<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Schlumberger, Ltd.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
SCHLUMBERGER
Schlumberger Limited
277 Park Avenue
New York, New York 10172-0266
------------
42, rue Saint-Dominique
75007 Paris, France
------------
Parkstraat 83,
2514 JG The Hague,
The Netherlands
NOTICE OF ANNUAL GENERAL MEETING OF STOCKHOLDERS
To Be Held April 14, 1999
March 10, 1999
The Annual General Meeting of Stockholders of Schlumberger Limited
(Schlumberger N.V.) will be held at the Avila Beach Hotel, Penstraat 130,
Willemstad, Curacao, Netherlands Antilles, on Wednesday, April 14, 1999 at
10:30 in the morning (Curacao time), for the following purposes:
1. To elect 12 directors.
2. To report on the course of business during the year ended December 31,
1998, to approve the Company's Consolidated Balance Sheet as at December
31, 1998, its Consolidated Statement of Income for the year ended December
31, 1998, and the declaration of dividends by the Board of Directors as
reflected in the Company's 1998 Annual Report to Stockholders.
3. To approve the appointment of PricewaterhouseCoopers LLP as independent
public accountants to audit the accounts of the Company for 1999.
Action will also be taken upon such other matters as may come properly before
the Meeting.
The close of business on February 24, 1999 has been fixed as the record date
for the Meeting. All holders of Common Stock of record at that time are
entitled to vote at the Meeting.
By order of the Board of
Directors,
JAMES L. GUNDERSON
Secretary
<PAGE>
PROXY STATEMENT
March 10, 1999
This statement is furnished in connection with the solicitation by the Board
of Directors of Schlumberger Limited (Schlumberger N.V.) (the "Company") of
proxies to be voted at the 1999 Annual General Meeting of Stockholders (the
"Meeting"). The approximate mailing date of this Proxy Statement is March 10,
1999. Business at the Meeting is conducted in accordance with the procedures
determined by the presiding officer and is generally limited to matters
properly brought before the Meeting by or at the direction of the Board of
Directors or by a stockholder in accordance with specified requirements
requiring advance notice and disclosure of relevant information.
The Company's 1998 Annual Report to Stockholders (the "Report") has been
mailed under separate cover. The Company's Consolidated Balance Sheet as at
December 31, 1998, its Consolidated Statement of Income for the year ended
December 31, 1998 and the supplemental financial information with respect to
dividends included in the Report are incorporated by reference as part of this
proxy soliciting material.
The Company will bear the cost of furnishing proxy material to all
stockholders and of soliciting proxies by mail and telephone. D. F. King &
Co., Inc. has been retained by the Company to assist in the solicitation of
proxies for a fee estimated at $9,500 plus reasonable expenses. The Company
will reimburse brokerage firms, fiduciaries and custodians for their
reasonable expenses in forwarding the solicitation material to the beneficial
owners.
Voting Procedure
Each stockholder of record at the close of business on February 24, 1999 is
entitled to one vote for each share registered in such stockholder's name. On
that date there were 546,364,592 outstanding shares of Common Stock of the
Company (excluding 119,338,446 shares held in treasury).
Fifty percent of the outstanding shares, exclusive of shares held in
treasury, must be present in person or by proxy to constitute a quorum for the
holding of the Meeting. Abstentions and broker non-votes are counted for
determining the presence of a quorum but are not counted as votes cast in the
tabulation of votes on any matter brought before the Meeting.
Shares cannot be voted at the Meeting unless the owner of record is present
in person or is represented by proxy. The Company is incorporated in the
Netherlands Antilles and, as required by the laws thereof and the Company's
Deed of Incorporation, meetings of stockholders must be held in Curacao. The
enclosed proxy card is a means by which a stockholder may authorize the voting
of shares at the Meeting. It may be revoked at any time by written notice to
the Secretary of the Company before it is voted. If it is not revoked, the
shares represented will be voted in accordance with the proxy.
1
<PAGE>
1. Election of Directors
It is intended to fix the number of directors at 12 and to elect a Board of
12 directors, each to hold office until the next Annual General Meeting of
Stockholders and until a director's successor is elected and qualified or
until a director's death, resignation or removal. Each of the nominees is now
a director and was previously elected by the stockholders. Unless instructed
otherwise, the proxies will be voted for the election of the 12 nominees named
below. If any nominee is unable or unwilling to serve, proxies may be voted
for another person designated by the Board of Directors. The Board knows of no
reason why any nominee will be unable or unwilling to serve if elected.
A majority of the votes cast is required to elect each of the nominees for
director.
The Board of Directors Recommends a Vote FOR All Nominees.
The Board of Directors' nominees for election to the Board, together with
information furnished by them with respect to their business experience, and
other information regarding them, are set forth below:
<TABLE>
<CAPTION>
Nominee, Age and Director
Five-Year Business Experience Since
----------------------------- --------
<S> <C>
DON E. ACKERMAN, 65; Private Investor since 1991 (1)................. 1982
D. EUAN BAIRD, 61; Chairman and Chief Executive Officer since October
1986 (2)............................................................ 1986
JOHN DEUTCH, 60; Institute Professor, Massachusetts Institute of
Technology, Cambridge, Massachusetts since January 1997; Director of
U.S. Central Intelligence May 1995 to December 1996; Deputy
Secretary of Defense April 1994 to May 1995; Under Secretary of
Defense (Acquisition and Technology) March 1993 to 1994; Institute
Professor, Provost 1985-1990 and Dean of Science 1982-1985,
Massachusetts Institute of Technology; Director of Schlumberger
Limited, May 1987 to 1993 (3)....................................... 1997
VICTOR E. GRIJALVA, 60; Vice Chairman since April 1998; Executive
Vice President, Oilfield Services from 1994 to April 1998; from 1992
to 1994, Executive Vice President for Wireline, Testing & Anadrill.. 1998
DENYS HENDERSON, 66; Chairman, The Rank Group Plc., a diversified
leisure services concern, since March 1995; Chairman, Dalgety PLC,
January 1997 through December 31, 1998; Chairman, Zeneca Group PLC,
June 1993 to May 1995; Chairman, Imperial Chemical Industries PLC
("ICI"), June 1993 through April 1995; Chairman and Chief Executive
officer, ICI, April 1987 to June 1993, all in the United Kingdom ... 1995
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Nominee, Age and Director
Five-Year Business Experience Since
----------------------------- --------
<S> <C>
ANDRE LEVY-LANG, 61; Chairman of the Executive Board of Paribas, an
international banking group, since May 1998; Chairman of the Board
of Management of Compagnie Financiere de Paribas, an international
banking group, from June 1990 until May 1998; Chairman of the Board
of Management of Banque Paribas, a subsidiary of Compagnie
Financiere de Paribas, from 1991 until May 1998; Chairman of the
Board of Management of Compagnie Bancaire 1989 to 1993; Chairman of
the Supervisory Board of Compagnie Bancaire from 1993 until May
1998, all in Paris. In May 1998, Compagnie Financiere de Paribas,
Banque Paribas and Compagnie Bancaire merged to become Paribas, the
new entity of which he is now Chairman of the Executive Board.
(4)................................................................. 1992
WILLIAM T. McCORMICK, JR., 54; Chairman and Chief Executive Officer,
CMS Energy Corp., a diversified energy company, Dearborn, Michigan
(5)................................................................. 1990
DIDIER PRIMAT, 54; President, Primwest Holding N.V., an investment
management company, Curacao, N.A. (6)............................... 1988
NICOLAS SEYDOUX, 59; Chairman and Chief Executive Officer, Gaumont, a
French film- making enterprise, Paris (6)........................... 1982
LINDA GILLESPIE STUNTZ, 44; Partner, law firm of Stuntz, Davis &
Staffier P.C., Washington, D.C., since February 1995; Partner, law
firm of Van Ness Feldman, P.C., Washington, D.C. March 1993 to
February 1995 (7)................................................... 1993
SVEN ULLRING, 63; President and Chief Executive Officer, Det Norske
Veritas which provides safety, quality and reliability services to
maritime, offshore and other industries, Hovik, Norway.............. 1990
YOSHIHIKO WAKUMOTO, 67; Adviser to Toshiba Corporation, a technology
company centered on electronics and energy, since July 1996; member
of Board of Toshiba Corporation from July 1988 to June 1996; from
July 1992 to June 1996, Executive Vice President of Toshiba with
responsibility for corporate planning, group companies and
information systems (1992 to 1995), and international affairs
(1996), all in Tokyo (8)............................................ 1997
</TABLE>
- --------
(1) Mr. Ackerman is also Chairman of the Board and a member of the Audit
Committee of Genicom Corporation, which is in the business of computer
printers and computer related services.
(2) Mr. Baird is also a director of Paribas, Paris, France. He is a trustee of
Haven Capital Management Trust.
(3) Mr. Deutch is also a director of Citigroup, which is in banking and
insurance; CMS Energy Corp., a diversified energy company; Cummins Engine
Company, Inc., a manufacturer of diesel engines and components; ARIAD
Pharmaceuticals, which is engaged in the discovery and development of
novel pharmaceuticals based on signal transaction pathways and the genes
that regulate them, and of Raytheon Corporation, a maker of electronics.
He is also a director of the Sandia National Laboratories in New Mexico.
3
<PAGE>
(4) Mr. Levy-Lang is also a director and member of the Compensation Committee
of Elf-Aquitaine, a producer of oil, gas and chemicals. On January 4,
1996, Mr. Levy-Lang was notified by a French judge that he was placed
under official investigation ("mise en examen") as part of an ongoing
inquiry regarding irregularities uncovered in the 1991 financial
statements of Ciments Francais, S.A., which was at that time a subsidiary
of Compagnie Financiere de Paribas.
(5) Mr. McCormick is also a director of Bank One, Inc., a regional bank
holding company, and Rockwell International Inc., a diversified producer
of, among others, electronic, industrial automation and avionics products.
(6) Mr. Primat and Mr. Seydoux are cousins.
(7) Mrs. Stuntz is also a director of American Electric Power Company, Inc.,
an electric and power holding company, at which company she is a member of
the Finance and Directors Committees and is the Chair of the Public Policy
Committee.
(8) Mr. Wakumoto is Vice President of The Japan Foundation and Executive
Director of its Center for Global Partnerships.
Security Ownership of Certain Beneficial Owners and Management
Following are the shares of the Company's Common Stock beneficially owned as
of January 31, 1999 by all directors and nominees, by each of the named
executive officers, and by the directors and officers as a group. Except as
footnoted, each named individual has sole voting and investment power over the
shares listed by that individual's name. As of January 31, 1999, no nominee
for director owned more than 1% of the outstanding shares of the Company's
Common Stock, except Mr. Primat who owned 4.5%. All 23 directors and executive
officers as a group owned 5.3% of the outstanding shares of the Company at
January 31, 1999.
<TABLE>
<CAPTION>
Name Shares
---- ----------
<S> <C>
Don E. Ackerman................................................. 2,000
D. Euan Baird................................................... 1,941,955(1)
John Deutch..................................................... 3,600(2)
Andrew Gould.................................................... 174,000(3)
Victor E. Grijalva.............................................. 623,024(4)
Denys Henderson................................................. 5,000
Andre Levy-Lang................................................. 4,000
Arthur Lindenauer............................................... 188,091(5)
William T. McCormick, Jr........................................ 10,000
Irwin Pfister................................................... 160,635(6)
Didier Primat................................................... 24,556,236(7)
Nicolas Seydoux................................................. 251,524(8)
Linda Gillespie Stuntz.......................................... 5,000(9)
Sven Ullring.................................................... 3,172
Yoshihiko Wakumoto.............................................. 1,000
All directors and executive officers as a group (23 persons).... 28,974,883(10)
</TABLE>
4
<PAGE>
- --------
(1) Includes 1,390,000 shares which are deemed to be beneficially owned by Mr.
Baird because he has the right to acquire such shares within 60 days
through the exercise of stock options.
(2) Includes 600 shares owned by Mr. Deutch's wife, as to which he disclaims
beneficial ownership.
(3) Includes 160,000 shares which are deemed to be beneficially owned by Mr.
Gould because he has the right to acquire such shares within 60 days
through the exercise of stock options.
(4) Includes 600 shares owned by Mr. Grijalva's daughter, as to which he
disclaims beneficial ownership, and 504,000 shares which are deemed to be
beneficially owned by him because he has the right to acquire such shares
within 60 days through the exercise of stock options.
(5) Includes 162,000 shares which are deemed to be beneficially owned by Mr.
Lindenauer because he has the right to acquire such shares within 60 days
through the exercise of stock options.
(6) Includes 160,000 shares which are deemed to be beneficially owned by Mr.
Pfister because he has the right to acquire such shares within 60 days
through the exercise of stock options.
(7) Includes 560,000 shares as to which Mr. Primat shares investment power,
13,996,136 shares held by Mr. Primat as Executor of the Estate of
Francoise Primat as to which he has sole voting and investment power, and
5,000,000 shares held for account of the minor children of Mr. Primat as
to which he has joint voting and investment power.
(8) Includes 15,364 shares owned by Mr. Seydoux's wife as to which he shares
voting and investment power.
(9) Includes 3,000 shares as to which Mrs. Stuntz shares voting power.
(10) Includes 3,230,126 shares which are deemed to be beneficially owned by
executive officers as a group because they have the right to acquire such
shares within 60 days through the exercise of stock options.
Board and Committees
The Company has an Audit, a Compensation, a Finance and a Nominating
Committee.
The Audit Committee assesses and monitors the corporate control environment
and recommends for appointment by the Board of Directors subject to approval
by the stockholders a firm of independent certified public accountants whose
duty is to examine the consolidated financial statements of the Company. The
Committee confers with the independent accountants and periodically reports to
and advises the Board concerning the scope of the independent accountants'
examinations and similar matters relating to the Company's accounting
practices and internal accounting controls. The Committee also advises the
Board concerning the fees of the independent accountants. Mr. Ullring is
Chairman of the Audit Committee, and Messrs. Ackerman and Levy-Lang and Mrs.
Stuntz are the other members.
The Compensation Committee reviews and approves the compensation of the
officers of the Company, advises on compensation and benefits matters and
administers the Company's stock option
5
<PAGE>
plans. Mr. Ackerman is Chairman of the Compensation Committee. Sir Denys
Henderson and Messrs. McCormick and Seydoux are the other members.
The Finance Committee advises on various matters including dividend and
financial policies, the borrowing of money, the purchase and sale of
securities and the investment and reinvestment of surplus funds. The Committee
periodically reviews the administration of the employee benefit plans of the
Company and its subsidiaries. Messrs. Baird, Deutch, Grijalva, Levy-Lang,
Primat and Wakumoto are the members of this Committee.
The Nominating Committee recommends to the Board the number and names of
persons to be proposed by the Board for election as directors at the annual
general meetings of stockholders. Also, the Committee may recommend to the
Board persons to be appointed by the Board or to be elected by the
stockholders to fill any vacancies on the Board. Mr. McCormick is Chairman of
this Committee, and Messrs. Baird, Seydoux and Ullring are the other members.
The Nominating Committee will consider nominees recommended by stockholders.
Stockholders may submit nominations to Chairman, Nominating Committee, care of
the Secretary, Schlumberger Limited, 277 Park Avenue, New York, New York
10172-0266.
During 1998 the Board of Directors held four meetings. The Audit Committee
met three times; the Compensation Committee met four times; the Finance
Committee met twice, and the Nominating Committee met once. All present
directors attended at least 75% of the aggregate of the meetings of the Board
and of the Committees of the Board on which such directors served.
Directors who are employees of the Company do not receive compensation for
serving on the Board or Committees of the Board. Board members who are not
employees receive annual fees of $40,000 each and additional annual fees of
$10,000 as members of each of the Committees on which they serve, except that
the Chairmen of the Audit, Compensation and Nominating Committees each receive
an annual fee of $20,000, rather than the $10,000 annual fee for Committee
service.
6
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ending December 31, 1998,
1997 and 1996, the cash compensation paid by the Company and its subsidiaries,
as well as certain other compensation paid or accrued for those years, to the
Chief Executive Officer and the next four most highly compensated executive
officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
------------
Annual Compensation Securities
Name and -------------------------- Underlying All Other
Principal Position Year Salary($)(1) Bonus($)(1) Options(#) Compensation($)(3)
------------------ ---- ------------ ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
D.E. Baird.............. 1998 1,500,000 600,000 0 270,000
Chairman and 1997 1,500,000 1,500,000 500,000 323,000
Chief Executive Officer 1996 1,100,000 1,100,000 300,000 231,000
V.E. Grijalva........... 1998 800,000 240,000 0 112,500
Vice Chairman 1997 600,000 450,000 200,000 129,000
1996 600,000 425,000 200,000 108,350
A. Gould................ 1998 499,154(2) 152,284 40,000 63,198
Executive Vice
President,
Oilfield Services
Products
I. Pfister.............. 1998 500,000 150,000 0 72,000
Executive Vice 1997 420,411 300,000 125,000 55,112
President,
Test & Transactions
A. Lindenauer........... 1998 500,000 100,000 0 69,750
Executive Vice 1997 500,000 275,000 60,000 96,200
President, 1996 500,000 260,000 80,000 83,600
Finance
</TABLE>
- --------
(1) Salary and bonus amounts include cash compensation earned and received and
any amounts deferred under the Schlumberger Restoration Savings Plan
("Restoration Savings Plan").
(2) Mr. Gould is paid in French francs.
(3) The 1998 amounts disclosed in this column include:
(a) Company contributions to Schlumberger's Profit Sharing Plans.
Contributions are invested, and final amounts distributed depend on
investment results.
(b) Company unfunded credits to the Schlumberger Supplementary Benefit
Plan.
(c) Company unfunded matching credits to the Restoration Savings Plan.
<TABLE>
<CAPTION>
(a)($) (b)($) (c)($)
------ ------- ------
<S> <C> <C> <C>
Mr. Baird.............................................. 14,400 170,400 85,200
Mr. Grijalva........................................... 14,400 65,400 32,700
Mr. Gould.............................................. 63,198 N/A N/A
Mr. Pfister............................................ 14,400 38,400 19,200
Mr. Lindenauer......................................... 14,400 36,900 18,450
</TABLE>
The Company's matching credits under the Restoration Savings Plan are vested
one-third at three years of service, two-thirds at four years, fully at five
years or at age 60 or upon death or upon change of control. The amounts
credited under the Restoration Savings Plan will be paid upon termination or
retirement, death, disability, or change in control.
7
<PAGE>
Stock Option Grants Table
The following table sets forth certain information concerning stock options
granted during 1998 by the Company to the Chief Executive Officer and the next
four most highly compensated executive officers of the Company. In addition,
there are shown hypothetical gains that could be realized for the respective
options, based on assumed rates of annual compound stock price appreciation of
5% and 10% from the date the options are granted over the ten-year term of the
options. The actual gain, if any, realized upon exercise of the options will
depend upon the market price of the Company's Common Stock relative to the
exercise price of the option at the time the option is exercised. There is no
assurance that the amounts reflected in this table will be realized.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
------------------------------------------------ ---------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Granted (#)(1) Fiscal Year ($/SH)(2) Date 5%($) 10%($)
Name -------------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
D. E. Baird............. 0 -- -- -- -- --
V. E. Grijalva.......... 0 -- -- -- -- --
A. Gould................ 40,000 3.04 78.375 4/15/2008 1,971,585 4,996,383
I. Pfister.............. 0 -- -- -- -- --
A. Lindenauer........... 0 -- -- -- -- --
</TABLE>
- --------
(1) The Company has not granted any stock appreciation rights. These options
become exercisable in installments of 20% each year following the date of
grant. All outstanding stock options become fully exercisable prior to any
reorganization, merger or consolidation of the Company where the Company
is not the surviving corporation or prior to liquidation or dissolution of
the Company unless such merger, reorganization or consolidation provides
for the assumption of such stock options.
(2) The exercise price of the options is equal to the average of the high and
the low per share prices of the Common Stock on the options' dates of
grant and may be paid in cash or by tendering shares of Common Stock.
Applicable tax obligations may be paid in cash or by the withholding of
shares of Common Stock.
8
<PAGE>
Stock Option Exercises
and December 31, 1998 Stock Option Value Table
The following table sets forth certain information concerning stock options
exercised during 1998 by the Chief Executive Officer and the next four most
highly compensated executive officers of the Company and the number and value
of unexercised options at December 31, 1998. The Company has not granted stock
appreciation rights. The values of unexercised in-the-money stock options at
December 31, 1998 shown below are presented pursuant to Securities and
Exchange Commission rules. The actual amount, if any, realized upon exercise
of stock options will depend upon the market price of the Company's Common
Stock relative to the exercise price per share of Common Stock of the stock
option at the time the stock option is exercised. There is no assurance that
the values of unexercised in-the-money stock options reflected in this table
will be realized.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in the Money
Options at Options at
FY-End (#) FY-End ($)(2)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercises (#) Realized ($)(1) Unexercisable Unexercisable
- ---- ---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
D. E. Baird....... 0 -- 1,310,000/ 18,914,090/
690,000 4,391,810
V. E. Grijalva.... 40,000 1,060,000 454,000/ 6,235,278/
316,000 2,214,852
A. Gould.......... 0 -- 148,000/ 2,054,564/
132,000 605,996
I. Pfister........ 0 -- 140,000/ 1,689,219/
166,000 871,122
A. Lindenauer..... 0 -- 146,000/ 2,029,974/
104,000 757,496
</TABLE>
- --------
(1) Market value of stock on date of exercise less exercise price.
(2) Closing price of stock on December 31, 1998 ($46.375) less exercise price.
9
<PAGE>
Employment Agreement
Effective January 1, 1999, Mr. Lindenauer assumed a new part-time position
as Chairman of Schlumberger Technology Corporation, the Company's United
States subsidiary. His employment agreement with the Company provides for
annual compensation of $375,000 and will expire on April 30, 2002 when he will
retire. Mr. Lindenauer will participate in the Company's employee benefit
plans other than vacation, severance programs and the annual cash incentive
awards program.
Pension Plans
The Company and certain of its subsidiaries maintain pension plans for
employees, including executive officers, providing for lifetime pensions upon
retirement after a specified number of years of service. Employees may
participate in one or more pension plans in the course of their careers with
the Company or its subsidiaries, in which case they become entitled to a
pension from each plan based upon the benefits accrued during the years of
service related to each plan. These plans are funded on an actuarial basis
through cash contributions made by the Company or its subsidiaries. Certain of
these plans also permit or require contributions by employees.
Benefits under the International Staff Pension Plans of the Company and
certain of its subsidiaries (the "International Plans") are based on a
participant's pensionable salary (generally, base salary plus incentive) for
each year in which the participant participates in the International Plans and
the participant's length of service with the Company or any subsidiary. From
January 1, 1993, the benefit earned is 3.2% of pensionable salary for each
year of service. Benefits are payable upon normal retirement age, at or after
age 55, or upon early retirement. Estimated annual benefits from the
International Plans payable upon retirement are $ 33,714 for Mr. Baird;
$57,139 for Mr. Grijalva; and $276,439 for Mr. Gould assuming pensionable
salary continues at the December 31, 1998 level for Mr. Gould.
Benefits under the U.S. tax qualified pension plans of the Company and
certain of its subsidiaries (the "U.S. plans") are based on a participant's
admissible compensation (generally, base salary plus incentive) for each year
in which the participant participates in the U.S. plans and the participant's
length of service with the Company or any subsidiary. From January 1, 1989,
the benefit earned is 1.5% of admissible compensation for service prior to the
participant's completion of 15 years of active service and 2% of admissible
compensation for service after completion of 15 years of active service. The
Company has adopted a supplementary benefit plan for eligible employees,
including executive officers. Amounts under the supplementary plan will be
accrued under an unfunded arrangement to pay each individual the additional
amount which would have been payable under the U.S. plans if the amount had
not been subject to limitations imposed by law on maximum annual benefit
payments and on annual compensation recognized to compute plan benefits.
Estimated annual benefits from the U.S. plans payable upon retirement are
$16,066 for Mr. Gould, and, assuming admissible compensation continues at the
December 31, 1998 levels, estimated annual benefits payable from the U.S.
plans and the supplementary benefit plan are $700,569 for Mr. Baird; $310,237
for Mr. Grijalva; $188,111 for Mr. Pfister, and $232,079 for Mr. Lindenauer.
10
<PAGE>
Corporate Performance Graph
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on its Common Stock (assuming reinvestment
of dividends at date of payment into Common Stock of the Company) with the
cumulative total return on the published Standard & Poor's 500 Stock Index and
the cumulative total return on Value Line's Oilfield Services Industry Group
over the preceding five-year period. The following graph is presented pursuant
to Securities and Exchange Commission rules. The Company believes that while
total stockholder return is an important corporate performance indicator, it is
subject to the vagaries of the market. In addition to the creation of
stockholder value, the Company's executive compensation program is based on
financial and strategic results, and the other factors set forth and discussed
in the Compensation Committee Report on Page 12.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG SCHLUMBERGER LIMITED, S&P 500 INDEX AND VALUE LINE'S OILFIELD
SERVICES INDUSTRY INDEX**
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Schlumberger S&P 500 Industry Peer Index
---------------------------------------------------------
DOLLARS
-------
12/93 100 100 100
12/94 87 97 101
12/95 123 139 159
12/96 180 171 262
12/97 293 229 394
12/98 171 294 170
Assumes $100 invested on December 31, 1993 in Schlumberger Limited stock, in
the S&P 500 Index and in Value Line's 1998 Oilfield Services Industry Index.
Reflects month-end dividend reinvestment, and annual reweighting of the
Industry Peer Index portfolio.
* Total return assumes reinvestment of dividends.
** Fiscal year ending December 31.
11
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Company's Board is comprised entirely of
outside Directors who act on behalf of the Board to review and approve
compensation programs applicable to executive officers. Specific awards for
these officers are approved by the Committee.
Three programs continue to provide the core compensation vehicles for
executive officers:
--Base Salaries
--Annual Cash Incentive Awards
--Stock Option Grants
For many years Schlumberger has emphasized career opportunities by
recruiting from colleges and universities in countries where the Company works
(more than 70 countries throughout the world), supporting mobility and
maintaining highly competitive compensation programs which are based on an
employee's contribution and potential rather than country of origin.
Thus, the three programs noted above are applicable not only to executive
officers but to thousands of managerial, professional and technical employees
in the Company. At all levels, employees enjoy competitive base salaries. Cash
incentive participation is added to the compensation package as employees
advance, with the size of incentive opportunity as a percent of base salary
increasing as one progresses in the organization.
Within the first few years of employment, those with strong performance as
well as outstanding future potential may be awarded stock option grants, which
are discretionary in nature.
In this way, an increasing portion of the successful employee's total
compensation becomes leveraged against yearly results and Company long-term
appreciation due to the expanding role played by cash incentives and stock
options in the total compensation package.
Many of the Company's subsidiaries also have profit sharing plans that
provide annual deferred awards which reflect the results of the fiscal year
for the subsidiary sponsoring the plan. These awards also tend to increase the
portion of total compensation which is leveraged against business results.
Base salaries are reviewed annually for competitiveness against a data base
of comparator company information provided by outside compensation
consultants. The companies in the data base reflect those broad industry
segments in which the Company competes--- oil-related, high technology and
high volume manufacturing. The companies in the data base may change slightly
from year to year due to mergers and acquisitions as well as the normal
movement of companies into and out of the data base at their own volition. The
roster of companies in the data base used for executive officer base salary
ranges is also used for professional and managerial employees of the Company
throughout the world.
12
<PAGE>
While executive officer base salary levels are studied annually, they are
adjusted less frequently. Except for significant changes in responsibility, an
executive officer's base salary may be increased only every three to five
years, and then by a significant amount. This has allowed the Company to focus
primarily on variable compensation during the period of low inflation we have
been experiencing.
Consistent with this policy, there were two salary changes among the
executive officers in 1998. Victor Grijalva's salary was increased on his
being promoted to Vice Chairman of the Company and Andrew Gould's salary was
increased on his promotion to Executive Vice President with responsibility for
the Oilfield Services Products Group.
The comparator companies used for compensation purposes are different from
those in the Corporate Performance Graph (the Value Line Oilfield Services
Industry Group). The Value Line companies do not constitute a source of
recruits nor do they reflect all the industry segments in which the company
operates.
Annual cash incentive awards for each executive officer are payable early in
the calendar (fiscal) year and reflect performance against targets or
objectives established early in the preceding calendar year.
For all executive officers incentive awards are calculated as a percent of
the base salary paid for the completed calendar year. The maximum percent
varies among executive officer positions to reflect the differing levels of
potential impact on Company results. For 1998, the incentive award ranges
were:
--0 to 100% for Mr. Baird
--0 to 75% for Messrs. Grijalva, Gould and Pfister
--0 to 60% for Mr. Lindenauer
For Mr. Pfister, 75% is a target which could be exceeded in a year of
exceptional performance.
One half of the incentive potential for each executive officer is a function
of performance against specific numerical targets for the Company (Messrs.
Baird and Lindenauer) or the business sector for which the executive officer
was responsible (Messrs. Grijalva, Gould and Pfister) during the calendar year
completed. The Company target is earnings per share; the business sector
target is net income for the sector.
The second half of the incentive potential is a reflection of performance
against various objectives of each executive officer. Objectives may be
strategic or personal and may relate solely to the completed fiscal year or be
interim measures against longer-term objectives. Achievement against
objectives is determined subjectively.
Downturns in the oil and semiconductor equipment industries adversely
affected the incentive awards of the four named executives and, therefore,
their total cash compensation for 1998 was at or below the median of available
comparator market data.
13
<PAGE>
Stock option grants are periodically considered in a Company-wide review of
those deemed eligible to receive an option grant. Such reviews are conducted
every 18 months to two years. In addition, grants typically are awarded
between general reviews to recognize promotions, substantial changes in
responsibility and significant individual or team achievements.
The Company's stock option program is unique in that grants are awarded on
an entirely discretionary basis to individuals demonstrating exceptional
performance in their current positions as well as the likelihood of continuing
high quality performance in the future.
Of the named executive officers, only Mr. Gould was awarded a stock option
grant in 1998 in conjunction with his promotion to Executive Vice President,
Oilfield Services Products Group.
Messrs. Baird, Grijalva and Lindenauer received the final grants of their
respective Schlumberger careers in 1997.
The stock option grants awarded by the Company are uniform in their terms
for executive officers as well as for all other optionees--10-year term,
vesting in 20% steps at the first through fifth anniversary of grant date, and
option price equal to fair market value on date of grant.
Schlumberger has not granted below market options, stock appreciation
rights, phantom stock, restricted stock, performance units or reload options.
Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation expenses in excess of $1,000,000 per individual. The
Committee does not believe that the cash compensation payable in excess of
this amount for fiscal year 1998 will result in any material loss of tax
deduction for the Company. Therefore, the Committee has elected not to follow
the provisions of Section 162(m) with regard to cash compensation. The
Company's stock option plans are believed to be in compliance with the
provisions of Section 162(m).
Bases for the Compensation of the Chief Executive Officer
The same data base of companies used for comparison purposes to review base
salaries of other executive officers (and managerial employees throughout the
Schlumberger universe) is studied to consider the base salary of the Chief
Executive Officer. The data base reflects the industry segments in which the
Company operates, oil-related, high technology and high volume manufacturing.
The Chief Executive Officer's salary remained at $1,500,000 during 1998.
The potential cash incentive award for the Chief Executive Officer for 1998
was 100% of base salary. As with other executive officers with corporate
responsibility, one half of this award potential was a measure of performance
against targeted earnings per share for the Company. No payment was made on
this half of the incentive award due to the downturns in the oil and
semiconductor equipment industries.
14
<PAGE>
The second half of the award potential reflects the Committee's evaluation
of Mr. Baird's performance against strategic objectives established early in
1998 for the calendar year. These included a continuing focus on the Company's
core strengths to build for the future by acquiring Camco International, Inc.
to more fully address the completions market in the oilfield sector, and by
the sale of the retail petroleum systems business. Disclosure of specific
measures applied to evaluate achievement of Mr. Baird's objectives could
adversely affect the Company's competitive position.
The total cash incentive awarded Mr. Baird for 1998 performance was
$600,000. In combination with base salary, this placed him at the median of
available comparator market data.
In 1998, Mr. Baird received no stock option grant since the grant awarded in
1997 was intended by the Committee to be his last grant before retirement.
Mr. Baird has no employment agreement with the Company.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S
BOARD OF DIRECTORS
Don E. Ackerman, Chairman William T. McCormick Jr.
Denys Henderson Nicolas Seydoux
15
<PAGE>
2. Financial Statements
The Company's Consolidated Balance Sheet as at December 31, 1998, its
Consolidated Statement of Income for the year ended December 31, 1998, as
audited by PricewaterhouseCoopers LLP, and the amount of dividends declared by
the Board of Directors during 1998 are submitted to the stockholders pursuant
to the Deed of Incorporation of the Company
A majority of the votes cast is required for the approval of the financial
results as set forth in such financial statements and of the declaration of
dividends by the Board of Directors reflected in the Company's 1998 Annual
Report.
The Board of Directors Recommends a Vote FOR Item 2.
3. Appointment of Auditors
In 1998 Price Waterhouse LLP, who served as auditors for the Company since
its organization, merged with Coopers & Lybrand LLP to become
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP has been selected by
the Board of Directors as independent public accountants to audit the accounts
of the Company for the year ending December 31, 1999. The Company's By-Laws
provide that the selection of auditors is subject to approval by the
stockholders, and a majority of the votes cast is required for such approval.
A representative of PricewaterhouseCoopers LLP will attend the Meeting and
will have the opportunity to make a statement and respond to questions.
The Board of Directors Recommends a Vote FOR Item 3.
16
<PAGE>
Stockholder Proposals for 2000 Annual General Meeting
In order for a stockholder proposal to be considered for inclusion in the
Proxy Statement for the 2000 Annual General Meeting of Stockholders, written
proposals must be received by the Secretary of the Company, 277 Park Avenue,
New York, New York 10172-0266, no later than November 10, 1999. Pursuant to
the rules under the Securities Exchange Act of 1934, the Company may use
discretionary authority to vote proxies with respect to shareholder proposals
to be presented in person at the 2000 Annual General Meeting if the
shareholder making the proposal has not given notice to the Company by January
25, 2000.
Other Matters
Stockholders may obtain a copy of Form 10-K filed with the United States
Securities and Exchange Commission without charge by writing to the Secretary
of the Company at 277 Park Avenue, New York, New York 10172-0266.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any additional matter should be presented properly, it is intended
that the enclosed proxy will be voted in accordance with the discretion of the
persons named in the proxy.
Please sign, date, and return the accompanying proxy in the enclosed
envelope at your earliest convenience.
By order of the Board of Directors,
James L. Gunderson
Secretary
New York, N.Y.
March 10, 1999
17
<PAGE>
SCHLUMBERGER
NOTICE OF
ANNUAL GENERAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
APRIL 14, 1999
----------------------------------
Please sign your proxy card and
return it in the enclosed
envelope so that you may be
represented at the Meeting.
----------------------------------
<PAGE>
Schlumberger Preliminary Financial Statements
For Information of SEC only
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY
(Stated in millions except per share amounts)
Year Ended December 31, 1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating revenue:
Oilfield Services $ 8,895 $ 8,559 $6,875 $ 5,514 $5,001
Resource Management Services 1,465 1,569 1,765 1,771 1,590
Test & Transactions 1,226 1,066 741 684 493
Eliminations and other/1/ 230 349 321 299 248
------- ------- ------- -------- ------
Total operating revenue $11,816 $11,543 $9,702 $ 8,268 $7,332
======= ======= ====== ======= ======
% increase over prior year 2% 19% 17% 13% -%
------- ------- ------ ------- ------
Operating income:
Oilfield Services $ 1,766 $ 1,765 $1,138 $ 752 $ 594
Resource Management Services 50 71 111 121 104
Test & Transactions 74 103 35 48 44
Eliminations (151) (143) (124) (90) (83)
------- ------- ------ ------- ------
Total operating income $ 1,739 $ 1,796 $1,160 $ 831 $ 659
======= ======= ====== ======= ======
% (decrease) increase
over prior year (3%) 55% 40% 26% (4%)
------- ------- ------ ------- ------
Interest expense 139 89 74 91 69
------- ------- ------ ------- ------
Third quarter charge 444 - - - -
------- ------- ------ ------- ------
Taxes on income/2/ 309 420 (141) 144 99
------- ------- ------ ------- ------
Net income $ 1,014 $ 1,385 $ 919 $ 692 $ 577
======= ======= ====== ======= ======
% (decrease) increase
over prior year (27%) 51% 33% 20% (6%)
------- ------- ------ ------- ------
Basic earnings per share $ 1.87 $ 2.57 $ 1.72 $ 1.31 $ 1.09
======= ======= ====== ======= ======
Diluted earnings per share $ 1.81 $ 2.47 $ 1.69 $ 1.30 $ 1.08
======= ======= ====== ======= ======
Cash dividends declared
per share $ 0.75 $ 0.75 $ 0.75 $0.7125 $ 0.60
======= ======= ====== ======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Stated in millions except per share amounts)
Year Ended December 31, 1998 1997 1996 1995 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
SUMMARY OF FINANCIAL DATA
Income as % of operating revenue/3/ 12% 12% 9% 8% 8%
------- ------- ------- ------ ------
Return on average
stockholders' equity/3/ 18% 21% 16% 13% 11%
------- ------- ------- ------ ------
Fixed asset additions $ 1,887 $ 1,592 $ 1,220 $1,028 $ 849
------- ------- ------- ------ ------
Depreciation expense $ 1,060 $ 959 $ 868 $ 800 $ 762
------- ------- ------- ------ ------
Avg. number of shares outstanding:
Basic 544 539 534 529 532
------- ------- ------- ------ ------
Assuming dilution 562 560 546 532 534
------- ------- ------- ------ ------
AT DECEMBER 31,
Liquidity $ 731 $ 527 $ 171 $ 91 $ 341
------- ------- ------- ------ ------
Working capital $ 4,887 $ 2,690 $ 1,767 $1,456 $1,222
------- ------- ------- ------ ------
Total assets $16,078 $13,186 $11,272 $9,770 $9,109
------- ------- ------- ------ ------
Long-term debt $ 3,285 $ 1,179 $ 731 $ 731 $ 486
------- ------- ------- ------ ------
Stockholders' equity $ 8,119 $ 7,381 $ 6,221 $5,501 $5,081
------- ------- ------- ------ ------
Number of employees 64,000 69,000 62,000 56,000 53,000
------- ------- ------- ------ ------
</TABLE>
/1/ Includes the Retail Petroleum Systems business sold on October 1, 1998.
/2/ In 1998, the normal recurring provision for income taxes, before the tax
benefit on the third quarter charge, was $373 million. In 1996, the normal
recurring provision for income taxes, before recognition of the US tax loss
carryforward benefit and the tax effect of the unusual items, was $206
million.
/3/ In 1998, excluding the third quarter charge
<PAGE>
<TABLE>
<CAPTION>
(Stated in thousands except per share amounts)
Year Ended December 31, 1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Revenue
Operating $11,815,553 $11,543,431 $9,701,685
Interest and other income 181,756 111,334 72,818
----------- ----------- ----------
11,997,309 11,654,765 9,774,503
----------- ----------- ----------
Expenses
Cost of goods sold
and services 9,034,409 8,372,714 7,282,010
Research & engineering 568,225 519,365 478,875
Marketing 467,592 433,911 399,808
General 454,049 428,505 422,327
Interest 150,161 95,316 79,862
Unusual items - - 333,091
----------- ----------- ----------
10,674,436 9,849,811 8,995,973
----------- ----------- ----------
Income before taxes 1,322,873 1,804,954 778,530
Taxes on income 308,674 420,405 (140,957)
----------- ----------- ----------
Net Income $ 1,014,199 $ 1,384,549 $ 919,487
=========== =========== ==========
Basic earnings per share $ 1.87 $ 2.57 $ 1.72
=========== =========== ==========
Diluted earnings per share $ 1.81 $ 2.47 $ 1.69
=========== =========== ==========
Average shares outstanding 544,338 539,330 534,298
Average shares outstanding
assuming dilution 561,855 559,653 545,609
</TABLE>
See Notes to Consolidated Financial Statements
Schlumberger Limited (Schlumberger N.V., Incorporated in the Netherlands
Antilles) and Subsidiary Companies.
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Stated in thousands)
December 31, 1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments $ 3,956,694 $ 1,818,332
Receivables less allowance for doubtful accounts
(1998-$89,556; 1997-$76,818) 2,968,070 2,997,010
Inventories 1,333,131 1,300,541
Deferred taxes on income 295,974 220,015
Other current assets 251,355 241,823
----------- -----------
8,805,224 6,577,721
Long-term Investments, held to maturity 855,172 742,751
Fixed Assets less accumulated depreciation 4,694,465 4,121,951
Excess of Investment Over Net Assets
of Companies Purchased less amortization 1,302,678 1,379,412
Deferred Taxes on Income 202,630 174,084
Other Assets 217,760 189,962
----------- -----------
$16,077,929 $13,185,881
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 2,539,954 $ 2,514,220
Estimated liability for taxes on income 480,123 425,318
Bank loans 708,978 750,303
Dividend payable 102,891 93,821
Long-term debt due within one year 86,722 104,357
----------- -----------
3,918,668 3,888,019
Long-term Debt 3,285,444 1,179,356
Postretirement Benefits 432,791 414,432
Other Liabilities 321,951 322,905
----------- -----------
7,958,854 5,804,712
----------- -----------
Stockholders' Equity
Common stock 1,539,408 1,428,624
Income retained for use in the business 8,882,455 8,265,642
Treasury stock at cost (2,221,308) (2,249,765)
Translation adjustment (81,480) (63,332)
----------- -----------
8,119,075 7,381,169
----------- -----------
$16,077,929 $13,185,881
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
Schlumberger Limited (Schlumberger N.V., Incorporated in the Netherlands
Antilles) and Subsidiary Companies.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Stated in thousands)
Year Ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,014,199 $1,384,549 $ 919,487
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,136,290 1,035,003 940,582
Earnings of companies carried at equity,
less dividends received (1998-$4,996;
1997-$4,934; 1996-$2,948) (9,576) (1,270) 4,408
Provision for losses on accounts receivable 36,861 27,871 29,797
Third quarter charge 380,000 - -
Other adjustments (58) (2,278) (9,291)
Change in operating assets and liabilities:
Increase in receivables (20,507) (647,470) (321,980)
Increase in inventories (122,622) (220,813) (151,340)
(Increase) decrease in deferred taxes (75,959) 32,140 (31,210)
(Decrease) increase in accounts payable
and accrued liabilities (72,940) 175,664 188,274
Increase in estimated liability
for taxes on income 79,677 51,215 45,192
Other-net (42,218) 25,916 (73,350)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,303,147 1,860,527 1,540,569
---------- ---------- ----------
Cash flows from investing activities:
Purchases of fixed assets (1,887,369) (1,591,734) (1,219,805)
Sales/retirements of fixed assets & other 36,693 97,390 113,518
Sale (purchase) of businesses 61,662 (28,233) (161,635)
Net proceeds on sale of drilling rigs - 174,000 -
Increase in investments (2,292,163) (867,894) (218,914)
Decrease in other assets 4,660 19,453 (537)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (4,076,517) (2,197,018) (1,487,373)
---------- ---------- ----------
Cash flows from financing activities:
Dividends paid (388,379) (377,636) (374,489)
Proceeds from employee stock purchase plan 70,461 50,055 38,807
Proceeds from exercise of stock options 68,780 97,899 143,660
Purchase of shares for Treasury - - (13,413)
Proceeds from issuance of long-term debt 2,909,156 925,579 205,009
Payments of principal on long-term debt (863,966) (419,962) (202,026)
Net (decrease) increase in short-term debt (64,756) 50,831 212,523
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,731,296 326,766 10,071
---------- ---------- ----------
Net (decrease) increase in cash (42,074) (9,725) 63,267
Cash, beginning of year 147,395 157,120 93,853
---------- ---------- ----------
CASH, END OF YEAR $ 105,321 $ 147,395 $ 157,120
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
Schlumberger Limited (Schlumberger N.V., Incorporated in the Netherlands
Antilles) and Subsidiary Companies.
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------------
Issued In Treasury
------------------------- ---------------------- Translation
Shares Amount Shares Amount Adjustment
------------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 660,746,700 $1,235,146 129,976,320 $ 2,414,577 $ (31,382)
Translation adjustment 5,756
Sales to optionees less
shares exchanged 16,527 47,177 (5,314,696) (98,631)
Purchases for Treasury (404,268) (13,413)
Employee stock
purchase plan 1,483,494 38,807
Net income
Dividends declared
($0.75 per share)
------------ ----------- ------------------------- -----------
Balance,
December 31, 1996 661,842,453 1,307,717 124,661,624 2,315,946 (25,626)
Translation adjustment (37,706)
Sales to optionees less
shares exchanged 395,950 37,316 (3,323,223) (61,743)
Employee stock
purchase plan 1,399,623 50,055
Net income
IVS acquisition 16,324 (238,812) (4,438)
Tax benefit on
stock options 16,600
Change in subsidiary
year end 612
Dividends declared
($0.75 per share)
------------ ----------- ------------------------- -----------
Balance,
December 31, 1997 663,638,026 1,428,624 121,099,589 2,249,765 (63,332)
Translation adjustment (18,148)
Sales to optionees less
shares exchanged 796,992 40,323 (1,531,607) (28,457)
Employee stock
purchase plan 1,266,840 70,461
Net income
Dividends declared
($0.75 per share)
------------ ----------- ------------------------- -----------
Balance,
December 31, 1998 665,701,858 $ 1,539,408 119,567,982 $2,221,308 $(81,480)
============ =========== ========================= ===========
<CAPTION>
(Dollar amounts in thousands)
Income
Retained for
Use in the Comprehensive
Business Income
------------ ------------
<S> <C> <C>
Balance,
January 1, 1996 $ 6,711,298 $ -
Translation adjustment 5,756
Sales to optionees less
shares exchanged 43
Purchases for Treasury
Employee stock
purchase plan (211)
Net income 919,487 919,487
Dividends declared
($0.75 per share) (375,509)
------------ -----------
Balance,
December 31, 1996 7,255,108 $ 925,243
===========
Translation adjustment (37,706)
Sales to optionees less
shares exchanged
Employee stock
purchase plan
Net income 1,384,549 1,384,549
IVS acquisition
Tax benefit on
stock options
Change in subsidiary
year end 4,560
Dividends declared
($0.75 per share) (378,575)
------------ -----------
Balance,
December 31, 1997 8,265,642 $ 1,346,843
===========
Translation adjustment (18,148)
Sales to optionees less
shares exchanged
Employee stock
purchase plan
Net income 1,014,199 1,014,199
Dividends declared
($0.75 per share) (397,386)
------------ -----------
Balance,
December 31, 1998 $8,882,455 $ 996,051
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
Schlumberger Limited (Schlumberger N.V., Incorporated in the Netherlands
Antilles) and Subsidiary Companies.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
- ------------------------------
The Consolidated Financial Statements of Schlumberger Limited and its
subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States.
On August 31, 1998, Schlumberger completed the merger of Schlumberger
Technology Corporation, a wholly owned subsidiary of Schlumberger, and Camco
International Inc. The business combination was accounted for using the
pooling-of-interests method of accounting. Accordingly, the financial
statements have been prepared as if Schlumberger and Camco were combined at
the beginning of the earliest period presented.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of majority-owned
subsidiaries. Significant 20%-50% owned companies are carried on the equity
method and classified in Other Assets. The Company's pro rata share of
after-tax earnings is included in Interest and other income. Equity in
undistributed earnings of all 50%-owned companies at December 31, 1998 was not
material.
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. While
actual results could differ from these estimates, management believes that the
estimates are reasonable.
Revenue Recognition
Generally, revenue is recognized after services are rendered and products are
shipped.
Translation of Non-US Currencies
All assets and liabilities recorded in functional currencies other than US
dollars are translated at current exchange rates. The resulting adjustments are
charged or credited directly to the Stockholders' Equity section of the
Consolidated Balance Sheet. Revenue and expenses are translated at the weighted-
average exchange rates for the period. All realized and unrealized transaction
gains and losses are included in income in the period in which they occur. The
Company policy is to hedge against unrealized gains and losses on a monthly
basis. Included in the 1998 results were transaction losses of $5 million,
compared with a loss of $5 million in 1997 and a gain of $5 million in 1996.
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. At December 31, 1998, contracts and options were
outstanding for the US dollar equivalent of $276 million in various foreign
currencies. These contracts mature on various dates in 1999 and 2000.
Investments
Both short-term and long-term investments held to maturity are stated at cost
plus accrued interest, which approximates market, and comprise primarily
Eurodollar time deposits, certificates of deposit and commercial paper, Canada
treasury bills, Euronotes and Eurobonds, substantially all denominated in US
dollars. Substantially all the investments designated as held to maturity that
were purchased and sold during the year had original maturities of less than
three months. Short-term investments that are designated as trading
<PAGE>
are stated at market. The unrealized gain on such securities at December 31,
1998 was not significant.
For purposes of the Consolidated Statement of Cash Flows, the Company does not
consider short-term investments to be cash equivalents as they generally have
original maturities in excess of three months. Short-term investments at
December 31, 1998 and 1997, were $3.9 billion and $1.7 billion, respectively.
Inventories
Inventories are stated principally at average or standard cost, which
approximates average cost, or at market, if lower. Inventory consists primarily
of materials and supplies.
Excess of Investment Over Net Assets of Companies Purchased
Cost in excess of net assets of purchased companies (goodwill) is amortized on
a straightline basis over periods ranging from 5 to 40 years. Accumulated
amortization was $434 million and $389 million at December 31, 1998 and 1997,
respectively. Of the goodwill at December 31, 1998, 53% is being amortized over
40 years, 21% is being amortized over 25 years and 26% is being amortized over
periods of up to 25 years.
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 by the
straight-line method. Fixed assets include the manufacturing cost (average cost)
of oilfield technical equipment manufactured by subsidiaries of the Company.
Expenditures for renewals, replacements and improvements are capitalized.
Maintenance and repairs are charged to operating expenses as incurred. Upon sale
or other disposition. If 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.
Capitalized Interest
The Company capitalizes interest expense during the new construction or upgrade
of qualifying assets. Interest expense capitalized in 1998 was $15 million. No
interest expense was capitalized in 1997 and 1996.
Impairment of Long-lived Assets
The Company reviews the appropriateness of the carrying value of its long-lived
assets, including goodwill, whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of the
asset by estimating the future net cash flows expected to result from the
asset, including eventual disposition.- If the future net cash flows are less
than the carrying value of the asset, an impairment loss is recorded equal to
the difference between the asset's carrying value and fair value.
Taxes on Income
The Company and its subsidiaries compute taxes on income in accordance with the
tax rules and regulations of the many taxing authorities where the income is
earned. The income tax rates imposed by these taxing authorities vary
substantially. Taxable income may differ from pretax income for financial
accounting purposes. To the extent that differences are due to revenue or
expense items reported in one period for tax purposes and in another period for
financial accounting purposes, an appropriate provision for deferred income
taxes is made.
Approximately $4.5 billion of consolidated income retained for use in the
business at December 31, 1998 represented undistributed earnings of
consolidated subsidiaries and the Company's pro rata share of 20%-50% owned
companies. No provision is made for deferred income taxes on those earnings
considered to be indefinitely reinvested or earnings that would not be taxed
when remitted.
<PAGE>
Tax credits and other allowances are credited to current income tax expense on
the flow through method of accounting.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the average
number of common shares outstanding during the year. Diluted earnings per share
is computed by dividing net income by the average number of common shares
outstanding assuming dilution, the calculation of which assumes that all stock
options and warrants are exercised at the beginning of the period and the
proceeds used, by the Company, to purchase shares at the average market price
for the period. The following is a reconciliation from basic earnings per share
to diluted earnings per share for each of the last three years:
(Stated in thousands except per share amounts)
Average
Net Shares Earnings
Income Outstanding per share
--------------- ------------ ------------
1998
Basic $1,014,199 544,338 $ 1.87
Effect of dilution:
Options 9,723
Warrants 7,794
---------- ---------- --------
Diluted $1,014,199 561,855 $ 1.81
========== ========== ========
1997
Basic $1,384,549 539,330 $ 2.57
Effect of dilution:
Options 12,185
Warrants 8,138
---------- ---------- --------
Diluted $1,384,549 559,653 $ 2.47
========== ========== ========
1996
Basic $ 919,487 534,298 $ 1.72
Effect of dilution:
Options 6,966
Warrants 4,315
---------- ---------- --------
Diluted $ 919,487 545,609 $ 1.69
========== ========== ========
Research & Engineering
All research and engineering expenditures are expensed as incurred, including
costs relating to patents or rights that may result from such expenditures.
<PAGE>
Third Quarter Charge
In September 1998, the Company recorded an after-tax charge of $380 million
$0.68 per share-diluted), consisting of the following:
. A charge of $268 million related to Oilfield Services, including severance
costs of $64 million (5600 employees); facilities closure/relocation costs
of $40 million; operating asset write-offs of $114 million; and $39 million
of customer receivable reserves where collection was considered doubtful
due to the customers' financial condition and/or country risk. This charge
resulted from the slowdown in business.
. A charge of $63 million for merger-related costs in connection with the
acquisition of Camco International Inc.
. A charge of $43 million related to Resource Management Services and Test &
Transactions, consisting primarily of employee severance, facilities'
rationalizations, and environmental costs resulting from a reassessment of
ongoing future monitoring and maintenance requirements at locations no
longer in operation.
The pretax charge of $444 million is classified in Cost of goods sold and
services.
At December 31, 1998, $35 million of the Oilfield Services severance costs had
been incurred and the majority of the terminations had been completed. Complex
social/legal issues in certain European countries have caused delays in
completing the headcount reduction. The reduction should be completed by
June 30, 1999, and the remaining costs incurred.
In 1996, the Company announced a charge of $300 million after tax in the third
quarter related primarily to the electricity, gas and seismic land and
transition zone businesses. The after-tax charge of $300 million included
pretax charges of $112 million for severance costs, other facility closure
costs of $39 million, goodwill write-offs of $122 million and other asset
impairments/charges of $60 million.
The severance costs related to less than 5% of the worldwide work force,
primarily in Europe, and pertained to both manufacturing and operating
personnel in about 30 locations. Most of the other facility closure costs
related to the write-down of buildings, equipment and other assets to net
realizable value.
In addition, the Company recorded a charge of $58 million after tax, including
a loss on the divestiture of the remaining defense-related activity, certain
asset impairments and other charges. The amount is classified in Cost of goods
sold and services ($47 million) and Taxes on income ($11 million).
At December 31, 1998, virtually all of the severance costs had been incurred.
Acquisitions
- ------------
On August 31, 1998, Schlumberger announced that the merger of Schlumberger
Technology Corporation, a wholly owned subsidiary of Schlumberger, and Camco
International Inc. had been completed. Under the terms of the merger agreement,
approximately 38.2 million shares of Camco common stock were exchanged for 45.1
million shares of Schlumberger common stock at the exchange rate of 1.18 shares
of Schlumberger stock for each share of Camco. Based on the Schlumberger average
price of $47 7/8 on August 28, the transaction was valued at $2.2 billion. The
business combination was accounted for using the pooling-of-interests method of
accounting.
During 1997, subsidiaries of the Company acquired Interactive Video Systems,
Inc. (IVS), a metrology solutions provider for the front-end semiconductor
fabrication equipment market, and S.A. Holditch and Associates, Inc., a
petroleum and geoscience consulting
<PAGE>
services company. These acquisitions were accounted for as purchases. Costs
in excess of net assets acquired were $38 million, which are being amortized on
a straight-line basis over periods of 5 and 15 years, respectively.
During 1996, subsidiaries of the Company acquired Solaic, SA, a magnetic and
smart card manufacturer; an 80% interest in Printer, a magnetic stripe card
manufacturer; Oilphase Sampling Services Ltd., a reservoir fluid sampling
company; The Production Analyst* and Offield Manager* software products from
OGCI Software, Inc.; Germann, a turnkey gasoline station provider; Gueant, a
gas dispenser service company; and a 33% equity interest in DAP Technologies
Limited, a developer and manufacturer of rugged handheld computer products. The
purchase prices were $75 million, $9 million, $7 million, $8 million, $8
million, $7 million and $4 million, respectively. These acquisitions were
accounted for as purchases. Costs in excess of net assets acquired were $91
million, which are being amortized on a straight-line basis over periods
between 7 and 25 years.
Investments
- -----------
The Consolidated Balance Sheet reflects the Company's investment portfolio
separated between current and long term, based on maturity. Except for $125
million of investments which are considered trading at December 31, 1998 ($117
million in 1997), it is the Company's intent to hold the investments until
maturity.
Long-term investments mature as follows: $255 million in 2000, $143 million in
2001 and $457 million thereafter.
At December 31, 1998, there were no interest rate swap arrangements outstanding
related to investments. Interest rate swap arrangements had no material effect
on consolidated interest income.
Fixed Assets
- ------------
A summary of fixed assets follows:
(Stated in millions)
December 31, 1998 1997
------- ------
Land $ 78 $ 80
Buildings &
Improvements 1,108 1,086
Machinery &
Equipment 10,472 9,759
------- ------
Total cost 11,658 10,925
Less accumulated
depreciation 6,964 6,803
------- ------
$4,694 $4,122
======= ======
Estimated useful lives of Buildings & Improvements range from 5 to 50 years and
of Machinery & Equipment from 2 to 25 years. Nearly all of the Buildings &
Improvements are depreciated between 30 and 40 years. For Machinery & Equipment,
27% is being depreciated over periods between 16 to 25 years, 11% over periods
between 11 to 15 years and 62% over periods between 2 to 10 years.
<PAGE>
Long-term Debt
- --------------
A summary of long-term debt by currency follows:
(Stated in millions)
December 31, 1998 1997
------ -----
US dollar $2,284 $433
UK pound 270 122
French franc 201 186
German mark 160 118
Japanese yen 125 111
Italian lira 91 93
Canadian dollar 80 68
Other 74 48
--------- -------
$ 3,285 $ 1,179
========= =======
Long-term debt is at variable interest rates; the weighted-average interest rate
of the debt outstanding at December 31, 1998 was 5.6%. Such rates are reset
every six months or sooner. Long-term debt at December 31, 1998 approximates
fair value.
Long-term debt at December 31, 1998, is due as follows: $486 million in 2000,
$122 million in 2001, $254 million in 2002, $2,243 million in 2003 and $180
million thereafter.
At December 31, 1998, there were interest rate swap arrangements outstanding
related to debt having a total principal amount of $37 million. Interest rate
swap arrangements had no material impact on consolidated interest expense in
1998 and 1997. The exposure, in the event of nonperformance by the other parties
to the arrangements, would not be significant.
Lines of Credit
- ---------------
At December 31, 1998, the Company's principal US subsidiary has an available
unused Revolving Credit Agreement with a syndicate of banks. The Agreement
provides that the subsidiary may borrow up to $1 billion until August 2003 at
money market-based rates. Additionally, the Company's principal US subsidiary
has available an unused five-year syndicated capital lease facility whereby it
can finance up to $550 million for the construction and subsequent capital lease
of two drilling rigs at money market-based rates. At December 31, 1998, the
Company and its subsidiaries also had available unused lines of credit of
approximately $630 million.
Capital Stock
- -------------
The Company is authorized to issue 1,000,000,000 shares of Common Stock, par
value $0.01 per share, of which 546,133,876 and 542,538,437 shares were
outstanding on December 31, 1998 and 1997, respectively. The Company is also
authorized to issue 200,000,000 shares of cumulative Preferred Stock, par value
$0.01 per share, which may be issued in series with terms and conditions
determined by the Board of Directors. No shares of Preferred Stock have been
issued. Holders of Common Stock and Preferred Stock are entitled to one vote for
each share of stock held.
In January 1993, Schlumberger acquired the remaining 50% interest in the Dowell
Schlumberger group of companies. The purchase price included a warrant, expiring
in 7.5 years and valued at $100 million, to purchase 15,153,018 shares of
Schlumberger Limited Common Stock at an exercise price of $29.672 per share. The
warrant is fully vested and nontransferable.
<PAGE>
Stock Compensation Plans
- ------------------------
As of December 31, 1998, the Company has two types of stock-based compensation
plans, which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based plans been determined based on
the fair value at the grant dates for awards under those plans, consistent with
the method of SFAS 123, the Company's net income and earnings per share would
have been the pro forma amounts indicated below:
(Stated in millions except per share amounts)
1998 1997 1996
---- ---- ----
Net income
As reported $ 1,014 $ 1,385 $ 919
Pro forma $ 882 $ 1,315 $ 872
Basic earnings
per share
As reported $ 1.87 $ 2.57 $ 1.72
Pro forma $ 1.62 $ 2.44 $ 1.63
Diluted earnings
per share
As reported $ 1.81 $ 2.47 $ 1.69
Pro forma $ 1.57 $ 2.35 $ 1.60
As required by SFAS 123, the above pro forma data reflect the effect of stock
option grants and the employee stock purchase plan during 1998, 1997 and 1996.
Stock Options Plans
During 1998, 1997, 1996 and in prior years, officers and key employees were
granted stock options under the Company's stock option plans. For substantially
all of the stock options granted, the exercise price of each option equals the
market price of the Company's stock on the date of grant; an option's maximum
term is ten years, and options generally vest in 20% increments over five years.
As required by SFAS 123, the fair value of each grant is estimated on the date
of grant using the multiple option Black-Scholes option-pricing model with the
following weighted-average assumptions used for 1998, 1997 and 1996: Dividend of
$0.75; expected volatility of 21%-25% for 1998 grants, 21% for 1997 grants and
20% for 1996 grants; risk-free interest rates for the 1998 grants of 5.59%-5.68%
for officers and 4.35%-5.62% for the 1998 grants to all other employees; risk-
free interest rates for the 1997 grant to officers of 6.19% and 5.80%-6.77% for
the 1997 grants to all other employees; risk-free interest rates for the 1996
grants of 5.38%-6.36% for officers and 5.09%-6.01 % for the 1996 grants to all
other employees; and expected option lives of 6.98 years for officers and 5.02
years for other employees for 1998 grants, 7.27 years for officers and 5.09
years for other employees for 1997 grants and 8.4 years for officers and 5.39
years for other employees for 1996 grants.
<PAGE>
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 28,701,327 $43.75 26,300,825 $31.40 23,607,281 $28.03
Granted 1,845,143 $68.76 6,822,049 $80.33 8,914,443 $38.40
Exercised (2,299,709) $26.54 (3,856,684) $27.22 (5,725,467) $26.46
Forfeited (666,616) $52.32 (564,863) $35.77 (495,432) $31.80
--------- --------- ---------
Outstanding at
end of year 27,580,145 $46.71 28,701,327 $43.75 26,300,825 $31.40
========== ========== ==========
Options exercisable
at year-end 14,480,837 11,605,965 10,292,993
Weighted-average
fair value of options granted
during the year $24.44 $25.30 $11.14
======================================================================================================================
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options by three ranges of exercise prices at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Number Weighted-average Number
Range of outstanding remaining Weighted-average exercisable Weighted-average
exercise prices as of 12/31/98 contractual life exercise price as of 12/31/98 exercise price
- --------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.21 - $32.250 11,067,118 4.56 $28.916 9,308,792 $28.201
$32.407 - $51.536 9,100,558 7.10 $39.262 3,989,682 $37.157
$52.688 - $90.500 7,412,469 8.83 $82.423 1,182,363 $84.964
--------- ---------
27,580,145 6.55 $ 46.67 14,480,837 $36.153
---------- ----------
</TABLE>
Employee Stock Purchase Plan
Under the Schlumberger Discounted Stock Purchase Plan, the Company is authorized
to issue up to 22,012,245 shares of Common Stock to its employees. Under the
terms of the Plan, employees can choose each year to have up to 10% of their
annual earnings withheld to purchase the Company's Common Stock. The purchase
price of the stock is 85% of the lower of its beginning or end of the plan year
market price. Under the Plan, the Company sold 1,266,840, 1,399,623 and
1,483,494 shares to employees in 1998, 1997 and 1996, respectively. Compensation
cost has been computed for the fair value of the employees' purchase rights,
which was estimated using the Black-Scholes model with the following assumptions
for 1998, 1997 and 1996: Dividend of $0.75; expected life of one year; expected
volatility of 34% for 1998, 28% for 1997 and 20% for 1996; and risk-free
interest rates of 4.44% for 1998, 5.64% for 1997 and 5.71% for 1996. The
weighted-average fair value of those purchase rights granted in 1998, 1997 and
1996, was $19.817, $17.845 and $9.73, respectively.
<PAGE>
Income Tax Expense
- ------------------
The Company and its subsidiaries operate in over 100 taxing jurisdictions where
statutory tax rates generally vary from 0% - 50%.
Pretax book income subject to US and foreign income taxes for each of the three
years ending December 31, was as follows:
(Stated in millions)
1998 1997 1996
---- ---- ----
United States $ 29 $ 485 $ 201
Foreign 1,294 1,320 578
---------- ---------- --------
Pretax income $ 1,323 $ 1,805 $ 779
========== ========== ========
The Company had net deductible temporary differences of $1.2 billion at December
31, 1998 and $977 million at December 31, 1997. Significant temporary
differences pertain to postretirement medical benefits, fixed assets, employee
benefits and inventory.
The components of consolidated income tax expense were as follows:
(Stated in millions)
1998 1997 1996
---- ---- ----
Current:
United States-Federal $ 126 $ 93 $ 49
United States-State 15 19 10
Foreign 272 275 221
------- ----- -----
$ 413 $ 387 $ 280
------- ----- -----
Deferred:
United States-Federal $ (69) $ 18 $(347)
United States-State (7) (2) (34)
Foreign (28) 17 (40)
------- ----- -----
$ (104) $ 33 $(421)
------- ----- -----
Consolidated taxes on income $ 309 $ 420 $(141)
======= ===== =====
Effective tax rate 23% 23% -%
======= ===== =====
For the three years, the variations from the US statutory federal tax rate
(35%) and the Company's effective tax rates were due to several factors,
including the effect of the US operating loss carryforward in prior years and a
substantial proportion of operations in countries where taxation on income is
lower than in the US.
In the third quarter of 1996, with increasing profitability and a strong outlook
in the US, the Company recognized 50% of the US income tax benefit related to
its US subsidiary's tax loss carryforward and all temporary differences. This
resulted in a credit of $360 million.
In the second quarter of 1997, the Company released the remaining valuation
allowance related to its US subsidiary's tax loss carryforward and all temporary
differences. The resulting reduction in income tax expense was not significant.
<PAGE>
Leases and Lease Commitments
- ----------------------------
Total rental expense was $360 million in 1998, $295 million in 1997 and $242
million in 1996. Future minimum rental commitments under noncancelable
leases for years ending December 31 are: $157 million in 1999; $117 million in
2000; $99 million in 2001; $83 million in 2002; and $72 million in 2003. For the
ensuing three five-year periods, these commitments decrease from $105 million to
$5 million. The minimum rentals over the remaining terms of the leases aggregate
to $55 million.
Included in the rental expenses and future minimum rental commitments above are
the Schlumberger semisubmersibles Drillstar and Sedco Explorer. In September
1997, these rigs were sold to a newly formed venture in which the Company has a
25% interest. The rigs are being operated by Schlumberger under bareboat
charters.
Contingencies
- -------------
The Company and its subsidiaries comply with government laws and regulations and
responsible management practices for the protection of the environment. The
Consolidated Balance Sheet includes accruals for the estimated future costs
associated with certain environmental remediation activities related to the past
use or disposal of hazardous materials. Substantially all such costs relate to
divested operations and to facilities or locations that are no longer in
operation. Due to a number of uncertainties, including uncertainty of timing,
the scope of remediation, future technology, regulatory changes and other
factors, it is possible that the ultimate remediation costs may exceed the
amounts estimated. However, in the opinion of management, such additional costs
are not expected to be material relative to consolidated liquidity, financial
position or future results of operations.
In addition, the Company and its subsidiaries are party to various other legal
proceedings. Although the ultimate disposition of these proceedings is not
currently determinable, in the opinion of the Company any liability that might
ensue would not be material in relation to consolidated liquidity, financial
position or future results of operations.
<PAGE>
Segment Information
- -------------------
The Company operates four businesses: Oilfield Services (OFS), Resource
Management Services (RMS), Test & Transactions (T&T) and Cable & Wireless
Omnes. OFS, RMS and T&T are reportable business segments; Cable & Wireless Omnes
is not a reportable segment.
The Company's OFS business falls into four clearly defined economic and
geographical areas and is evaluated on the following basis: First, North
America (NAM) is a major selfcontained market. Second, Latin America (LAM) is
composed of regional markets which share a common dependence on the United
States. Third, Europe is another major selfcontained market where we include
the CIS, whose economy is increasingly linked to that of Europe, and West
Africa. Fourth, Other Eastern includes the remainder of the Eastern Hemisphere,
which consists of many countries at different stages of economic development
that share a common dependence on the oil and gas industry. Camco is managed
as a separate segment within OFS.
The OFS group provides exploration and production services required during the
life of an oil and gas reservoir. The Company believes that all the
products/services are interrelated and expect similar performance from each.
The RMS group is a global provider of measurement solutions, products and
systems for electricity, gas and water utilities worldwide. The T&T group
supplies technology products, services and system solutions to the
semiconductor, banking, telecommunications, transportation and health care
industries. The group consists of two businesses, Automated Test Equipment and
Smart Cards & Terminals. Services and products are described in more detail on
pages 1 and 2 of this 10-K report.
Financial information for the years ended December 31, 1998, 1997 and 1996, by
segment, is as follows:
<PAGE>
<TABLE>
<CAPTION>
(Stated in millions)
--------------------------------------------------------------------------------
Europe/ Other Elims/ Total
1998 NAM LAM CIS/W Afr. Eastern Camco Other OFS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 2,027 $ 1,190 $2,511 $ 2,218 $ 948 $ 1 $ 8,895
--------------------------------------------------------------------------------
Operating Income $ 160 $ 131 $ 460 $ 549 $ 123 $ (57) $ 1,366
Income Tax Expense(/1/) 84 45 74 124 66 7 400
--------------------------------------------------------------------------------
Pretax Operating Income $ 244 $ 176 $ 534 $ 673 $ 189 $ (50) $ 1,766
--------------------------------------------------------------------------------
Interest Income
Interest Expense $ (10)
=========
Third Quarter Charge
Pretax Income
--------------------------------------------------------------------------------
Segment Assets $ 1,321 $ 1,037 $2,154 $ 1,758 $1,089 $ 972 $ 8,331
Corporate Assets
Total Assets
--------------------------------------------------------------------------------
Depreciation/Amortization $ 204 $ 131 $ 271 $ 243 $ 74 $ 66 $ 989
================================================================================
Capital Expenditures $ 288 $ 272 $ 540 $ 325 $ 131 $ 189 $ 1,745
--------------------------------------------------------------------------------
<CAPTION>
(Stated in millions)
-------------------------------------------------
Elims/
1998 RMS T&T Other Consolidated
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 1,465 $ 1,226 $ 230 $11,816
-------------------------------------------------
Operating Income $ 32 $ 55 $ (86) $ 1,367
Income Tax Expense(/1/) 18 19 (65) 372
-------------------------------------------------
Pretax Operating Income $ 50 $ 74 $ (151) $ 1,739
Interest Income 167
Interest Expense $ (1) (139)
=========
Third Quarter Charge (444)
-----------
Pretax Income $ 1,323
-------------------------------------------------
Segment Assets $ 1,184 $ 1,069 $ - $10,584
Corporate Assets 5,493
Total Assets $16,077
-------------------------------------------------
Depreciation/Amonization $ 87 $ 48 $ 12 $ 1,136
=================================================
Capital Expenditures $ 61 $ 53 $ 28 $ 1,887
-------------------------------------------------
</TABLE>
(/1/) 1998 income tax expense excludes a credit of $63 million related to the
Third Quarter Charge.
<PAGE>
<TABLE>
<CAPTION>
(Stated in millions)
----------------------------------------------------------------------------------
Europe/ Other Elims/ Total
1997 NAM LAM CIS/W Afr. Eastern Camco Other OFS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $2,129 $1,060 $2,412 $2,055 $ 914 $ (11) $8,559
==================================================================================
Operating Income $ 263 $ 151 $ 454 $ 493 $ 104 $ (79) $1,386
Income Tax Expense 111 45 57 104 57 5 379
----------------------------------------------------------------------------------
Pretax Operating Income $ 374 $ 196 $ 511 $ 597 $ 161 $ (74) $1,765
==================================================================================
Interest Income
Interest Expense $ (5)
==========
Pretax Income
==================================================================================
Segment Assets $1,502 $ 988 $1,856 $1,592 $1,042 $ 844 $7,824
Corporate Assets
Total Assets
==================================================================================
Depreciation/Amortization $ 187 $ 100 $ 255 $ 213 $ 62 $ 68 $ 885
==================================================================================
Capital Expenditures $ 297 $ 281 $ 386 $ 337 $ 96 $ 52 $1,449
----------------------------------------------------------------------------------
<CAPTION>
(Stated in millions)
---------------------------------------------------
Elims/
1997 RMS T&T Other Consolidated
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $1,569 $1,066 $ 349 $11,543
---------------------------------------------------
Operating Income $ 47 $ 73 $ (130) $ 1,376
Income Tax Expense 24 30 (13) 420
---------------------------------------------------
Pretax Operating Income $ 71 $ 103 $ (143) $ 1,796
------------------------------------
Interest Income 98
Interest Expense $ (1) (89)
========== -----------
Pretax Income $ 1,805
---------------------------------------------------
Segment Assets $1,219 $1,088 $ - $10,131
Corporate Assets 3,055
-----------
Total Assets $13,186
Depreciation/Amortization $ 93 $ 44 $ 13 $ 1,035
---------------------------------------------------
Capital Expenditures $ 67 $ 63 $ 13 $ 1,592
===================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Stated in millions)
----------------------------------------------------------------------------------
Europe/ Other Elims/ Total
1996 NAM LAM CIS/W Afr. Eastern Camco Other OFS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,613 $ 791 $2,066 $1,660 $ 765 $ (20) $6,875
==================================================================================
Operating Income $ 178 $ 138 $ 319 $ 311 $ 70 $ (96) $ 920
Income Tax Expense(/2/) 29 35 42 69 38 5 218
----------------------------------------------------------------------------------
Pretax Operating Income $ 207 $ 173 $ 361 $ 380 $ 108 $ (91) $1,138
==================================================================================
Interest Income
Interest Expense $ (5)
============
Unusual Items
Pretax Income
==================================================================================
Segment Assets $1,059 $ 690 $1,780 $1,392 $ 917 $ 798 $6,636
Corporate Assets
Total Assets
==================================================================================
Depreciation/Amortization $ 178 $ 71 $ 246 $ 198 $ 55 $ 48 $ 796
==================================================================================
Capital Expenditures $ 210 $ 171 $ 284 $ 326 $ 62 $ 35 $1,088
----------------------------------------------------------------------------------
<CAPTION>
(Stated in millions)
---------------------------------------------------
Elims/
1996 RMS T&T Other Consolidated
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $1,765 $ 741 $ 321 $9,702
===================================================
Operating Income $ 88 $ 35 $ (124) $ 919
Income Tax Expense(/2/) 23 - - 241
---------------------------------------------------
Pretax Operating Income $ 111 $ 35 $ (124) $ 1,160
====================================
Interest Income 73
Interest Expense $ (1) (74)
============
Unusual Items (380)
-----------
Pretax Income $ 779
===================================================
Segment Assets $1,389 $ 970 $ - $ 8,995
Corporate Assets 2,277
-----------
Total Assets $11,272
===================================================
Depreciation/Amortization $ 102 $ 31 $ 12 $ 941
===================================================
Capital Expenditures $ 78 $ 39 $ 15 $ 1,220
---------------------------------------------------
</TABLE>
(/2/) 1996 income tax expense excludes (i) a credit of $22 million related to
the Unusual Items and (ii) a credit of $360 million related to the US
tax loss carry forward recognition.
Corporate assets largely comprise short-term and long-term investments.
During the three years ended December 31, 1998, no single customer accounted for
more than 10% of consolidated revenue.
The accounting policies of the segments are the same as those described in the
summary of accounting policies.
Oilfield Services' net income eliminations include certain headquarters
administrative costs which are not allocated geographically, goodwill
amortization, and certain costs maintained at the OFS level.
Nonoperating expenses, such as certain intersegment charges and interest expense
(except as shown above) are not included in segment operating income.
The Company did not have revenue from third-party customers in its country of
domicile during the last three years. In each of the three years, only revenue
in the US exceeded 10% of Consolidated revenue. Revenue in the US in 1998, 1997
and 1996 was $3.4 billion, $3.5 billion and $2.8 billion, respectively.
<PAGE>
Pension and Other Benefit Plans
- -------------------------------
US Pension Plans
The Company and its US subsidiary sponsor several defined benefit pension plans
that cover substantially all employees. The benefits are based on years of
service and compensation on a career-average pay basis. These plans are
substantially fully funded with a trustee in respect to past and current
service. Charges to expense are based upon costs computed by independent
actuaries. The funding policy is to contribute annually amounts that are
allowable for federal income tax purposes. These contributions are intended to
provide for benefits earned to date and those expected to be earned in the
future.
The assumed discount rate, compensation increases and return on plan assets used
to determine pension expense in 1998 were 7.5%, 4.5% and 9%, respectively. In
1997, the assumptions were 8%, 4.5% and 8.5%, respectively. In 1996, the
assumptions were 7.5%, 4.5% and 8.5%, respectively.
Net pension cost in the US for 1998, 1997 and 1996, included the following
components:
(Stated in millions)
1998 1997 1996
---- ---- ----
Service cost-benefits
earned during the period $ 39 $ 33 $ 31
Interest cost on projected
benefit obligation 68 61 55
Expected return on
plan assets (actual
return: 1998-$167;
1997-$165; 1996-$99) (77) (63) (57)
Amortization of
transition asset (2) (2) (2)
Amortization of prior
service cost/other 3 4 5
---- ---- ----
Net pension cost $ 31 $ 33 $ 32
==== ==== ====
Effective January 1, 1998, the Company and its subsidiaries amended their
pension plans to improve retirement benefits for retired employees. The funded
status at December 31, 1997, reflects the amendment.
<PAGE>
The change in the projected benefit obligation, plan assets and funded status of
the plans at December 31, 1998 and 1997, was as follows:
(Stated in millions)
1998 1997
------ -----
Projected benefit obligation
at beginning of the year $ 906 $776
Service cost 39 33
Interest cost 68 61
Actuarial losses 86 54
Benefits paid (46) (41)
Amendments 2 27
Special termination benefits 9 -
Other (4) (4)
Projected benefit obligation ------ -----
at end of the year $ 1,060 $906
------ -----
Plan assets at market value
at beginning of the year $ 978 $835
Actual return on plan assets 167 165
Employer contribution 20 19
Benefits paid (46) (41)
Plan assets at market value ------ -----
at end of the year $ 1,119 $978
------ -----
Excess of assets over
projected benefit obligation 59 72
Unrecognized net gain (198) (203)
Unrecognized prior service cost 50 59
Unrecognized net asset
at transition date (4) (5)
----- ----
Pension liability $(93) $(77)
===== ====
Assumed discount rate, rate of compensation increases, and the expected long-
term rate of return on plan assets used to determine the projected benefit
obligations were 7%, 4.5%, and 9%, respectively, in 1998, and 7.5%, 4.5%, and
8.5% respectively, in 1997. Plan assets at December 31, 1998, consisted of
common stocks ($722 million), cash or cash equivalents ($90 million), fixed
income investments ($227 million) and other investments ($80 million). Less than
1% of the plan assets at December 31, 1998, were represented by Schlumberger
Limited Common Stock.
Non-US Pension Plans
Outside the US, subsidiaries of the Company sponsor several defined benefit and
defined contribution plans that cover substantially all employees who are not
covered by statutory plans. For defined benefit plans, charges to expense are
based upon costs computed by independent actuaries. These plans are
substantially fully funded with trustees in respect to past and current service.
For all defined benefit plans, pension expense was $17 million, $15 million and
$16 million in 1998, 1997 and 1996, respectively. The only significant defined
benefit plan is in the UK.
The assumed discount rate, compensation increases and return on plan assets used
to determine pension expense in 1998 were 7.5%, 5% and 9%, respectively. In
1997, the
<PAGE>
assumptions were 8.0%, 5%, and 8.5%, respectively. In 1996, the assumptions
were 7.5%, 5% and 8.5%, respectively.
Net pension cost in the UK plan for 1998, 1997 and 1996 (translated into US
dollars at the average exchange rate for the periods), included the following
components:
(Stated in millions)
1998 1997 1996
---- ---- ----
Service cost-benefits
earned during the period $ 18 $ 16 $ 13
Interest cost on projected
benefit obligation 18 15 9
Expected return on
plan assets (actual
return: 1998-$22;
1997-$28; 1996-$37) (30) (25) (18)
Amortization of transition
asset and other (6) (5) (3)
---- ---- ----
Net pension cost $-- $ 1 $ 1
==== ==== ====
The change in the projected benefit obligation, plan assets and funded status of
the plan (translated into US dollars at year-end exchange rates) was as follows:
(Stated in millions)
1998 1997
------ -----
Projected benefit obligation
at beginning of the year $239 $ 157
Service cost 18 16
Interest cost 18 15
Actuarial (gains) / losses (37) 23
Benefits paid (9) (7)
Acquisition - 35
Projected benefit obligation ------ -----
at end of the year $229 $239
------ -----
Plan assets at market value
at beginning of the year $350 $283
Actual return on plan assets 22 28
Employer contribution 3 5
Benefits paid (9) (7)
Acquisition - 41
Plan assets at market value ------ -----
at end of the year $366 $350
------ -----
Excess of assets over
projected benefit obligation 137 111
Unrecognized net gain (114) (91)
Unrecognized prior service cost 3 3
Unrecognized net asset
at transition date (4) (4)
----- ----
Pension asset $22 $19
===== ====
<PAGE>
The assumed discount rate and rate of compensation increases used to determine
the projected benefit obligation were 7% and 4%, respectively, in 1998, and 7.5%
and 5%, respectively, in 1997; the expected long-term rate of return on plan
assets was 9% in 1998 and 8.5% in 1997, respectively. Plan assets consisted of
common stocks ($283 million), cash or cash equivalents ($9 million) and fixed
income investments ($74 million). None of the plan assets represented
Schlumberger Limited Common Stock.
For defined contribution plans, funding and cost are generally based upon a
predetermined percentage of employee compensation. Charges to expense in 1998,
1997 and 1996, were $25 million, $25 million and $16 million, respectively.
Other Deferred Benefits
In addition to providing pension benefits, the Company and its subsidiaries have
other deferred benefit programs. Expenses for these programs were $128 million,
$127 million and $96 million in 1998, 1997 and 1996, respectively.
Health Care Benefits
The Company and its US subsidiary provide health care benefits for certain
active employees. The cost of providing these benefits is recognized as expense
when incurred and aggregated $54 million, $46 million and $42 million in 1998,
1997 and 1996, respectively. Outside the US, such benefits are mostly provided
through government-sponsored programs.
Postretirement Benefits Other Than Pensions
The Company and its US subsidiary provide certain health care benefits to former
employees who have retired under the US pension plans.
The principal actuarial assumptions used to measure costs were a discount rate
of 7.5% in 1998 and 8% in 1997 and 1996. The overall medical cost trend rate
assumption beginning December 31, 1996 was 9% graded to 5% over the next six
years and 5% thereafter. Previously the overall assumption had been 10% graded
to 6% over the next six years and 6% thereafter.
Net periodic postretirement benefit cost in the US for 1998, 1997 and 1996
included the following components:
(Stated in millions)
1998 1997 1996
---- ---- ----
Service cost-benefits
earned during the period $ 11 $ 9 $ 13
Interest cost on accumulated
postretirement benefit
obligation 22 22 27
Amortization of unrecognized
net gain and other (6) (6) --
---- ---- ----
$ 27 $ 25 $ 40
==== ==== ====
<PAGE>
The change in accumulated postretirement benefit obligation and funded status
at December 31, 1998 and 1997 was as follows:
(Stated in millions)
1998 1997
------ -----
Accumulated postretirement
benefit obligation
at beginning of the year $ 313 $298
Service cost 11 9
Interest cost 22 22
Actuarial (gains) / losses 18 (5)
Benefits paid (11) (11)
Acquisition 1 -
Accumulated postretirement ------ -----
benefit obligation
at end of the year 354 313
Unrecognized net gain 74 97
Unrecognized prior service cost 5 5
Postretirement benefit ----- ----
liability at December 31 $ 433 $415
===== ====
The components of the accumulated postretirement benefit obligation at December
31, 1998 and 1997 were as follows:
(Stated in millions)
1998 1997
------ -----
Retirees $ 165 $ 154
Fully eligible 48 51
Actives 141 108
----- ----
$ 354 $ 313
===== ====
The assumed discount rate used to determine the accumulated postretirement
benefit obligation was 7.0% for 1998 and 7.5% for 1997.
If the assumed medical cost trend rate was increased by one percentage point,
health care cost in 1998 would have been $33 million, and the accumulated
postretirement benefit obligation would have been $416 million at December 31,
1998.
If the assumed medical cost trend rate was decreased by one percentage point,
health care cost in 1998 would have been $22 million, and the accumulated
postretirement benefit obligation would have been $305 million at December 31,
1998.
<PAGE>
Supplementary Information
- -------------------------
Operating revenue and related cost of goods sold and services comprised the
following:
<TABLE>
<CAPTION>
Year ended (Stated in millions)
December 31, 1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Operating revenue
Sales $ 3,224 $ 3,273 $2,931
Services 8,592 8,270 6,771
-------- -------- -------
$ 11,816 $ 11,543 $9,702
======== ======== =======
Direct operating costs
Goods sold $ 2,083 $2,136 $ 1,975
Services 6,951 6,237 5,307
-------- -------- -------
$ 9,034 $ 8,373 $7,282
======== ======== =======
<CAPTION>
Cash paid for interest and income taxes was as follows:
Year ended (Stated in millions)
December 31, 1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Interest $151 $ 93 $ 78
Income taxes $342 $323 $213
<CAPTION>
Accounts payable and accrued liabilities are summarized as follows:
(Stated in millions)
December 31, 1998 1997
------ -----
Payroll, vacation and
employee benefits $ 582 $ 586
Trade 820 928
Taxes, other than income 176 185
Other 962 815
------- ------
$2,540 $2,514
======= ======
</TABLE>
Interest and other income includes interest income, principally from short-term
and long-term investments, of $171 million, $102 million and $76 million for
1998, 1997 and 1996, respectively.
<PAGE>
Schlumberger Limited (Schlumberger N.V.)
Proxy Solicitation on Behalf of the Board of Directors
Annual General Meeting of Stockholders
P The undersigned, having received the Notice and Proxy Statement for the
Annual General Meeting of Stockholders and the 1998 Annual Report to
R Stockholders, hereby appoints A.L.A. Bosnie, Jan A. Koning, and M.P.
Webber-Dommisse and each of them, proxies, with the power of substitution,
O to vote in the manner indicated on the reverse side hereof, and with
discretionary authority as to any other matters that may properly come
X before the Meeting, all my (our) shares of record of Schlumberger Limited
(Schlumberger N.V.) at the Annual General Meeting of Stockholders to be
Y held at the Avila Beach Hotel, Penstraat 130, Willemstad, Curacao,
Netherlands Antilles on April 14, 1999, and at any adjournment or
adjournments thereof.
If no other indication is made, the proxies will vote FOR the election of
the director nominees and FOR Proposals 2 and 3.
[ SEE REVERSE ] [ SEE REVERSE ]
[ SIDE ] Continued and to be signed on reverse side [ SIDE ]
<PAGE>
[ X ] Please mark
votes as in
this example
Unless you indicate otherwise, this proxy will be voted in accordance with
the Board of Directors' recommendations.
Directors recommend a vote FOR items 1, 2 and 3.
1. Election of 12 Directors
Nominees: D.E. Ackerman, D.E. Baird, J. Deutch, V.E. Grijalva
D. Henderson, A. Levy-Lang, W.T. McCormick, Jr., D. Primat,
N. Seydoux, L.G. Stuntz, S. Ullring, Y. Wakumoto
FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
For, except vote withheld from the following nominees(s)
[ ]________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of Financials and Dividends [ ] [ ] [ ]
3. Approval of Auditors [ ] [ ] [ ]
MARK HERE FOR THE ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign names exactly as printed hereon. If signing as attorney,
administrator, executor, guardian or trustee, please give full title as
such. Please sign, date and return in the enclosed envelope.
Signature:_____________________________________ Date: ____________
Signature:_____________________________________ Date: ____________
