|
449
|
Fixed income securities
|
|
|
563
|
|
|
374
|
Cash and cash equivalents
|
|
|
38
|
|
|
85
|
Other investments
|
|
|
146
|
|
|
100
|
|
|
|
|
|
|
$
|
2,170
|
|
$
|
1,913
|
|
|
|
|
|
|
|
The asset allocation
objectives are to diversify the portfolio among several asset classes to reduce volatility while maintaining an asset mix that provides 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.
As at December 31, 2007, there was no investment of plan assets in Schlumberger common stock.
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 annually.
The expected benefits to be paid under the plan are as follows:
|
|
|
|
(Stated in millions)
|
|
|
|
|
2008
|
|
$
|
99
|
2009
|
|
$
|
100
|
2010
|
|
$
|
102
|
2011
|
|
$
|
105
|
2012
|
|
$
|
109
|
2013 2017
|
|
$
|
616
|
No plan assets are
expected to be returned to Schlumberger during the year ending December 31, 2008.
Although not required to make any contributions to
its US qualified pension plans in 2008, Schlumberger currently expects to make contributions in 2008 of between $50 million and $100 million.
Other Defined Benefit Pension Plans
In addition to the previously disclosed United States defined benefit pension plans, Schlumberger sponsors several other defined benefit pension plans. Charges to expense
for these plans were $58 million, $49 million and $50 million in 2007, 2006 and 2005, respectively, and are based upon costs computed by actuaries.
The most significant of these other defined benefit pension plans is in the UK, which covers employees hired prior to April 1, 1999.
The assumed discount rate, compensation increases and return on plan assets used to determine pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Assumed discount rate
|
|
5.20
|
%
|
|
4.90
|
%
|
|
5.40
|
%
|
Compensation increases
|
|
4.50
|
%
|
|
4.20
|
%
|
|
4.10
|
%
|
Return plan assets
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
Net pension cost in
the UK plan for 2007, 2006 and 2005 (translated into US dollars at the average exchange rate for the periods), included the following components:
69
Part II, Item 8
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Service cost benefits earned during the period
|
|
$
|
35
|
|
|
$
|
26
|
|
|
$
|
25
|
|
Interest cost on projected benefit obligation
|
|
|
52
|
|
|
|
42
|
|
|
|
38
|
|
Expected return on plan assets [actual return: 2007 $57; 2006 $50; 2005 $106]
|
|
|
(67
|
)
|
|
|
(53
|
)
|
|
|
(45
|
)
|
Amortization of net loss & other
|
|
|
18
|
|
|
|
17
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
|
$
|
38
|
|
|
$
|
32
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
Accumulated Other Comprehensive Income
at December 31, 2007 are the following non-cash pretax charges which have not yet been recognized in net periodic pension cost. Also presented is the estimated portion of each component of
Accumulated Other Comprehensive Income
which is expected to be recognized as a component of net periodic benefit cost during the year ending December 31, 2008.
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
Amt. recognized in
Acc. Other
Comp. Income
at Dec. 31, 2007
|
|
Amount expected
to be charged
to net periodic
cost in 2008
|
|
|
|
Net actuarial losses
|
|
$
|
251
|
|
$
|
12
|
Prior service cost
|
|
$
|
5
|
|
$
|
1
|
The changes in the
projected benefit obligation, plan assets and funded status of the plan (translated into US dollars at year-end exchange rates) were as follows:
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Projected benefit obligation at beginning of the year
|
|
$
|
991
|
|
|
$
|
801
|
|
Service cost
|
|
|
35
|
|
|
|
26
|
|
Interest cost
|
|
|
52
|
|
|
|
42
|
|
Contributions by Plan participants
|
|
|
2
|
|
|
|
2
|
|
Actuarial (gain) losses
|
|
|
(30
|
)
|
|
|
33
|
|
Currency effect
|
|
|
26
|
|
|
|
109
|
|
Benefits paid
|
|
|
(25
|
)
|
|
|
(23
|
)
|
Other
|
|
|
12
|
|
|
|
1
|
|
|
|
|
|
|
|
Projected benefit obligation at end of the year
|
|
$
|
1,063
|
|
|
$
|
991
|
|
|
|
|
|
|
|
|
|
|
Plan assets at market value at beginning of the year
|
|
$
|
810
|
|
|
$
|
647
|
|
Actual return on plan assets
|
|
|
57
|
|
|
|
50
|
|
Currency effect
|
|
|
21
|
|
|
|
87
|
|
Employer contributions
|
|
|
98
|
|
|
|
47
|
|
Employee contributions
|
|
|
2
|
|
|
|
2
|
|
Benefits paid
|
|
|
(25
|
)
|
|
|
(23
|
)
|
Other
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at market value at end of the year
|
|
$
|
977
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
Underfunded position at end of year
|
|
$
|
(86
|
)
|
|
$
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
The underfunded
position of the UK defined benefit pension plans is included in
Postretirement Benefits
in the accompanying
Consolidated Balance Sheet
at December 31, 2007 and 2006, respectively.
The assumed discount rate and rate of compensation increases used to determine the projected benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Assumed discount rate
|
|
5.80
|
%
|
|
5.20
|
%
|
Compensation increases
|
|
4.90
|
%
|
|
4.50
|
%
|
70
Part II, Item 8
The following is a breakdown of the plan assets:
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
2007
|
|
2006
|
|
|
|
Equity securities
|
|
$
|
652
|
|
$
|
542
|
Fixed income securities
|
|
|
197
|
|
|
155
|
Index linked gilts
|
|
|
102
|
|
|
74
|
Other investments
|
|
|
26
|
|
|
39
|
|
|
|
|
|
|
$
|
977
|
|
$
|
810
|
|
|
|
|
|
|
|
The expected benefits
to be paid under the plan are as follows:
|
|
|
|
(Stated in millions)
|
2008
|
|
$
|
21
|
2009
|
|
$
|
23
|
2010
|
|
$
|
26
|
2011
|
|
$
|
28
|
2012
|
|
$
|
31
|
2013 2017
|
|
$
|
206
|
Contributions to the
UK plan in 2008 are expected to be between $40 million and $80 million.
Other
Deferred Benefits
In addition to providing defined pension benefits,
Schlumberger and its subsidiaries have other deferred benefit programs, primarily profit sharing and defined contribution pension plans. Expenses for these programs were $408 million, $351 million and $280 million in 2007, 2006 and 2005,
respectively.
Health Care Benefits
Schlumberger and its United States subsidiary provide health care benefits for certain
active employees. The costs of providing these benefits are expensed when incurred, and aggregated $80 million, $72 million and $65 million in 2007, 2006 and 2005, respectively. Outside the United States, such benefits are mostly provided
through government-sponsored programs.
Postretirement Benefits Other than Pensions
Schlumberger and its United States subsidiary provide certain health
care benefits to former employees who have retired.
The principal actuarial assumptions used to measure costs were a discount rate of 6.00%
in 2007, 5.75% in 2006 and 6.00% in 2005. The overall medical cost trend rate assumption is 9% graded to 6% over the next four years and 5% thereafter.
Net periodic postretirement benefit cost in the United States for 2007, 2006 and 2005, included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Service cost benefits earned during the period
|
|
$
|
22
|
|
|
$
|
26
|
|
|
$
|
29
|
|
Interest cost on accumulated postretirement benefit obligation
|
|
|
47
|
|
|
|
45
|
|
|
|
45
|
|
Expected return on plan assets
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
|
(14
|
)
|
Amortization of net loss
|
|
|
13
|
|
|
|
16
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53
|
|
|
$
|
59
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
Part II, Item 8
Included in
Accumulated Other Comprehensive Income
at
December 31, 2007 are the following non-cash pretax charges which have not yet been recognized in net periodic postretirement benefit cost. Also presented is the estimated portion of each component of
Accumulated Other Comprehensive
Income
which is expected to be recognized as a component of net periodic postretirement benefit cost during the year ending December 31, 2008.
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
Amt. recognized in
Acc. Other
Comp. Income
at Dec. 31, 2007
|
|
|
Amount expected
to be charged
to net periodic
cost in 2008
|
|
Net actuarial losses
|
|
$
|
142
|
|
|
$
|
7
|
|
Prior service cost
|
|
$
|
(119
|
)
|
|
$
|
(27
|
)
|
The change in
accumulated postretirement benefit obligation and funded status on December 31, 2007 and 2006, was as follows:
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Accumulated postretirement benefit obligation at beginning of the year
|
|
$
|
785
|
|
|
$
|
785
|
|
Service cost
|
|
|
22
|
|
|
|
26
|
|
Interest cost
|
|
|
48
|
|
|
|
45
|
|
Actuarial gains
|
|
|
(35
|
)
|
|
|
(40
|
)
|
Benefits paid
|
|
|
(28
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation at the end of the year
|
|
$
|
792
|
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
Plan assets at market value at beginning of the year
|
|
$
|
23
|
|
|
$
|
|
|
Contributions
|
|
|
42
|
|
|
|
53
|
|
Actual return on plan assets
|
|
|
2
|
|
|
|
1
|
|
Benefits paid
|
|
|
(28
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
Plan assets at market value at the end of the year
|
|
$
|
39
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
Underfunded position at end of year
|
|
$
|
(753
|
)
|
|
$
|
(762
|
)
|
|
|
|
|
|
|
|
|
|
The underfunded
position is included in
Postretirement Benefits
in the
Consolidated Balance Sheet
.
The components of the accumulated
postretirement benefit obligation on December 31, 2007 and 2006, were as follows:
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
2007
|
|
2006
|
|
|
|
Retirees
|
|
$
|
403
|
|
$
|
418
|
Fully eligible
|
|
|
255
|
|
|
217
|
Actives
|
|
|
134
|
|
|
150
|
|
|
|
|
|
|
$
|
792
|
|
$
|
785
|
|
|
|
|
|
|
|
The assumed discount
rate used to determine the accumulated postretirement benefit obligation was 6.50% for 2007 and 6.00% for 2006.
The overall medical cost
trend rate assumption used to determine the accumulated postretirement benefit obligation for both 2007 and 2006 was 9% graded to 6% over the next four years and 5% thereafter.
If the assumed medical cost trend rate was increased by one percentage point per annum, health care cost in 2007 would have been $68 million, and the
accumulated postretirement benefit obligation would have been $929 million on December 31, 2007.
If the assumed medical cost trend
rate was decreased by one percentage point per annum, health care cost in 2007 would have been $45 million, and the accumulated postretirement benefit obligation would have been $712 million on December 31, 2007.
72
Part II, Item 8
The expected payments to be paid under the plan are as follows and are net of
the annual Medicare Part D subsidy, which ranges from $3 million to $6 million per year:
|
|
|
|
(Stated in millions)
|
2008
|
|
$
|
35
|
2009
|
|
$
|
37
|
2010
|
|
$
|
40
|
2011
|
|
$
|
43
|
2012
|
|
$
|
45
|
2013 2017
|
|
$
|
263
|
20. Supplementary
Information
Cash paid for interest and income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
Year ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
Interest
|
|
$
|
269
|
|
$
|
234
|
|
$
|
196
|
Income taxes
|
|
$
|
1,127
|
|
$
|
997
|
|
$
|
446
|
Accounts payable
and accrued liabilities
are summarized as follows:
|
|
|
|
|
|
|
(Stated in millions)
|
As at December 31,
|
|
2007
|
|
2006
|
|
|
|
Payroll, vacation and employee benefits
|
|
$
|
1,076
|
|
$
|
898
|
Trade
|
|
|
1,554
|
|
|
1,311
|
Other
|
|
|
1,921
|
|
|
1,639
|
|
|
|
|
|
|
$
|
4,551
|
|
$
|
3,848
|
|
|
|
|
|
|
|
Interest and other
income
includes the following:
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
Year ended December 31,
|
|
2007
|
|
2006
|
|
|
2005
|
|
|
|
|
Interest income
|
|
$
|
162
|
|
$
|
117
|
|
|
$
|
100
|
Equity in net earnings of affiliated companies
|
|
|
244
|
|
|
179
|
|
|
|
109
|
Gain on sale of workover rigs
|
|
|
25
|
|
|
|
|
|
|
|
Gain on sale of facility in Montrouge, France
|
|
|
|
|
|
|
|
|
|
163
|
Gain on sale of Hanover Compressor stock
|
|
|
|
|
|
|
|
|
|
21
|
Loss on liquidation of investments to fund the WesternGeco transaction
|
|
|
|
|
|
(9
|
)
|
|
|
|
Sales of assets
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
$
|
431
|
|
$
|
287
|
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
Year ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
115
|
|
|
$
|
103
|
|
|
$
|
114
|
|
Provision
|
|
|
9
|
|
|
|
24
|
|
|
|
25
|
|
Amounts written off
|
|
|
(38
|
)
|
|
|
(12
|
)
|
|
|
(34
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
86
|
|
|
$
|
115
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
Part II, Item 8
Managements Report on Internal Control Over Financial Reporting
The management of Schlumberger Limited is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a 15(f) of the Securities Exchange Act of 1934, as amended. Schlumberger Limiteds internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Schlumberger Limited management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework
. Based on our assessment we have concluded that, as of
December 31, 2007, our internal control over financial reporting is effective based on those criteria.
The effectiveness of
Schlumberger Limiteds internal control over financial reporting as of December 31, 2007, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
74
Part II, Item 8