<PAGE>
1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-- ACT OF 1934
For fiscal year ended December 31, 1998
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
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Commission File Number 1-4601
Schlumberger N.V. (Schlumberger Limited)
----------------------------------------
(Exact name of registrant as specified in its charter)
Netherlands Antilles 52-0684746
- -------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
277 Park Avenue
New York, New York, U.S.A. 10172-0266
42, rue Saint-Dominique
Paris, France 75007
Parkstraat 83,
The Hague,
The Netherlands 2514 JG
- ------------------------ ---------------
(Addresses of principal (Zip Codes)
executive offices)
Registrant's telephone number in the United States, including area code, is:
(212) 350-9400.
(Cover page 1 of 2 pages)
<PAGE>
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class Which registered
- ------------------- ---------------------------
Common Stock, Par Value $0.01 New York Stock Exchange
Paris Stock Exchange
The London Stock Exchange
Amsterdam Stock Exchange
Swiss Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
As of February 24, 1999, the aggregate market value of the voting stock held by
non-affiliates, calculated on the basis of the closing price on the NYSE
Composite Tape, was $26,259,648,203.
As of February 24, 1999, Number of Shares of Common Stock Outstanding:
546,364,592.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated herein by reference
into the Parts indicated:
Definitive Proxy Statement for the Annual General Meeting of
Stockholders to be held April 14, 1999 ("Proxy Statement"), Part III.
(Cover page 2 of 2 pages)
<PAGE>
PART I
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Item 1 Business
- ------ --------
All references herein to "Registrant" and "Company" refer to Schlumberger
Limited and its consolidated subsidiaries. Registrant operates four businesses:
(l) Oilfield Services, (2) Resource Management Services, (3) Test &
Transactions, and (4) Cable & Wireless Omnes. Due to immateriality, Cable &
Wireless Omnes is not a reportable segment for financial reporting purposes.
Oilfield Services
- -----------------
Oilfield Services provides exploration and production services required during
the life of an oil and gas reservoir: seismic data acquisition, processing and
interpretation; drilling rigs; completion services, directional drilling and
real-time drilling analysis; drill bits; cementing and stimulation of wells;
completion service and equipment; wireline logging; well evaluation, testing and
production; gas compression systems; integrated data services and software, and
project management. Services comprise formation evaluation, well testing and
production services for oil and gas wells: borehole measurements of
petrophysical, geological and seismic properties; cement and corrosion
evaluation; perforating; modular production systems; permanent monitoring and
control systems; production logging, and light remedial and abandonment
services, and engineering and pumping services for cementing, drilling fluids,
fracturing, acidizing, sand control, water control applications; gas lift
equipment, subsurface safety systems, packers and completion accessories,
slickline tools and service, coiled tubing and nitrogen service, PDC and natural
diamond drill bits, roller cone bits, steerable rotary drilling systems,
electric submersible pumping systems, ESP completion accessories, ESP power
cable, contract gas compression systems and maintenance, seismic data
acquisition, processing and interpretation services for marine, land and
transition zone; seismic reservoir monitoring and characterization services;
fully integrated project management including survey evaluation and design
services; acquisition, processing and sales of non-exclusive surveys; contract
drilling services, offshore and on land, with dynamically positioned drillships,
semisubmersibles, jackup rigs, drilling tenders, swamp barges and land rigs;
real-time drilling services: directional drilling, measurements-while-drilling
and logging-while-drilling; exploration and production solutions for optimizing
the value of oil and gas reservoirs: integrated software systems, data
management solutions and processing and interpretive services; and project
management and well engineering services: selection of optimum oilfield
technology; implementation of safety and quality management systems;
coordination and management of operations for well construction, production and
field development projects.
As of February 1, 1998, the business was organized in two groups, Solutions and
Products. The Solutions Group is now organized into four geographic areas to
develop, sell and implement all oilfield services as well as customized and
integrated solutions to meet specific client needs. The Products Group is
responsible for product development across the organization as well as training
and technical support for each type of service in the field to ensure the
highest standards of service to clients.
Registrant's oilfield services are marketed by its own personnel. The customer
base, business risks, and opportunities for growth are essentially uniform
across all services. There is a sharing of production facilities and research
centers; labor force is interchangeable. Technological innovation, quality of
service, and price are the principal methods of competition. Competition varies
geographically with respect to the different services offered. While there are
numerous competitors, both large and small, Registrant believes that it is an
industry leader in providing contract drilling services, seismic services,
measurements-while-drilling and logging-while-drilling services, and fully
computerized wireline logging and geoscience software and computing services.
1
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Resource Management Services
- ----------------------------
Resource Management Services (RMS) is a global solutions provider to
electricity, gas and water resource industry clients worldwide, helping them to
manage resources and enhance transactions. The RMS group delivers innovative
solutions through strategic consulting services combined with smart measurement
products, systems and services for creating and sharing value with all clients.
It designs systems for management of electricity distribution and usage
(residential metering and energy management systems; utility revenue collection
systems; commercial, industrial, transmission and distribution measurement and
billing products and systems; and load management systems); systems for
management of gas usage (residential, commercial and industrial gas meters;
regulators, governors, safety valves, stations and systems; gas treatment
including filtration, odorization and heating; network management; and
prepayment systems); meters and systems for management of residential,
commercial and industrial water usage covering the range of effective water
distribution management and diverse heat distribution and industrial
applications; meter communication systems, including remote metering and
wireless communication systems for utility markets; distributed measurement
solutions, systems integration and data services; and services, providing
software and turnkey installation, repair and maintenance solutions to add value
in fully managed projects.
Test & Transactions
- -------------------
Test & Transactions supplies technology, products, services, and systems to the
semiconductor, banking, telecommunications, and transportation industries. Test
& Transactions designs and implements broad-based, customized solutions to help
clients improve time to market, optimize their business opportunities and
improve their productivity. It designs and manufactures smart and magnetic
stripe cards, terminals, equipment and management systems for transactions in a
wide range of sectors, including telecommunications, retail and banking, network
access and security, parking and mass transit, and campus communities. It also
designs and manufactures back-end manufacturing equipment for testing
semiconductor devices, including diagnostic systems, automated handling systems
and test equipment. It provides metrology solutions for the front-end
semiconductor fabrication equipment market and equipment for testing complete
electronic assemblies for the telecommunications and automotive industries.
Products of the Resource Management Services and the Test & Transactions
industry segments are primarily sold through Registrant's own sales force,
augmented through distributors and representatives. The nature of the product
range and customer profile allow for transferability of sales personnel and
cross-product sales forces in key geographic areas. Such teams operate in Asia,
Russia, South America and Central America. Product demand and pricing are
affected by global and national economic conditions. The price of products in
this industry segment varies from less than one hundred dollars to more than a
million dollars. There are numerous competitors with regard to these products,
and the principal methods of competition are price, performance, and service.
Cable & Wireless Omnes
- ----------------------
Cable & Wireless Omnes provides information technology and communications
services to oil and gas companies and to companies with operations in remote
regions. It offers solutions for wide- and local-area networks, including
satellite-based networks, network security, Internet, intranet and messaging.
2
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Year 2000 Issue
- ---------------
For information describing the Company's estimate of the effects of the Year
2000 Issue on its businesses, refer to pages 24, 25 and 26 of this 10-K Report
for information within Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and headed "Year 2000 Readiness
Disclosure".
Acquisitions
- ------------
Information on acquisitions made by the Registrant or its subsidiaries appears
under the heading "Acquisitions" on commencing page 35 of this 10-K Report.
GENERAL
- -------
Research & Development
- ----------------------
Research to support the engineering and development efforts of Registrant's
activities is conducted at Schlumberger Austin Product Center, Austin, Texas;
Schlumberger Doll Research, Ridgefield, Connecticut; Schlumberger Cambridge
Research, Cambridge, England, and at Fuchinobe, Japan, and Montrouge, France.
Patents
- -------
While Registrant seeks and holds numerous patents, no particular patent or group
of patents is considered material to Registrant's business.
Seasonality
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Although weather and natural phenomena can temporarily affect delivery of
oilfield services, the widespread geographic location of such services precludes
the overall business from being characterized as seasonal. However, because
oilfield services are provided in the Northern Hemisphere, severe winter weather
can temporarily affect the delivery of such services and products in the winter
months.
Customers and Backlog of orders
- -------------------------------
No single customer exceeded 10% of consolidated revenue. Oilfield Services has
no backlog since it is primarily service rather than product related. Resource
Management Services and Test & Transactions had respective backlogs of orders,
believed to be firm, of $520 million and $254 million at December 31, 1998, and
$446 million and $419 million at December 31, 1997. There is no assurance that
any of the current backlog will actually result in sales. About 51% of revenue
of Cable & Wireless Omnes comes from data communications and networking services
provided to a number of Schlumberger companies. It has no backlog since it is
primarily service, rather than product, related.
Government Contracts
- --------------------
No material portion of Registrant's business is subject to renegotiation of
profits or termination of contracts by the US Government.
Employees
- ---------
As of December 31, 1998, Registrant had approximately 64,000 employees.
3
<PAGE>
Non-US Operations
- -----------------
Registrant's non-US operations are subject to the usual risks which may affect
such operations. Such risks include unsettled political conditions in certain
areas, exposure to possible expropriation or other governmental actions,
exchange controls, and currency fluctuations. Although it is impossible to
predict such occurrences or their effect on the Registrant, management believes
these risks to be acceptable.
Environmental Protection
- ------------------------
Compliance with governmental provisions relating to the protection of the
environment does not materially affect Registrant's capital expenditures,
earnings or competitive position.
Financial Information
- ---------------------
Financial information by segment for the years ended December 31, 1998, 1997 and
1996 is given on pages 42 and 43 of this 10-K report, within the "Notes to
Consolidated Financial Statements".
Item 2 Properties
- ------ ----------
Registrant owns or leases manufacturing facilities, administrative offices,
service centers, research centers, sales offices and warehouses in North
America, Latin America, Europe, Africa, Australia, New Zealand, and Asia. Most
facilities are owned in fee although a few are held through long-term leases. No
significant lease is scheduled to terminate in the near future, and Registrant
believes comparable space is readily obtainable should any lease expire without
renewal. Registrant believes all of its properties are generally well maintained
and adequate for the intended use.
The principal manufacturing facilities related to Oilfield Services are owned in
fee. Outside of the United States, they are located at Stonehouse, England;
Clamart, France; Fuchinobe, Japan; Belfast, Northern Ireland; Horten and Bergen,
Norway; Inverurie, Scotland; and in Singapore.
Within the United States, the principal manufacturing facilities of the Oilfield
Services are located in Lawrence, Kansas; Bartlesville, Oklahoma; Austin,
Houston, La Marque, Rosharon, and Sugar Land, Texas.
Outside of the United States, the principal owned or leased facilities related
to Resource Management Services are located at Adelaide, Australia; Schwechat,
Austria; Brussels, Belgium; Americana and Campinas, Brazil; Trois Rivieres,
Quebec, Canada; Santiago, Chile; Chongguing, China; Bagnolet, Chasseneuil,
Colombes, Hagenau, Macon, Massy, and Reims, France; Berlin, Ettlingen, Hameln,
Karlsruhe, and Oldenburg, Germany; Dordrecht, Holland; Godollo, Hungary; Asti,
Frosinone, Naples, and Vicenza, Italy; Famalicao, Portugal; Atlantis, South
Africa; Leon, Spain; Taipei County, Taiwan; Kiev, Ukraine; Basingstoke, Great
Harwood, Port Glasgow, Stretford, and Warrington in the United Kingdom, and
Montevideo, Uruguay.
Within the United States, Resource Management Services facilities are located in
Tallassee, and Montgomery, Alabama; Norcross, Georgia; Owenton, Kentucky, and
Oconee, South Carolina.
Outside of the United States, the principal owned or leased facilities of Test &
Transactions are located in Changsha, Hong Kong and Shenyang, China; Besancon,
Orleans, Pont Audemer, and Chambray-les-Tours, France; Frankfurt, Germany;
Fuchinobe, Japan;
4
<PAGE>
Barcelona, Spain; Hsinchu, Taiwan; Felixstowe, Ferndown and Reading in the
United Kingdom.
Within the United States, facilities of Test & Transactions are located in
Mobile, Alabama; San Jose and Simi Valley, California; Owings Mill, Maryland;
Concord, Massachusetts; Moorestown, New Jersey, and Columbus, Ohio.
The following locations serve both Resource Management Services and Test &
Transactions: Mulgrave, Australia; Montrouge, France; Milan, Italy; New Delhi,
India; Jakarta, Indonesia; Kuala Lumpur, Malaysia; St. Petersburg, Russia, and
Felixstowe in the United Kingdom.
Outside of the United States the principal facilities (all leased) related to
Cable & Wireless Omnes are located in London, England; Caracas, Venezuela;
Montrouge, France; and Jakarta, Indonesia. Within the United States, its
principal facilities are located in Houston, Texas.
See also "Research & Development", on page 3 for a description of research
facilities.
Item 3 Legal Proceedings
- ------ -----------------
The information with respect to Item 3 is set forth under the heading
"Contingencies" (page 41 of this 10-K report) within the "Notes to Consolidated
Financial Statements" as part of Item 8, "Financial Statements and Supplementary
Data".
Item 4 Submission of matters to a vote of security holders
- ------ ---------------------------------------------------
No matters were submitted to a vote of Registrant's security holders during the
fourth quarter of the fiscal year covered by this report.
Executive Officers of the Registrant
The executive officers of the Registrant, their ages as of March 1, 1999, and
their five-year business histories are as follows:
<TABLE>
<CAPTION>
Present Position and Five-Year Business
Name Age Experience
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
D. Euan Baird 61 Chairman, President and Chief
Executive Officer since prior to 1992.
Victor E. Grijalva 60 Vice Chairman since April 1998;
Executive Vice President - Oilfield
Services 1994 to April 1998;
Executive Vice President for Wireline,
Testing & Anadrill 1992 to 1994.
Jack Liu 49 Executive Vice President , Chief
Financial Officer, and Chief Accounting
Officer since January 1999;
Controller July 1998 to December 31, 1998;
President - Measurement & Systems Asia
October 1993 - June 1998.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Present Position and Five-Year Business
Name Age Experience
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Clermont A. Matton 57 Executive Vice President - Resource
Management Services since June 1997;
Executive Vice President - Measurement &
Systems 1993 to June 1997;
Executive Vice President -
Technologies 1992 and prior.
Irwin Pfister 53 Executive Vice President - Test &
Transactions since June 1997;
General Manager - Automated Test
Equipment June 1997 and prior.
Chadwick Deaton 46 Executive Vice President - OFS Products
since January 1999;
Executive Vice President - OFS Solutions
February 1998 to January 1999;
President - Dowell August 1995 to
February 1998;
Director of Personnel - Wireline & Testing
November 1994 to August 1995;
Vice President - Drilling Fluids (Dowell)
November 1994 and prior.
Andrew Gould 52 Executive Vice President - Oilfield Services
since January 1999;
Executive Vice President - OFS Products
February 1998 to January 1999;
President - Wireline & Testing October 1993
to February 1998;
President - Sedco Forex
September 1993 and prior.
Jean-Paul Bize 56 Vice President - Business Development
since June 1997;
President, Electronic Transactions
November 1994 to June 1997;
General Manager - Electricity Management
November 1994 and prior.
Pierre E. Bismuth 54 Vice President - Personnel since 1994;
Personnel Director - Oilfield Services
October 1993 to January 1994;
Personnel Director - Wireline, Testing
& Anadrill 1993 and prior.
Jean Chevallier 51 Vice President - Information Technology
since February 1999;
President - Omnes
April 1995 to February 1999;
Vice President - GeoQuest March 1994 to April 1995;
Vice President - Research and Engineering
and General Manager - Sedco Forex
Drilling Services 1983 to March 1994.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Present Position and Five-Year Business
Name Age Experience
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark Danton 42 Vice President - Director of Taxes since
January 1, 1999;
Deputy Director of Taxes
January 1995 to January 1999;
Tax Manager - Atlantic Asia Oilfield Services
June 1991 to January 1995
J-D. Percevault 53 Vice President since January 1996;
Vice President - European Affairs May
1994 to January 1996;
President Geco-Prakla May
1994 and prior.
James L. Gunderson 43 Secretary and General Counsel since
January 1999;
Deputy General Counsel
October 1994 to January 1999.
Jean-Marc Perraud 51 Treasurer since January 1, 1999;
Vice President - Director of Taxes
1993 through December 1998;
Group Controller - Schlumberger Industries
1991 to 1993.
</TABLE>
PART II
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Item 5 Market for the Registrant's Common Stock and Related
- ------ ----------------------------------------------------
Stockholder Matters
-------------------
As of December 31, 1998, there were 546,133,876 shares of the Common Stock of
the Registrant outstanding, exclusive of 119,567,982 shares held in Treasury,
and held by approximately 24,500 stockholders of record. The principal United
States market for Registrant's Common Stock is the New York Stock Exchange.
Registrant's Common Stock is also traded on the Amsterdam, London, Paris, and
Swiss stock exchanges.
Common Stock, Market Prices and Dividends Declared per Share
- ------------------------------------------------------------
The information with respect to this portion of Item 5 is set forth under the
heading "Common Stock, Market Prices and Dividends Declared per Share" on page
23 of this 10-K Report.
7
<PAGE>
Item 6 Selected Financial Data
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<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)
-------- -------- -------- -------- --------
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>
8
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<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.
9
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Item 7 Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations
-------------------------
The Company operates four businesses: Oilfield Services, Resource Management
Services, Test & Transactions and Cable & Wireless Omnes. Cable & Wireless Omnes
is not a reportable segment.
<TABLE>
<CAPTION>
(Stated in millions)
OILFIELD SERVICE RESOURCE MANAGEMENT SERVICES TEST & TRANSACTIONS/2/
1998 1997 % Change 1998 1997 % Change 1998 1997 % Change
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 8,895 $ 8,559 4% $ 1,465 $ 1,569 (7)% $ 1,226 $ 1,066 15%
Pretax Operating
Income/1/ $ 1,766 $ 1,765 -% $ 50 $ 71 (30)% $ 74 $ 103 (29)%
</TABLE>
/1/ Pretax operating income is before the 1998 third quarter charge.
/2/ Excluding the Retail Petroleum Systems business sold on October 1, 1998.
Oilfield Services
- -----------------
1998 Results
After continued strong growth in the first half of the year, Oilfield Services
activity slowed in the third quarter and reversed direction in the fourth
quarter as oil companies reduced spending or cancelled projects.
Oilfield Services revenue grew 4%, matching the 4% increase in exploration and
production expenditures despite a decline in the average rig count of 13%. The
growth resulted from continued deployment of new technologies and the impact of
the new geographic organization, which focused on providing customized solutions
for our customers.
North America
- -------------
North American revenue was 5% below last year despite a 17% decline in average
rig count. The slowdown was particularly significant in the second half of the
year, with the average rig count down by 38% in the fourth quarter compared with
the same period last year. Wireline, testing, directional drilling and seismic
services ended the year with lower revenue than in 1997, while contract drilling
benefited from the transfer of the semisubmersible Omega to the Gulf of Mexico
from West Africa. Pretax operating income dropped 35%.
Latin America
- -------------
A revenue gain of 12% in Latin America resulted from strong contract drilling,
data services, wireline and testing services, despite the 12% fall in the
average rig count. Revenue from Mexico increased by 25% compared with last year,
with a large contribution from the Burgos gas fields. Contract drilling
benefited from increased activity in Brazil with the arrival of the
semisubmersible Sedco 707 and a full year of activity on the Burgos project.
Pretax operating income was 10% lower, mainly due to the reduction in activity
in Venezuela.
10
<PAGE>
Europe/CIS/West Africa
- ----------------------
Revenue was up 4% in the Europe/CIS/West Africa region, due to increased
contract drilling, directional drilling and data management services, despite an
11% fall in average rig count (excluding CIS rigs). Revenue from the CIS
increased 62%, due to the start-up of new projects in Kazakhstan and Azerbaijan.
Revenue from Algeria and Tunisia was up 22%, with all five land rigs working for
the entire year in Algeria. Nigeria increased 4%, reflecting strong activity
from directional drilling services and increased dayrates for contract drilling.
UK activity was up 4%, with strong contract drilling activity. In South Africa,
revenue decreased 39%, mostly due to the reduced drilling fluids, wireline and
testing revenues. Pretax operating income increased 5%.
Other Eastern Hemisphere
- ------------------------
Revenue grew by 8% compared with 1997, while the average rig count increased 1%.
Pretax operating income increased 13%. Asia was 10% above 1997, mainly due to
East Asia and Indonesia with strong increases in all service lines, except
seismic services, which was flat with last year. Revenue in the Middle East was
up 5%, with the overall growth slowing in the second half of the year. In the
Middle East, growth was strong in contract drilling and seismic services.
Camco
- -----
Camco achieved record revenue in 1998 of $948 million, 4% higher than the prior
year, despite an overall decline in drilling and completion activity. Pretax
operating income grew 17%. Strong sales growth was recorded for Reda electrical
submersible pumps and Production Operators gas compression systems. Production
Operators commenced operations on the El Furrial project, a 20-year service
operating contract in Venezuela. In spite of the declining rig market, Hycalog,
the market leader in polycrystalline diamond compact (PDC) bits, showed a slight
increase in revenue due primarily to expansion in the Middle East and Africa.
Sales were also up in Latin America despite lower drilling activity levels.
Continued efforts at Reed to expand its international business with a broader
product offering helped offset the 17% decline in the North American average rig
count in 1998. Revenue from completion products and services was down as
completion activity declined, particularly in the second half of the year.
An Advanced Completion Group was established to accelerate the development of
innovative completion solutions. The Group is initially focused on multilateral
completions and services, advanced instrumented completion systems and sandface
completions and service support. Other complementary areas of service
enhancement include drilling performance improvement and rotary steerable
systems, and additional competencies for production maximization.
Highlights
- ----------
New rigs on order as contract drilling activity contributed significantly to
- ----------------------------------------------------------------------------
results
- -------
Contract drilling revenue for 1998 was 22% higher than in 1997, reflecting
higher average dayrates for semisubmersibles and jackups , together with
improved levels of the combined land and offshore rig utilization and higher
activity worldwide. The average rig utilization rate increased from 92.1% in
1997 to 92.5% in 1998.
Average offshore rig utilization in 1998 dropped from 94.1% to 93%. This
decrease in utilization compared with 1997 reflects the slowdown in activity
which began in the second half of the year and which caused utilization rates
for semisubmersibles and jackups to fall respectively from 97.1% to 95%, and
from 100% to 98.5% between year-end 1997 and
11
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year-end 1998. The average land rig utilization rate, however, increased from
89.9% in 1997 to 91.9% in 1998. At year-end, the Schlumberger rig count
consisted of 83 units, comprising 49 offshore units and 34 land rigs. The fleet
includes four offshore units under bareboat charter and five offshore units
under management contract.
In June, Schlumberger was awarded a third long-term contract for the
construction and operation of a new Sedco Express* semisubmersible rig for
Marathon Oil. The rig is expected to be mobilized to the Gulf of Mexico in the
third quarter of 2000 for work in water depths of up to 8500 feet (2.6 km). In
December, the first of three MPSV* multipurpose service vessels under
construction, the Prisa 101,was delivered from its shipyard in Texas to Lake
Maracaibo, Venezuela, for a multiyear contract. The MPSV concept uses small,
purpose-built vessels, each equipped with an integrated package of Schlumberger
services for well intervention, such as wireline logging, CTD* coiled tubing
drilling service and tubing replacement. An MPSV unit can perform a well
intervention faster, and at a considerably lower cost, than a full-size drilling
unit.
Expansion of integrated services creates growth opportunities
- -------------------------------------------------------------
The range of Schlumberger integrated services has expanded to include project
engineering and project management for well construction, CTD service, MPSV
units, IRO* Integrated Reservoir Optimization service and engineering and
construction alliances.
During the year, Schlumberger commenced more than 40 new integrated project
contracts.
Maximizing productivity with MAXPRO* services
- ---------------------------------------------
Launched in five major locations in Asia, Europe and North America, the MAXPRO
initiative builds on our new organization and latest technology and offers
solutions spanning an entire range of production services, including
perforating, cement evaluation, reservoir monitoring, completion services,
corrosion monitoring, well repair, production monitoring and diagnosis.
In the third quarter, Schlumberger launched the breakthrough PS PLATFORM*
wireline production logging tool as one in a series of MAXPRO applications. The
PS PLATFORM service provides monitoring and diagnosis of fluid flow in producing
wells and enables oil and gas companies to benefit from more accurate
measurements and greatly enhanced operational efficiency through real-time
answers, faster operating speed and smaller, lighter and more rugged tools. PS
PLATFORM technology is one of the vehicles for future developments critical to
optimal management of the reservoir.
During the fourth quarter, an innovative MAXPRO production services application
saved 72 hours of rig time for a major customer in the North Sea by eliminating
a separate, stand-alone production logging run. The Schlumberger team
successfully recorded the subsurface production of wellbore fluids while
perforating a horizontal well--the first measurement of its kind in these
specific conditions.
Record-Setting Advances in Technology Application
- -------------------------------------------------
In 1998, record-breaking advances were the hallmark of our continuing leadership
in oilfield services technology deployment. Schlumberger set several world
records in deepwater marine seismic, drilling and coiled tubing services.
The first horizontal well in the Gulf of Mexico drilled with coiled tubing was
achieved by an integrated services team implementing an array of new
Schlumberger technologies, including the VIPER* coiled tubing drilling system,
STARDRILL* fluids and SLIMACCESS* logging tools.
A new seismic coverage record was set by Geco Orion, equipped with the new
proprietary
12
<PAGE>
MK2 Monowing* multistreamer towing technology, towing 6 streamers, each 8 km
long in a 1-km spread [5 mi by 0.625 mi]. In addition, Geco Orion also
successfully used the MK2 Monowing technology to achieve a spread of 1400 m
[4592 ft], the widest ever towed by a single vessel unassisted by tugboats.
Schlumberger seismic services achieved the first three-dimensional, time-lapse
(called 4D seismic) volume map designed to show reservoir changes over the
lifetime of an offshore oil field in the North Sea. Hydrophones were installed
in the seabed over the reservoir in 1995, and both seabed and surface seismic
surveys were run. Repeating the surveys in 1998 using the already embedded
hydrophones provided two pairs of time-lapse 3D data sets to be evaluated by the
oil company.
Technology to enhance productivity and efficiency
- -------------------------------------------------
Revenue from nuclear magnetic resonance wireline logging increased substantially
during the year, demonstrating the success of the new CMR-200* service
introduced in 1998. Nuclear magnetic resonance technology allows customers to
measure the volume of retrievable oil and gas in subsurface reservoirs, thereby
improving the estimation of economic potential of a reservoir without costly
tests.
Schlumberger further advanced the use of high-performance 3D data visualization
in the oil and gas industry through the introduction of GeoViz* software and the
Alternate Realities Corporation's VisionDome+ system, for which Schlumberger is
the exclusive licensed reseller to the industry. This combination provides
geoscientists and engineers with the first fully immersive, portable,
virtual-reality environment for constructing 3D models of subsurface reservoirs,
selecting drilling targets and designing well trajectories to maximize oil and
gas recovery.
The Drilling Office* suite of applications helps engineers create the optimum
drilling plan by reducing costs and managing uncertainty. In November,
Schlumberger acquired the TDAS* Tubular Design and Analysis System and WEST*
Wellbore Simulated Temperatures software from Oil Technology Services. The
addition of these two applications increases drilling engineers' efficiency and
effectiveness by providing them with the most advanced tools for critical well
design.
Two fluid technologies for maximizing drilling and production efficiencies were
introduced. The DeepCRETE* cementing system, designed to address the challenges
associated with well construction in deep water, helped customers improve
performance and reduce overall costs in Norway, Gabon, Congo and Nigeria. The
new STARDRILL drill-in fluid, used while drilling through the reservoir,
improved hydrocarbon production rates by limiting damage to the reservoir from
the drilling process in wells in Equatorial Guinea, Norway and Gabon.
With the aim of improving hydrocarbon production, the revolutionary SCALE
BLASTER* application has recently been tested, and proved successful at removing
scale on downhole piping. In oil and gas wells, the buildup of inorganic scale
can restrict, and even prevent, the flow of hydrocarbons to the surface. SCALE
BLASTER technology, deployed on coiled tubing, has provided clients with a
highly effective and valuable way of improving production without a rig
intervention. Furthermore, to better measure multiphase production, Schlumberger
and FRAMO Engineering A.S. of Norway signed a joint venture agreement to provide
surface and subsea flow meters to measure oil, gas and water flow in producing
wells. A joint technology center called 3-Phase Measurement A.S., to be located
in Bergen, Norway, will design and manufacture products and provide marketing
and technical support.
The continuing worldwide introduction of the VISION475* MWD/LWD
(measurements-while-drilling/logging-while-drilling) system for small-diameter
wells has been highly
13
<PAGE>
successful, resulting in 50% growth compared with the fourth quarter of 1997.
This application gives clients improved confidence in evaluating the growing
number of horizontal and highly deviated wells and reentry wells. The use of key
acoustic velocity information during drilling has significantly increased
following the introduction of the slimmer 6.75-inch ISONIC* LWD tool.
1997 Results
Oilfield Services pretax operating income grew 55% over 1996, reaching $1.77
billion, with strong contributions from all activities. Operating revenue
increased 24% to $8.56 billion. Worldwide oil demand increased by a strong 2.7%,
fueled mainly by China, up 11%, Asia excluding China, up 6%, Latin America, up
5%, and by a recovering Russia, up 5%. Oil companies worldwide increased their
exploration and production expenditures by 18% over 1996 levels to meet the
increase in demand. The average rig count rose 15%.
North America
- -------------
North American revenue and pretax operating income grew 32% and 81%,
respectively, compared with 1996. All services posted exceptional gains, with
seismic services up 54%, data management up 50%, directional drilling up 38%,
pressure pumping up 27%, and wireline and testing up 25%. The average rig count
rose 26%.
Latin America
- -------------
Latin America experienced a revenue increase of 34%, while pretax operating
income grew 13%. The main contributors were seismic services, up 88%, contract
drilling, up 65%, integrated services, up 139%, and pressure pumping, up 32%.
All other businesses posted gains above 15%. The average rig count declined 2%.
Europe/CIS/West Africa
- ----------------------
Revenue and pretax operating income were 17% and 42% higher in the Europe, CIS &
West Africa region than in 1996, largely due to higher contract drilling
activity, up 31%, directional drilling, up 40% and wireline and testing
services, up 13%. All other businesses posted gains above 13%, except for
seismic services, which declined 8%. The average rig count fell 3%.
Other Eastern Hemisphere
- ------------------------
Other Eastern Hemisphere revenue climbed 24% versus 1996, mainly on increased
contract drilling revenue, up 59%, directional drilling revenue, up 40%, and
wireline and testing revenue, up 17%. All other businesses posted gains above
12%, except for data management services, which were not active in 1997. Pretax
operating income was 57% higher than in 1996. The average rig count grew 9%.
Camco
- -----
Revenue was a record $914 million in 1997, a 20% increase from the prior year,
primarily due to increased market activity, improved pricing in selected markets
and the year-over-year impact of acquisitions. Geographically, sales were up in
all regions, with the exception of the CIS. Production Operators, acquired in
June 1997, contributed $115 million in sales, a 25% increase over 1996.
Highlights
- ----------
In 1997, the Oilfield Services research and engineering investment of $354
million produced technologies for operating in harsher environments and reducing
finding and
14
<PAGE>
development costs. Oilfield Services capital expenditure was $1.45 billion and
allowed rapid deployment of these technologies.
In the fall of 1997, Schlumberger introduced the IRO service, which combines
new-generation reservoir characterization and flow simulation tools with a team
approach to evaluate various field development and production strategies.
Working closely with the client, an experienced multidisciplinary team selects
and implements the optimal development plan. Reservoir monitoring and control
processes are included to head off future production problems. The IRO concept
offers numerous benefits because it is proactive and closely links development
decisions with a thorough understanding of reservoir architecture, flow dynamics
and response to various well interventions with the ultimate aim of achieving
near real-time, interactive reservoir management.
Construction, operating and intervention costs in oil fields were reduced in
1997 through the proliferation and improved placement of highly deviated and
horizontal wells, and multilaterals drilled from a common trunk. New VISION475
technology is a slim 4.75-inch MWD/LWD service that reduces total well costs
while maximizing hydrocarbon production. This is possible by allowing a reduced
wellbore diameter without giving up the real-time formation evaluation
measurements needed for optimum geosteering and analysis. The VISION475
application possesses unique logging sensors that allow operators to steer to
the most productive zones in a formation. Worldwide deployment of this
technology has significantly improved field development returns on investment
for clients.
Throughout 1997, drilling activity and pricing continued to increase. The
average offshore rig utilization of 94% was in line with the previous year.
Jackup utilization remained at 100%, and semisubmersible utilization was 97%.
The average onshore rig utilization for the year increased from 57% to 90%. At
year-end, the fleet consisted of 84 units: 52 offshore and 32 onshore. The fleet
includes 13 offshore units under bareboat charter or management contract.
Schlumberger has eight deepwater drilling units capable of drilling in water
depths of more than 3000 feet [approximately 1 km].
In July 1997, Oilfield Services received a ten-year integrated management
contract in Venezuela to build and operate, on Lake Maracaibo, three new MPSV
drilling barges and three new MPSV lift boats.
In August, the Maersk Victory jackup was acquired and renamed Trident 19. In
September, the Schlumberger semisubmersibles Drillstar and Sedco Explorer were
sold to a newly formed venture in which Schlumberger has a 25% interest.
Schlumberger is operating the rigs under bareboat charters. The gain on the sale
was deferred and is being amortized over a six-year period.
In December, Schlumberger received multiyear contracts for two new-build Sedco
Express semisubmersible drilling rigs. The units will be delivered in the fourth
quarter of 1999. The Sedco Express rigs represent the next generation of
deepwater moderate-environment drilling units. They have been designed to
optimize the entire well construction process, and are expected to drill and
complete a well approximately 30% faster than a conventional fourth-generation
rig. The rigs will be able to operate in water depths up to 7500 feet [2.3 km].
1996 Results
Oilfield Services pretax operating income increased $386 million, or 51%, to
$1.14 billion. Growth was due to strong demand and the price increases of oil
and gas. Other factors included the success of new and existing services such as
PLATFORM EXPRESS and LWD technologies. In addition, the strong contribution of
seismic services had a significant impact. The average rig count rose 8%.
15
<PAGE>
Highlights
- ----------
In response to favorable market conditions, Schlumberger boosted capital
expenditures for Oilfield Services by 21% in 1996.
As CTD technology provides an effective alternative to conventional drilling in
reentry drilling markets, Schlumberger pressure pumping and contract drilling
service businesses combined efforts to develop CTD technology, while the
directional drilling business created the new VIPER slimhole directional
bottomhole assembly for coiled tubing service.
The GeoSteering* tool, which enables the driller to make course corrections
while drilling, made substantial gains in markets in the Far East. The SIMPLER*
101 drilling rig, a new modular land rig, was introduced in Gabon, where it
began a five-year integrated services contract in April. Several drilling fluids
products, including QUADRILL*, VISPLEX* and ULTIDRILL* fluids, gained increased
acceptance in 1996, in recognition of their contributions to drilling efficiency
and well productivity. Marine seismic efficiency continued to improve due to
aggressive deployment of the TRILOGY* onboard data management system and the
Monowing multistreamer towing technology. The introduction of the
fourth-generation Nessie* marine streamer, with only 54-mm [2.1-inch] outside
diameter, further extended the towing capacity and efficiency of Schlumberger
seismic vessels. With the ECLIPSE* reservoir simulation software, the GeoFrame*
integrated reservoir characterization system and the Finder* line of data
management products, Schlumberger was able to offer the oil industry the most
comprehensive range of integrated software systems, data management solutions
and processing and interpretation services. Tracking the flow of different
fluids in horizontal and high-angle wells became possible with the newly
introduced production logging technology, PL Flagship* advanced well flow
diagnosis service. Building on a solid track record in well testing, the Early
Production Systems group expanded significantly. Early Production Systems saw
activity in the North Sea and Africa.
Average offshore rig utilization grew to 94% from 89%, aided by jackup
utilization of 100% and semisubmersible utilization of 96%. At year-end, the
fleet consisted of 83 rigs.
Resource Management Services
- ----------------------------
1998 Results
Ongoing deregulation, privatization and globalization have created uncertainty
which continued to hamper the ability of most utilities to invest in new
products and services. The exceptions in 1998 were the utilities facing
competition in the US and the UK, where data collection and interpretation are
competitive tools.
Revenue for Resource Management Services (RMS) decreased 7% in 1998, compared
with the prior year. The decrease was compounded by the difficult financial
environment in developing countries. Pretax operating income declined 30%,
reflecting margin deterioration due to lower sales in North and South America,
France and Germany. Favorable contributions came from South and Central Europe
and from savings as a result of the restructuring which was initiated in late
1996.
North American revenue was down 4%, reflecting market uncertainty caused by
ongoing electricity deregulation in the US, which led to investment cutbacks and
order delays by customers. South American revenue also dropped as a result of
lower public utility purchase requirements and further price deterioration.
Partly compensating for the declines was stronger demand in water metering
associated with higher sales of Automatic Meter Reading (AMR) systems. North
American orders saw
16
<PAGE>
significant improvement, reflecting a major system and equipment installation
order recorded in the first quarter as part of the 15-year Illinois Power
contract, which more than compensated for weaknesses in the residential and
commercial electricity markets.
European revenue fell 7%. Depressed sales in France, the UK and Germany resulted
from lower demand for electricity and gas products caused by industrial
overcapacity and price competition. Revenue from South and Central Europe also
fell as higher electricity sales to EDP, the Portuguese electric company, partly
offset the reduced procurement from ENEL, Italy's national electric utility. In
September, Schlumberger and Itron signed business agreements in Europe and North
America for the mutual licensing and distribution of AMR technology.
Revenue from Africa and the Middle East rose 29%, driven by stronger gas and
water meter shipments to North Africa and Turkey. Revenue from Asia and the CIS
fell due to shrinkage of local markets caused by continuing financial
turbulence.
Product orders were flat versus 1997. In Europe, bookings declined in France,
Germany and the UK due to the soft metering markets and reduced prices. South
and Central Europe was even with last year as lower orders in Spain, the
Netherlands and Belgium were offset by stronger demand from the electricity
utilities in Italy and Portugal. Declines in Asia, South America and the CIS
stemmed from the poor economic environment, especially in the second half of the
year.
A series of new activities exemplify the repositioning of the RMS business to
provide solutions for resource management. Among these successes is a Swedish
utility on the island of Gotland, where Schlumberger is currently installing a
two-way customer communication and network monitoring system. This solution will
enable the utility to offer its customers hourly meter readings, real-time
consumption billing and a wide range of value-added services.
The town of Smolensk in Russia selected the Schlumberger smart card prepayment
system for gas customers in order to secure revenue and reduce waste. In South
Africa, RMS was contracted to operate a revenue management system for the region
of Qwa Qwa, where, in a matter of months, revenue losses as high as 50% have
been greatly reduced.
During the year, several innovative products were introduced: The Flodis* water
meter, the first C-class, single-jet meter with super-dry register and
communication capability; the DC3 electricity meter, a full four-quadrant,
polyphase, solid-state commercial and industrial meter offering a large
combination of tariff structures with integrated communication capabilities; and
the high-end, high-accuracy QUANTUM* Q1000 meter, which was shipped to
Electricite de France. The Q1000 meter addresses the generation and transport
market segment and allows the utility to provide new services to its customers,
such as power quality measurement, system loss compensation and real-time
communication. In November, at the Distributech trade show in London, RMS also
launched the TaleXus* Vendor* system, which is the world's first prepayment
system capable of selling tokens and providing account management for
electricity, gas, and water resource suppliers.
1997 Results
Revenue for RMS fell 11% compared with 1996, as poor business conditions
severely impacted European electricity and gas metering activity. Orders fell
8%.
The revenue decline was highest in Italy and in the UK. South American revenue
grew significantly on high demand for water meters and the newly introduced
single-phase electromechanical meter. North America experienced strong water and
gas meter sales.
Pretax operating income fell 36% as the deregulation and privatization of the
world's
17
<PAGE>
utilities continued accompanied by restricted procurements.
1996 Results
Resource Management Services revenue was flat compared with 1995. The sluggish
demand for electricity meters in Europe, especially in the UK and Germany, was
offset by sales of gas meters led by a strong CIS market. Orders were down 2%,
and pretax operating income decreased 8%, mostly from the deterioration of the
European market.
Test & Transactions
- -------------------
1998 Results
Compared with 1997, revenue for Test & Transactions rose 15%. Smart Cards &
Terminals, including the smart card-based solutions businesses, grew 31%, while
Automated Test Equipment (ATE), including SABER (Schlumberger Advanced Business
and Engineering Resources) services and the system service activities, was flat.
Though both business segments coped with volatile business cycles, they outpaced
their respective markets. In 1998, smart card volume increased more than 40%
compared with the industry's growth rate of 32%. Despite an industry downturn,
ATE increased market share for mixed signal and logic test systems.
This year, Test & Transactions benefited from its new organization, structured
into three groups: Solutions, Products and Manufacturing. Products and
Manufacturing provide product core expertise, while regional Solutions groups
deliver integrated solutions and services. Each group has aligned its roles and
responsibilities to put the customer at the center of everything it does. The
transition to the new organization moved quickly and has enhanced quality,
customer focus and integrated systems offerings.
Also during the year, the Retail Petroleum Services business was sold to Tokheim
Corporation.
In 1998, Smart Cards & Terminals concentrated on growing its share of key smart
card markets-mobile phones, finance and banking, municipalities (parking and
mass transit) and health care. These markets are significant in both size and
geographic presence, and provide substantial opportunities for the smart
card-based solutions and systems integration businesses. An example of the
system integration business is the successful launch of the Cyberflex* Mobile
Solution. This integrated product and service offering includes a Cyberflex
Simera* smart card, a software developer's kit with an easy-to-use SIMnario*
graphical interface for rapid prototyping, the Aremis* subscriber identity
module (SIM) based service management system and the Aremis marketing platform.
To assist the successful deployment of these systems, Schlumberger offers a wide
range of consulting, engineering and turnkey project management services. This
secure and flexible smart card-based solution provides new information and
e-commerce services and allows mobile phone subscribers to customize application
portfolios for their individual business and personal needs.
The mobile phone SIM card market exploded worldwide, as revenue grew 56% during
the year. Revenue for financial and banking cards also rose 56%. The
Municipalities Solutions business, which comprises smart card-based parking, pay
phone and mass transit systems, grew 31% during 1998. The successful
introduction of the Stelio* parking system contributed significantly to this
growth. For health care, the year ended with the delivery of five million smart
cards to the French health administration. This program will continue in 1999.
For ATE, the focus was on semiconductor test equipment and the launch of the
SABER services business. Strong orders in the first half of 1998 were offset by
the second-half
18
<PAGE>
decline. Activity at ATE system services was up 15% year over year.
During the year, ATE introduced DDRAM, SDRAM and RDRAM memory test systems. The
RDX2200* series of RDRAM test systems is expected to set the market standard for
test accuracy, throughput and cost. The RDX2200 series of test systems developed
its accuracy and performance advantage from ATE test technology in high-end
logic design and test methodology. Based on the high level of interest in the
RDX2200 series, ATE expects volume shipments beginning in the second quarter of
1999.
Also successfully introduced in 1998 was the IDS2000* test system. This
laser-based system, focused on the emerging flip chip market, provides the same
diagnostic capabilities as high-end e-beam tools. Several IDS2000 systems were
installed during the year.
In 1998, the SABER services group was formed and was profitable in its first
year of operation. The SABER model, which emanates from the Schlumberger service
culture, is an innovative concept that provides consulting and turnkey
engineering services for the semiconductor industry.
To reflect the downturn in the semiconductor business, a cost reduction plan was
implemented in ATE. Investments for critical new product developments, however,
were maintained and should ensure continued broadening of ATE's competitive
advantage upon the industry's recovery.
1997 Results
Test & Transactions revenue was 44% higher than in 1996. The main drivers of
growth were significantly greater ATE activity, increased demand for smart cards
and terminals and previously announced acquisitions. Pretax operating income and
orders grew 194% and 55%, respectively.
Smart Cards & Terminals revenue outpaced the 1996 level by 48%. Smart card sales
rose 107%, including a 16% contribution from the Solaic activity acquired in
December 1996. As demand for both microprocessor and memory cards used in
cellular mobile communications, banking and pay phone applications continued to
gain momentum, additional smart card production operations were established in
Hong Kong and Mexico. As a result of this expansion, telecom equipment sales
improved 7%.
Revenue for ATE grew 37%, compared with the year earlier. High demand for
200-MHz and 400-MHz logic testers sparked an increase of 59% in semiconductor
test systems sales. Market share of ATE increased in all semiconductor test
market segments. Higher automated handling systems activity resulted from
deliveries of burn-in board loaders and unloaders and assembly systems. Orders
increased, due largely to stronger demand for the ITS9000* family of products at
Test Systems and sales of the P2X* semiconductor analysis system. In October
1997, ATE acquired Interactive Video Systems, Inc., a metrology solutions
provider for the front-end semiconductor fabrication equipment market.
1996 Results
Test & Transactions revenue was 8% higher than in 1995, mostly on gains at Smart
Cards & Terminals. Orders rose 10%. Pretax operating income declined 27%, as
demand for semiconductor test equipment declined.
Smart Cards & Terminals activity grew 26%, including the acquisitions of Printer
and Germann, on increased demand for memory and microprocessor cards for pay
phones and cellular phones in China, Italy and the US. Schlumberger was the
primary supplier of smart cards for the 1996 Olympic Games in Atlanta. Solaic, a
French smart card
19
<PAGE>
manufacturer, was acquired on December 31, 1996. Revenue for ATE was flat as
higher sales of IDS10000* diagnostic systems offset reduced demand for other
products.
Net Income
- ----------
(Stated in millions except per share amounts)
Earnings per share
------------------
Net Income Basic Diluted
---------- ----- -------
1998/1/ $1,014 $1.87 $1.81
====== ===== =====
1997 $1,385 $2.57 $2.47
====== ===== =====
1996 $ 919 $1.72 $1.69
====== ===== =====
/1/ Includes an after-tax charge of $380 million ($0.68 per share-diluted). For
details, see "Third Quarter 1998 Charge" below.
In 1998, operating income of Oilfield Services of $1.37 billion was flat,
despite a 13% decrease in average rig count. The decrease in North American
activity, which was impacted by strong pricing pressure and a slowdown in
activity in the second half of the year, was offset by improvements in most
other areas, notably Asia and Africa. Resource Management Services operating
income decreased $15 million, or 32%, largely due to market weakness as a result
of industry consolidation and privatization, compounded by the financial crisis
in the emerging countries. Test & Transactions operating income of $55 million
was down 28% as growth in the smart cards and terminals activities was offset by
a severe market decline for automated test equipment, due to curtailment of
capital expenditures by the semiconductor industry in the latter half of the
year.
In 1997, operating income of Oilfield Services increased $466 million, or 51%,
to $1.39 billion. The growth reflected the strong increase in exploration and
production spending by oil companies. These underlying factors, combined with
new technology, greater efficiencies and higher dayrates, resulted in stronger
pricing and higher market share. The Asian and North American markets were
significant growth areas. Resource Management Services operating income
decreased $41 million, or 47%, due to the adverse exchange rate effects and to a
decline in the European metering activities, which were impacted by increased
competition and severe price erosion. Operating income at Test & Transactions
increased $38 million, or 109%, reflecting significantly increased demand for
automated test equipment, smart cards and terminals, as well as higher activity
in Asia.
In 1996, operating income of Oilfield Services increased $298 million, or 48%,
to $920 million. Growth was due to underlying economic factors, strong demand
and the price increases of oil and gas. Other factors included the success of
new and existing services such as PLATFORM EXPRESS and LWD technologies. In
addition, the strong contribution of seismic services had a significant impact.
Resource Management Services operating income declined 6%, to $88 million,
reflecting turbulence in the European electricity metering markets caused by
pricing pressure and deregulation. Test & Transactions operating income was down
13%, to $35 million, mainly due to a temporary weakness in the semiconductor
industry, which was affected by soft market conditions and reduced customer
spending leading to postponement of product deliveries.
20
<PAGE>
Currency Risks
Refer to page 32, "Translation of Non-US Currencies," in the "Notes to
Consolidated Financial Statements" for a description of the Company's policy on
currency hedging. There are no material unhedged assets, liabilities or
commitments which are denominated in other than a business's functional
currency.
While changes in exchange rates do affect revenue, especially in the Resource
Management Services and Test & Transactions segments, they also affect costs.
Generally speaking, the Company is currency neutral. For example, a 5% change in
average exchange rates of OECD currencies would have had no material effect on
consolidated revenue and net income.
In general, when the US dollar weakens against other currencies, consolidated
revenue increases, usually with no material effect on net income. This is
principally because the fall-through incremental margin in the Resource
Management Services and Test & Transactions segments offsets the higher Oilfield
Services non-US dollar denominated expenses.
The Company's businesses operate principally in US dollars, most European
currencies and most South American currencies.
Income Tax Expense
In 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. Refer to page 40 in the "Notes to Consolidated
Financial Statements" under "Income Tax Expense" for more information.
In 1997, the Company recognized the remaining 50% of its US income tax benefit,
which resulted in no significant reduction of income tax expense.
Research & Engineering
Expenditures were as follows:
(Stated in millions)
1998 1997 1996
---- ---- ----
Oilfield Services $382 $354 $321
Resource Management Services 57 61 63
Test & Transactions 115 89 80
Other/1/ 14 15 15
---- ---- ----
$568 $519 $479
==== ==== ====
/1/ Primarily comprises the Retail Petroleum Systems business sold on October
1, 1998.
Interest Expense
Interest expense increased $55 million in 1998, following a $15-million increase
in 1997. The increase in 1998 was mainly due to significantly higher debt
balances incurred by the Company's principal US subsidiary resulting from the
financing of the Camco acquisition.
The increase in 1997 was due to significantly higher debt balances, only
partially offset by lower average borrowing rates.
21
<PAGE>
Third Quarter 1998 Charge
Strong results in the first half of 1998 were sharply reversed when Asia's
economic problems began to depress the region's demand for oil, gas and
semiconductors. By midyear, the Company began consolidating resources and
locations and making significant cuts in personnel. The third quarter after-tax
charge of $380 million reflected the estimated costs of these actions. For
details of the charge, see page 35 of this 10-K report.
Liquidity
- ---------
A measure of financial position is liquidity, defined as cash plus short-term
and long-term investments, less debt. The following table summarizes the
Company's change in consolidated liquidity for each of the past three years:
(Stated in millions)
1998 1997 1996
--------- --------- ---------
Net income $ 1,014 $ 1,385 $ 919
Third quarter charge 380 - -
Depreciation &
amortization 1,136 1,035 940
Increase in working
capital requirements (149) (505) (243)
Fixed asset additions (1,887) (1,592) (1,220)
Dividends paid (388) (378) (375)
Proceeds from
employee stock plans 139 148 182
Businesses sold (acquired) 61 (31) (185)
Net proceeds on sale of
drilling rigs/1/ - 174 -
Other (102) 121 61
========= ========= =========
Net increase in liquidity $ 204 $ 357 $ 79
========= ========= =========
Liquidity - end of period $ 731 $ 527 $ 170
========= ========= =========
/1/ In September 1997, the Schlumberger semisubmersibles Drillstar and Sedco
Explorer were sold to a newly formed venture in which Schlumberger has a 25%
interest. The rigs are being operated by Schlumberger under bareboat charters.
The gain on the sale has been deferred and is being amortized over a six-year
period. This transaction had no significant effect on 1998 and 1997 results and
has no significant impact on future results of operations.
In 1997 and 1996, the increase in working capital requirements followed the
higher business activity. The major increases were in the working capital
components of receivables and inventory. In 1998, 1997 and 1996, higher fixed
asset additions reflected the increase in Oilfield Services activities.
The current consolidated liquidity level, combined with liquidity expected from
operations, should satisfy future business requirements.
22
<PAGE>
Common Stock, Market Prices and Dividends Declared per Share
- ------------------------------------------------------------
Quarterly high and low prices for the Company's common stock as reported by the
New York Stock Exchange (composite transactions), together with dividends
declared per share in each quarter of 1998 and 1997, were:
Price Range
------------------- Dividends
High Low Declared
---- --- --------
1998
QUARTERS
First $ 81 1/2 $ 65 7/8 $ 0.1875
Second 86 3/4 66 0.1875
Third 69 15/16 43 7/16 0.1875
Fourth 58 1/4 40 1/16 0.1875
1997
QUARTERS
First $ 58 3/16 $ 49 $ 0.1875
Second 63 1/4 51 1/8 0.1875
Third 84 5/8 62 3/8 0.1875
Fourth 94 7/16 72 3/8 0.1875
The number of holders of record of the common stock of the Company at December
31, 1998, was approximately 24,500. There are no legal restrictions on the
payment of dividends or ownership or voting of such shares, except as to shares
held in the Company's Treasury. US stockholders are not subject to any
Netherlands Antilles withholding or other Netherlands Antilles taxes
attributable to ownership of such shares.
Environmental Matters
- ---------------------
The 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. Consistent with the Company's
commitment to protection of the environment, safety and employee health,
additional costs, including capital expenditures, are incurred related to
current operations.
New Accounting Standards
- ------------------------
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." All prior periods have been restated. For
details, see "Segment Information" in the "Notes to Consolidated Financial
Statements" on pages 42 and 43 of this 10-K report.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
that the Company recognize all derivative instruments as either assets or
liabilities in the statement
23
<PAGE>
of financial position and measure those instruments at fair value. The standard
is effective in the year 2000 for the Company. Occasionally, the Company uses
derivative instruments such as interest rate swaps, currency swaps, forward
currency contracts and foreign currency options. Forward currency contracts
provide a hedge against currency fluctuations on assets/liabilities denominated
in other than a functional currency. Options are usually entered into to hedge
against currency variations on firm commitments generally involving the
construction of long-lived assets such as seismic vessels and drilling rigs. The
Company does not anticipate that the implementation of the new standard in 2000
will have a material effect on the consolidated financial position and results
of operations.
Year 2000 Readiness Disclosure
- ------------------------------
Overview
The "Year 2000 issue" is the inability of computers and computing technology to
correctly process the Year 2000 date change.
The Company recognizes that the Year 2000 issue creates a significant
uncertainty to its business, and has a proactive, Company-wide Year 2000
Readiness Program (the "Program").
As part of the Program, most non ready systems are being replaced or upgraded
with new systems that will provide certain competitive benefits, as well as
ensure Year 2000 readiness to minimize customer and shareholder business
disruptions caused by this issue. A Company-wide task force was formed in late
1997 to provide guidance to the Company's business units and monitor progress of
the Program. The Company has also consulted with and engaged various third
parties, including outside consultants and service providers, to assist the
Company in its Program efforts.
Overall, the Program is proceeding on schedule. In 1994, the Company decided to
upgrade its main internal business systems with Year 2000-ready programs. This
is expected to be completed in 1999. Those aspects of the Company's internal
business systems that are not scheduled to be covered by this upgrade effort are
being separately addressed through an upgrade of existing legacy systems to Year
2000-ready status.
Due to the Company's centralized engineering/manufacturing profile, more than
80% of Year 2000 efforts affecting products and services have been concentrated
in our major engineering and manufacturing sites. The Company's key products and
services are on schedule to be Year 2000 ready by March 1999. As part of the
Program, all of the Company's engineering/manufacturing business units have
active Year 2000 efforts underway to meet this schedule. A Year 2000 Quality
Assurance Program also is in place to maintain strong project discipline and to
monitor and report Program issues and progress to management.
Also under the Program is a project to have the Company's field operating units
Year 2000 ready by June 1999 on all key business applications, products and
services not covered by the engineering/manufacturing efforts.
Program
The Program uses a business risk assessment and prioritization approach, and is
intended to produce Year 2000-ready products/services and to minimize
disruptions in business operations. The Program is divided into three major
readiness categories: Assets, Information Technology (IT), and Commercial.
Within each category, there are two Program stages.
Stage I: Assessment and Preparation-this stage focuses on up-front planning,
data gathering and correction planning. This includes raising Year 2000
awareness; carrying out a detailed business unit asset inventory; assessing the
scope of the Year 2000 problem;
24
<PAGE>
determining appropriate corrections, testing/validation, acceptance and
deployment approaches; and preparing project plans and budgets.
Stage II: Repairs, Testing, and Deployment-this stage focuses on "fixing" Year
2000 problems (and testing these fixes), followed by user-acceptance,
redeployment and operational validation of the fixed (i.e., repaired, replaced,
etc.) systems.
Assets. This category consists of (1) products and services the Company either
- ------
sells or uses to provide services to our customers, and (2) hardware and
software associated with embedded computer chips that are used in the operation
of our products and facilities. Program progress under this category is on
schedule with the majority of Stage I activities completed; most business units
are now implementing Stage II activities. The Company expects activities
associated with Year 2000 readiness of assets to be completed by March 1999.
Information Technology. This category deals with traditional IT infrastructure,
- ----------------------
such as business applications, computer hardware/software, IT networks and
communication equipment. The implementation of the MFG/PRO++ system is on
schedule and should be fully operational in all assigned areas by March 1999.
Implementation of the SAP+/- system is scheduled to be completed in the United
States and Canada by October 1999. The Company intends to repair associated
legacy systems outside the United States and Canada. This plan uses independent
contractors, legacy system vendors and Company employees to rewrite and test
certain software modules. This program is on schedule and expected to conclude
by August 1999. The activities associated with other systems in this IT category
(computer hardware/software, IT networks and communications equipment) also are
on schedule. Stage I activities have been completed and the majority of the
business units are implementing their Stage II activities. The Company expects
activities associated with this category to be completed by mid-1999.
Commercial. This category deals with the Company's efforts to avoid being
- ----------
adversely affected by Year 2000 issues from external entities (suppliers,
financial institutions, service providers, etc.) not affiliated with the
Company. Stage I of the Program includes a process for mitigating the Year 2000
issues associated with key suppliers. The Company is communicating with its key
suppliers, business partners and customers seeking their assurances that they
will be Year 2000 ready. Based on responses, the Company will develop
contingency plans for those areas that pose significant risk from the Year 2000
issue; however the Company could potentially experience disruptions to some
aspects of its operations from non-compliant systems utilized by unrelated
third-party entities. Work in this category is on schedule. The majority of the
business units have completed their Stage I activities and are implementing
their Stage II efforts which are expected to be completed by April 1999.
Contingency Planning
The Company is reviewing the activities associated with each category and is
determining those activities at risk of not being completed in time to prevent a
Year 2000 disruption. Appropriate contingency plans are being designed for each
of the "at risk" activities to provide an alternative means of functioning which
minimizes the effect of the potential Year 2000 disruption, both internally and
on the Company's customers. These contingency-planning activities began in
December 1998 and are expected to be completed in July 1999.
Costs
Year 2000 Program funding requirements have been incorporated into the Company's
capital and operating plans and are not expected to have an adverse material
impact on the Company's financial condition, results of operations or liquidity.
The Company estimates the cost of the Program to be around $60 million
(approximately $41 million spent to date) with a breakdown of costs estimated at
30% for employee resources (approximately 120 man-years), 27% for IT-related
upgrades and repair and 43% for non-IT embedded chip
25
<PAGE>
technology. It should be noted that these costs do not include the normal
upgrading of business and financial systems that would be Year 2000 ready, such
as SAP and MFG/PRO, or rationalization costs of Year 2000-ready technology
already defined by our business plans.
Risks
Dates and schedules for the Company's Year 2000 Program are based on
management's best estimates, which involve numerous assumptions, including, but
not limited to, : the results of Stage I assessments; the continued availability
of certain resources; third-parties' Year 2000 status and plans; and other
factors. There can be no guarantee that these estimates will be achieved, or
that there will not be delays in, or increased costs associated with,
implementation of the Year 2000 Program. Specific factors that might cause
differences between present estimates and actual results include, but are not
limited to, the availability and cost of skilled personnel, consultants, and
independent contractors; the ability to locate and correct all relevant computer
code; timely and effective action by third-parties and suppliers; the ability to
implement interfaces between Year 2000-ready systems and those systems not being
replaced; and similar uncertainties. Because of the general uncertainty inherent
in the Year 2000 issues (partially attributable to the interconnection of global
businesses), the Company cannot confidently predict its ability to resolve
appropriately all Year 2000 issues that may affect its operations and business
or expose it to third party liability. The failure to correct a Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and adversely
affect the Company's operations and financial condition. Because of the
uncertainties described above, the Company presently is unable to determine
whether the consequences of such Year 2000 failures will have a material impact
on the Company's results of operations, liquidity or financial condition.
Euro Disclosures
- ----------------
On January 1, 1999, the euro became the official single currency of the European
Economic and Monetary Union. As of this date, the conversion rates of the
national currencies of the eleven member states adopting the euro were fixed
irrevocably. The national currencies will initially remain in circulation as
nondecimal subunits of the euro and will be replaced by euro bills and coins by
July 2002. During the transition period between January 1999 and January 2002,
public and private parties may pay for goods and services using either the euro
or the national currency on a "no compulsion, no prohibition" basis.
A Euro Readiness Program has been established throughout Schlumberger to ensure
that all business segments meet the euro requirements. To this effect, a Euro
Steering Committee has been established and, to maintain focus on the
Schlumberger euro implementation program, project teams have been set up
throughout the Company. Euro implementation plans cover both phases of the euro
implementation. Initially these plans will ensure that, progressively through
1999, all business units of Schlumberger will be able to transact in the euro.
Thereafter, ensuring that during the transitional period all corporate,
financial, commercial, employment and other documentation that refer to the
participating currencies are converted to the euro in accordance with the
regulatory requirements.
During the transition period conversion rates can no longer be computed directly
from one participating currency to another. Instead, a triangulation algorithm
will be applied, which requires that national currency amounts be converted
first to the euro according to the fixed conversion rates before being converted
into the second national currency. This requires specific conversion modules to
be included in business information systems. Furthermore, such programs will be
required to provide the additional functionality needed to convert all
participating currency-denominated financial data to the euro. A review of all
financial information systems has commenced and their functionality for
processing euro transactions is being tested.
26
<PAGE>
Schlumberger recognizes that the euro will affect its various businesses
differently. Oilfield Services operates in an essentially US dollar-denominated
environment in which the introduction of the euro is expected to have limited
consequences. Test & Transactions will be affected in terms of the ability of
products, such as smart cards and terminals, to process euro transactions.
Resource Management Systems, which has now set up a pan-European manufacturing
structure covering all European Union markets, expects to participate in the
general growth generated by the euro. The increased price transparency created
by the euro accompanied with deregulation and increased competition among our
customers, the utilities, should also contribute to providing new Solutions
opportunities in these businesses. The full assessment of the effects the euro
will have on each business segment is incomplete and, hence, the Company cannot
as yet make a final conclusion on the anticipated business impact the
introduction of the single currency will have.
Based upon results to date, the Company believes that the implementation of the
euro can be performed according to the time frame defined by the European Union.
The Company does not expect the total cost of addressing this issue to be
material to financial condition, results of operations and liquidity. This cost
estimate does not include the normal upgrading of business and financial systems
that would be euro ready.
Forward-looking Statements
- --------------------------
The Company cautions that, except for the historical information and discussions
contained herein, statements in this annual report and elsewhere may constitute
forward-looking statements. These statements include statements as to
expectations, beliefs and future financial performance, such as statements
regarding business prospects in the key industries in which the Company operates
and growth opportunities for the Company in those industries. These statements
involve a number of risks, uncertainties, assumptions and other factors that
could cause actual results to differ materially from those in the
forward-looking statements. While it is not possible to identify all such
factors, such factors include: severity and duration of the downturn in the oil
and gas and semiconductor industries, general economic and business conditions
in key regions of the world, and changes in business strategy or development
plans relating to the Company's targeted growth opportunities.
Item 7A - Quantitative and Qualitative Disclosure
- ------- ---------------------------------------
About Market Risk
-----------------
The Company does not believe it has a material exposure to market risk. The
Company manages the exposure to interest rate changes by using a mix of debt
maturities and variable- and fixed-rate debt together with interest rate swaps,
where appropriate, to fix or lower borrowing costs. With regard to foreign
currency fluctuations, the Company enters into various contracts, which change
in value as foreign exchange rates change, to protect the value of external and
intercompany transactions in foreign currencies. The Company does not enter into
foreign currency or interest rate transactions for speculative purposes.
27
<PAGE>
Item 8 Financial Statements and Supplementary Data
- ------ -------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
(Stated in thousands except per share amounts)
Year Ended December 31, 1998 1997 1996
----------- ----------- -----------
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
See Notes to Consolidated Financial Statements
Schlumberger Limited (Schlumberger N.V., Incorporated in the Netherlands
Antilles) and Subsidiary Companies.
28
<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.
29
<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.
30
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock (Dollar amounts in thousands)
--------------------------------------------------------------- Income
Issued In Treasury Retained for
--------------------------- ----------------------- Translation Use in the Comprehensive
Shares Amount Shares Amount Adjustment Business Income
------------ ------------ ------------ ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 660,746,700 $1,235,146 129,976,320 $ 2,414,577 $(31,382) $6,711,298 $ -
Translation adjustment 5,756 5,756
Sales to optionees less
shares exchanged 16,527 47,177 (5,314,696) (98,631) 43
Purchases for Treasury (404,268) (13,413)
Employee stock
purchase plan 1,483,494 38,807 (211)
Net income 919,487 919,487
Dividends declared
($0.75 per share) (375,509)
----------- ---------- ----------- ----------- --------- ----------- ------------
Balance,
December 31, 1996 661,842,453 1,307,717 124,661,624 2,315,946 (25,626) 7,255,108 $ 925,243
============
Translation adjustment (37,706) (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 1,384,549 1,384,549
IVS acquisition 16,324 (238,812) (4,438)
Tax benefit on
stock options 16,600
Change in subsidiary
year end 612 4,560
Dividends declared
($0.75 per share) (378,575)
----------- ---------- ----------- ----------- --------- ----------- ------------
Balance,
December 31, 1997 663,638,026 1,428,624 121,099,589 2,249,765 (63,332) 8,265,642 $1,346,843
============
Translation adjustment (18,148) (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 1,014,199 1,014,199
Dividends declared
($0.75 per share) (397,386)
----------- ---------- ----------- ----------- --------- ----------- ------------
Balance,
December 31, 1998 665,701,858 $1,539,408 119,567,982 $ 2,221,308 $(81,480) $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.
31
<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
32
<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
straight-line 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, 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.
33
<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:
<TABLE>
<CAPTION>
(Stated in thousands except per share amounts)
Average
Net Shares Earnings
Income Outstanding per share
--------------- ----------- -------------
<S> <C> <C> <C>
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 6,996
Warrants 4,315
------------ ---------- -------
Diluted $ 919,487 545,609 $ 1.69
============ ========== =======
</TABLE>
Research & Engineering
All research and engineering expenditures are expensed as incurred, including
costs relating to patents or rights that may result from such expenditures.
34
<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:
o A charge of $268 million related to Oilfield Services, including severance
costs of $64 million (5600 employees); facility 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.
o A charge of $63 million for merger-related costs in connection with the
acquisition of Camco International Inc.
o A charge of $43 million related to Resource Management Services and Test &
Transactions, consisting primarily of employee severance, facility
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 facilitiy 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
35
<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 OilField 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.
36
<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.
37
<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.
38
<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
year-end 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.
39
<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.
40
<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.
41
<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 self-contained market. Second, Latin America (LAM) is composed
of regional markets which share a common dependence on the United States. Third,
Europe is another major self-contained 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 systems 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:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Europe/ Other
1998 NAM LAM CIS / W. Afr. Eastern Camco
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 2,027 $ 1,190 $ 2,511 $ 2,218 $ 948
=============================================================================================
Operating Income $ 160 $ 131 $ 460 $ 549 $ 123
Income Tax Expense (1) 84 45 74 124 66
=============================================================================================
Pretax Operating Income $ 244 $ 176 $ 534 $ 673 $ 189
=============================================================================================
Interest Income
Interest Expense $ (10)
======
Third Quarter Charge
Pretax Income
=============================================================================================
Segment Assets $ 1,321 $ 1,037 $ 2,154 $ 1,758 $ 1,089
Corporate Assets
Total Assets
=============================================================================================
Depreciation/Amortization $ 204 $ 131 $ 271 $ 243 $ 74
=============================================================================================
Capital Expenditures $ 288 $ 272 $ 540 $ 325 $ 131
=============================================================================================
<CAPTION>
(Stated in millions)
-----------------------------------------------------------------------------------------------
Elims/ Total Elims/
1998 Other OFS RMS T&T Other Consolidated
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1 $ 8,895 $ 1,465 $ 1,226 $ 230 $ 11,816
===============================================================================================
Operating Income $ (57) $ 1,366 $ 32 $ 55 $ (86) $ 1,367
Income Tax Expense (1) 7 400 18 19 (65) 372
===============================================================================================
Pretax Operating Income $ (50) $ 1,766 $ 50 $ 74 $ (151) $ 1,739
===============================================================================
Interest Income 167
Interest Expense $ (1) (139)
======
Third Quarter Charge (444)
========
Pretax Income $ 1,323
===============================================================================================
Segment Assets $ 972 $ 8,331 $ 1,184 $ 1,069 $ - $ 10,584
Corporate Assets 5,493
---------
Total Assets $ 16,077
===============================================================================================
Depreciation/Amortization $ 66 $ 989 $ 87 $ 48 $ 12 $ 1,136
===============================================================================================
Capital Expenditures $ 189 $ 1,745 $ 61 $ 53 $ 28 $ 1,887
===============================================================================================
</TABLE>
(1) 1998 income tax expense excludes a credit of $63 million related to the
Third Quarter Charge.
42
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Europe/ Other
1997 NAM LAM CIS / W. Afr. Eastern Camco
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 2,129 $ 1,060 $ 2,412 $ 2,055 $ 914
=====================================================================================
Operating Income $ 263 $ 151 $ 454 $ 493 $ 104
Income Tax Expense 111 45 57 104 57
=====================================================================================
Pretax Operating Income $ 374 $ 196 $ 511 $ 597 $ 161
=====================================================================================
Interest Income
Interest Expense $ (5)
======
Pretax Income
=====================================================================================
Segment Assets $ 1,502 $ 988 $ 1,856 $ 1,592 $ 1,042
Corporate Assets
Total Assets
=====================================================================================
Depreciation/Amortization $ 187 $ 100 $ 255 $ 213 $ 62
=====================================================================================
Capital Expenditures $ 297 $ 281 $ 386 $ 337 $ 96
=====================================================================================
<CAPTION>
(Stated in millions)
----------------------------------------------------------------------------------------------
Elims/ Total Elims/
1997 Other OFS RMS T&T Other Consolidated
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ (11) $8,559 $ 1,569 $ 1,066 $ 349 $ 11,543
==============================================================================================
Operating Income $ (79) $1,386 $ 47 $ 73 $ (130) $ 1,376
Income Tax Expense 5 379 24 30 (13) 420
==============================================================================================
Pretax Operating Income $ (74) $1,765 $ 71 $ 103 $ (143) $ 1,796
===========================================================================
Interest Income 98
Interest Expense $ (1) (89)
========
========
Pretax Income $ 1,805
==============================================================================================
Segment Assets $844 $7,824 $ 1,219 $ 1,088 $ - $ 10,131
Corporate Assets 3,055
--------
Total Assets $ 13,186
==============================================================================================
Depreciation/Amortization $ 68 $ 885 $ 93 $ 44 $ 13 $ 1,035
==============================================================================================
Capital Expenditures $ 52 $1,449 $ 67 $ 63 $ 13 $ 1,592
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Europe/ Other
1996 NAM LAM CIS / W. Afr. Eastern Camco
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,613 $ 791 $ 2,066 $ 1,660 $ 765
=====================================================================================
Operating Income $ 178 $ 138 $ 319 $ 311 $ 70
Income Tax Expense (2) 29 35 42 69 38
=====================================================================================
Pretax Operating Income $ 207 $ 173 $ 361 $ 380 $ 108
=====================================================================================
Interest Income
Interest Expense $ (5)
======
Unusual Items
Pretax Income
=====================================================================================
Segment Assets $ 1,059 $ 690 $ 1,780 $ 1,392 $ 917
Corporate Assets
Total Assets
=====================================================================================
Depreciation/Amortization $ 178 $ 71 $ 246 $ 198 $ 55
=====================================================================================
Capital Expenditures $ 210 $ 171 $ 284 $ 326 $ 62
=====================================================================================
<CAPTION>
(Stated in millions)
--------------------------------------------------------------------------------------------
Elims/ Total Elins/
1996 Other OFS RMS T&T Other Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ (20) $6,875 $ 1,765 $ 741 $ 321 $ 9,702
============================================================================================
Operating Income $ (96) $ 920 $ 88 $ 35 $ (124) $ 919
Income Tax Expense (2) 5 218 23 - - 241
============================================================================================
Pretax Operating Income $ (91) $1,138 $ 111 $ 35 $ (124) $ 1,160
==========================================================================
Interest Income 73
Interest Expense $ (1) (74)
======
Unusual Items (380)
=========
Pretax Income $ 779
============================================================================================
Segment Assets $798 $6,636 $ 1,389 $ 970 $ - $ 8,995
Corporate Assets 2,277
---------
Total Assets $ 11,272
============================================================================================
Depreciation/Amortization $ 48 $ 796 $ 102 $ 31 $ 12 $ 941
============================================================================================
Capital Expenditures $ 35 $1,088 $ 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
carryforward 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.
43
<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, rate of 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.
44
<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, rate of compensation increases and return on plan
assets used to determine pension expense in 1998 were 7.5%, 5% and 9%,
respectively. In 1997, the
45
<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
===== =====
46
<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
====== ====== ======
47
<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 losses/(gains) 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.
48
<PAGE>
Supplementary Information
- -------------------------
Operating revenue and related cost of goods sold and services comprised the
following:
Year ended (Stated in millions)
December 31, 1998 1997 1996
-------- -------- --------
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
======== ======== ========
Cash paid for interest and income taxes was as follows:
Year ended (Stated in millions)
December 31, 1998 1997 1996
------ ------ ------
Interest $ 151 $ 93 $ 78
Income taxes $ 342 $ 323 $ 213
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
====== ======
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.
* Mark of Schlumberger.
+ Trademark of Alternate Realities Corporation.
++ MFG/PRO is a registered trademark of QAD.
+/- SAP is a registered trademark of SAP AG.
49
<PAGE>
To the Board of Directors and Stockholders
of Schlumberger Limited
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Schlumberger
Limited and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
January 20, 1999
50
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
- -----------------------------
The following table summarizes results for each of the four quarters for the
years ended December 31, 1998 and 1997. Gross profit equals operating revenue
less cost of goods sold and services.
<TABLE>
<CAPTION>
(Stated in millions except per share amounts)
Operating Earnings per share
------------------------ ----------------------
Net
Revenue Gross Profit Income Basic Diluted
------- ------------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Quarters-1998
First $ 3,024 $ 862 $ 378 $ 0.70 $ 0.67
Second 3,084 871 387 0.71 0.69
Third 1 2,932 351 (29) (0.05) (0.05)
Fourth 2,776 698 278 0.51 0.50
-------- -------- ------- ------- -------
$ 11,816 $ 2,782 $ 1,014 $ 1.87 $ 1.81
======== ======== ======= ======= =======
Quarters-1997
First $ 2,593 $ 700 $ 280 $ 0.52 $ 0.50
Second 2,824 753 322 0.60 0.58
Third 2,971 833 384 0.71 0.68
Fourth 3,155 886 399 0.74 0.71
-------- -------- ------- ------- -------
$ 11,543 $ 3,172 $ 1,385 $ 2.57 $ 2.47
======== ======== ======= ======= =======
</TABLE>
/1/ Includes an after-tax charge of $380 million ($0.68 per share--diluted).
Item 9 Changes in and Disagreements with Accountants on Accounting
- ------ -----------------------------------------------------------
and Financial Disclosures
-------------------------
NONE
51
<PAGE>
PART III
- --------
Item 10 Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
See Part I (commencing on page 5 and continuing to page 7) for Item 10
information regarding Executive Officers of the Registrant. The information with
respect to the remaining portion of Item 10 is set forth in the first section
under the caption, "Election of Directors", in the Company's Proxy Statement
dated March 10, 1999 for the April 14, 1999 Annual General Meeting, and is
incorporated by reference.
Item 11 Executive Compensation
- ------- ----------------------
The information set forth under "Executive Compensation" (other than that set
forth under the subcaptions "Corporate Performance Graph" and "Compensation
Committee Report on Executive Compensation") in the Company's Proxy Statement
dated March 10, 1999 is incorporated by reference.
Item 12 Security Ownership of Certain Beneficial Owners and
- ------- ---------------------------------------------------
Management
----------
The information with respect to Item 12 is set forth in the Company's Proxy
Statement Statement dated March 10, 1999 under the caption, "Security Ownership
of Certain Beneficial Owners and Management," and such information is
incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
- ------- ----------------------------------------------
NONE
52
<PAGE>
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ---------------------------------------------------------------
<TABLE>
<CAPTION>
The following documents are filed as part of this report: Page(s)
<S> <C>
(1) Financial Statements
Consolidated Statement of
Income for the three years
ended December 31, 1998 28
Consolidated Balance Sheet
at December 31, 1998 and 1997 29
Consolidated Statement of Cash
Flows for the three years ended
December 31, 1998 30
Consolidated Statement of
Stockholders' Equity for the
three years ended December 31, 1998 31
Notes to Consolidated Financial Statements 32 - 49
Report of Independent
Accountants 50
Selected Quarterly Financial
Data (Unaudited) 51
Financial statements of 20% - 50% owned companies accounted for under the equity
method and unconsolidated subsidiaries have been omitted because they do not
meet the materiality tests for assets or income.
(2) Financial Statement Schedules
Not required.
(3) The following Exhibits are filed:
Deed of Incorporation as last
amended on April 29, 1997 Exhibit 3
By-Laws as last amended on
October 20, 1993 Exhibit 3
Schlumberger 1994 Stock Option Plan,
as amended on January 5, 1995* Exhibit 10(a)
Schlumberger Limited Supplementary
Benefit Plan, as amended on January 1,
1995* Exhibit 10(b)
</TABLE>
*Compensatory plan required to be filed as an exhibit.
53
<PAGE>
<TABLE>
<S> <C>
Schlumberger 1989 Stock Incentive
Plan, as amended* Exhibit 10(c)
Schlumberger 1979 Stock
Incentive Plan, as amended* Exhibit 10(d)
Schlumberger 1979 Incentive
Stock Option Plan, as amended* Exhibit 10(e)
Schlumberger Restoration Savings Plan* Exhibit 10(f)
Schlumberger 1998 Stock Option Plan* Exhibit 10(g)
1997 Long-Term Incentive Plan of Camco
International Inc.; Long-Term Incentive
Plan of Camco International Inc.;
Production Operators Corp. 1992
Long-Term Incentive Plan; Camco 1996
Savings Related Share Option Scheme;
Camco International Inc. Amended and
Restated Stock Option Plan for
Nonemployee Directors Exhibit 10(h)
Subsidiaries Exhibit 21
Consent of Independent
Accountants Exhibit 23
Powers of Attorney Exhibit 24
(a) Don E. Ackerman - dated January 20, 1999
(b) D. Euan Baird - dated January 20, 1999
(c) John Deutch - dated January 20, 1999
(d) Victor E. Grijalva - dated January 26, 1999
(e) Denys Henderson - dated January 20, 1999
(f) Andre Levy-Lang - dated January 20, 1999
(g) William T. McCormick, Jr. - dated January 20, 1999
(h) Didier Primat - dated January 20, 1999
(i) Nicolas Seydoux - dated January 20, 1999
(j) Linda G. Stuntz - dated January 20, 1999
(k) Sven Ullring - dated January 20, 1999
(l) Yoshihiko Wakumoto - dated January 20, 1999
Financial Data Schedule Exhibit 27
Additional Exhibit:
Form S-8 Undertakings Exhibit 99
</TABLE>
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
*Compensatory plan required to be filed as an exhibit.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SCHLUMBERGER LIMITED
Date: March 30, 1999 By : /s/ Jack Liu
---------------------------
Jack Liu
Executive Vice President - Finance;
Chief Financial Officer and Chief
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
dede
<TABLE>
<S> <C>
Name Title
---------------------------------- -----------------------------------
* Director, Chairman, President
---------------------------------- and Chief Executive Officer
D. Euan Baird
* Director, Vice Chairman
----------------------------------
Victor E. Grijalva
/s/ Jack Liu Executive Vice President
---------------------------------- Finance; Chief Financial Officer
Jack Liu and Chief Accounting Officer
* Director
----------------------------------
Don E. Ackerman
* Director
----------------------------------
John Deutch
* Director
----------------------------------
Denys Henderson
* Director
----------------------------------
Andre Levy-Lang
* Director
----------------------------------
William T. McCormick, Jr.
* Director
----------------------------------
Didier Primat
</TABLE>
55
<PAGE>
SIGNATURES (continued)
Name Title
------------------------ --------------------
* Director
------------------------
Nicolas Seydoux
* Director
------------------------
Linda G. Stuntz
* Director
------------------------
Sven Ullring
* Director
------------------------
Yoshihiko Wakumoto
/s/ James L. Gunderson March 30, 1999
------------------------
* By James L. Gunderson Attorney-in-Fact
56
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
<S> <C> <C>
Deed of Incorporation as last amended
on April 28, 1997 incorporated by reference to
Form 10-Q for the perod ended March 31, 1997. 3 -
By-Laws as last amended on October 20, 1993,
incorporated by reference to Exhibit 3 to
Form 10-K for 1993 3 -
Schlumberger 1994 Stock Option Plan,
as amended, incorporated by reference to
Exhibit 10(a) to Form 10-K for year 1995 10(a) -
Schlumberger Limited Supplementary Benefit Plan,
as amended, on January 1, 1995, incorporated
by reference to Exhibit 10(b) to Form 10K for 1996 10(b) -
Schlumberger 1989 Stock Incentive Plan, as
amended, incorporated by reference to
Exhibit 10(c) to Form 10-K for year 1995 10(c) -
Schlumberger 1979 Stock Incentive Plan, as
amended, incorporated by reference to Exhibit
10(c) to Annual Report 10-K filed for year 1992 10(d) -
Schlumberger 1979 Incentive Stock Option Plan,
as amended, incorporated by reference to Exhibit
10(d) to Annual Report 10-K filed for year 1992 10(e) -
Schlumberger Restoration Savings Plan,
incorporated by reference to Exhibit 10(f) to
Form 10-K for year 1995 10(f) -
Schlumberger 1998 Stock Option Plan,
incorporated by reference to Exhibit 10(g) to
Form 10-K for year 1997 10(g) -
1997 Long-Term Incentive Plan of Camco International Inc.;
Long-Term Incentive Plan of Camco International Inc.;
Production Operators Corp. 1992 Long-Term Incentive Plan;
Camco 1996 Savings Related Share Option Scheme;
Camco International Inc. Amended and Restated Stock
Option Plan for Nonemployee Directors; incorporated
by reference to Exhibit 10 to Form S-8 of August 31, 1998 10(h)
Subsidiaries 21 59
Consent of Independent Accountants 23 60
Powers of Attorney dated: 24 -
Don E. Ackerman January 20, 1999 (a) 61
D. Euan Baird January 20, 1999 (b) 62
John Deutch January 20, 1999 (c) 63
</TABLE>
57
<PAGE>
INDEX TO EXHIBITS (Continued)
<TABLE>
<CAPTION>
Exhibit Page
Powers of Attorney dated (continued):
<S> <C> <C>
24
Victor E. Grijalva January 26, 1999 (d) 64
Denys Henderson January 20, 1999 (e) 65
Andre Levy-Lang January 20, 1999 (f) 66
William T. McCormick, Jr. January 20, 1999 (g) 67
Didier Primat January 20, 1999 (h) 68
Nicolas Seydoux January 20, 1999 (i) 69
Linda G. Stuntz January 20, 1999 (j) 70
Sven Ullring January 20, 1999 (k) 71
Yoshihiko Wakumoto January 20, 1999 (l) 72
Financial Data Schedule 27 73
Additional Exhibits:
Form S-8 Undertakings 99 74
</TABLE>
58
<PAGE>
10-K 1998
Exhibit 21
Significant Subsidiaries
Listed below are the significant first tier subsidiaries of the Registrant,
along with the total number of active subsidiaries directly or indirectly owned
by each as of January 31, 1999. Certain second and third tier subsidiaries,
though included in the numbers, are also shown by name. Ownership is 100% unless
otherwise indicated. The business activities of the subsidiaries have been keyed
as follows: (a) Oilfield Services, (b) Resource Management Services, (c) Test &
Transactions, (d) Cable & Wireless Omnes, (e) Other.
<TABLE>
<CAPTION>
US Non-US
-- ------
<S> <C> <C>
SCHLUMBERGER B.V., Netherlands (e) 25(a)*
56(b)**
12(c)***
5(d)****
16(e)
SERVICES PETROLIERS SCHLUMBERGER, France (a)
SCHLUMBERGER INDUSTRIES, France (c)
SCHLUMBERGER CANADA LIMITED, Ontario (e)
SCHLUMBERGER PLC, U.K. (e)
SCHLUMBERGER GmbH, Germany (e)
SCHLUMBERGER AEG ZAHLER GmbH (c)
OMNES B.V., Netherlands (d)
OMNES S.A., France (d)
SCHLUMBERGER ANTILLES N.V., Netherlands Antilles (a) 8(a)
SEDCO FOREX OFFSHORE INTERNATIONAL N.V. (LIMITED),
Netherlands Antilles (a)
SCHLUMBERGER OFFSHORE SERVICES N.V. (LIMITED),
Netherlands Antilles (a)
SCHLUMBERGER OILFIELD HOLDINGS LIMITED, B.V.I. (a) 133(a)*****
3(e)
DOWELL SCHLUMBERGER CORPORATION, B.V.I. (a)
SCHLUMBERGER HOLDINGS LIMITED, B.V.I. (e)
SCHLUMBERGER OVERSEAS, S.A., Panama (a)
SCHLUMBERGER SURENCO, S.A., Panama (a)
ANADRILL HOLDINGS LIMITED, B.V.I. (a)
SCHLUMBERGER SEISMIC HOLDINGS LIMITED, B.V.I. (a)
SEDCO FOREX HOLDINGS LIMITED, B.V.I. (a)
SCHLUMBERGER TECHNOLOGY CORPORATION, Texas (a) 12(a) 36(a)******
2(b) 1(c)
6(c)
2(d)******* 3(e)
CAMCO INTERNATIONAL INC., Delaware (a)
SCHLUMBERGER TECHNOLOGIES, INC., Delaware (b)
SCHLUMBERGER MALCO, INC.(b)
SCHLUMBERGER RESOURCE MANAGEMENT SERVICES, INC., Delaware (c)
SCHLUMBERGER COMMUNICATIONS, INC., Delaware (d)
OMNES, Delaware, (d)
GECO A.S., Norway (a) 2(a)
- ---------------------
* Includes three less-than-100% owned subsidiaries which are not named.
** Includes three 50% owned subsidiaries and seven other less-than-100% owned subsidiaries which are not named.
*** Includes one 50% owned subsidiary and one other less-than-100% owned subsidiary which are not named.
**** Includes two 50% owned subsidiaries, one of which is named.
***** Includes thirteen less-than-100% owned subsidiaries which are not named.
****** Includes three 50% owned subsidiaries and five other less-than-100% owned subsidiaries which are not named.
******* Includes one 50% owned subsidiary which is named.
</TABLE>
59
<PAGE>
10-K 1998
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 2-64089 as ammended; 33-21355; 33-35606; 33-47592;
33-86424; 333-40227; 333-62545) of Schlumberger Limited of our report dated
January 20, 1999 appearing on page 50 of this Form 10-K.
/s/
- ----------------------------
PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
60
<PAGE>
10-K 1998
Exhibit 24 (a)
Power of Attorney
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
/s/
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
61
<PAGE>
10-K 1998
Exhibit 24 (b)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
/s/
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
62
<PAGE>
10-K 1998
Exhibit 24 (c)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
/s/
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
63
<PAGE>
10-K 1998
Exhibit 24 (d)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
/s/
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
64
<PAGE>
10-K 1998
Exhibit 24 (e)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
/s/
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
65
<PAGE>
10-K 1998
Exhibit 24 (f)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
/s/ Andre Levy-Lang
- ------------------------------------------ ------------------------------------------
Director Yoshihiko Wakumoto
Director
</TABLE>
Date: January 20, 1999
----------------------------
66
<PAGE>
10-K 1998
Exhibit 24 (g)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
/s/
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
67
<PAGE>
10-K 1998
Exhibit 24 (h)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
/s/
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
68
<PAGE>
10-K 1998
Exhibit 24 (i)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
/s/
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
69
<PAGE>
10-K 1998
Exhibit 24 (j)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
/s/
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
70
<PAGE>
10-K 1998
Exhibit 24 (k)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
/s/
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
71
<PAGE>
10-K 1998
Exhibit 24 (l)
Power of Attorney
-----------------
Each of the undersigned, in the capacity or capacities set forth below
his or her signature as a member of the Board of Directors and/or an officer of
Schlumberger Limited ("the "Corporation"), a Netherlands Antilles corporation,
hereby appoints James L. Gunderson, Jack Liu and Ellen S. Summer, and each of
them, the attorney or attorneys of the undersigned, with full power of
substitution and revocation, for an in the name, place and stead of the
undersigned to execute and file with the Securities and Exchange Commission the
Form 10-K Annual Report under the Securities Exchange Act of 1934 for the year
ending 1998, and any amendment or amendments to any such Form 10-K Annual
Report, and any agreements, consents or waivers relative thereto, and to take
any and all such other action for and in the name and place and stead of the
undersigned as may be necessary or desirable in connection with any such Form
10-K Annual Report.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
D. Euan Baird William T. McCormick, Jr.
Director Director
Chairman, President and Chief-
Executive Officer
- ------------------------------------------ ------------------------------------------
Victor E. Grijalva Didier Primat
Director Director
Vice Chairman
- ------------------------------------------ ------------------------------------------
Don E. Ackerman Nicolas Seydoux
Director Director
- ------------------------------------------ ------------------------------------------
John Deutch Linda G. Stuntz
Director Director
- ------------------------------------------ ------------------------------------------
Denys Henderson Sven Ullring
Director Director
/s/
- ------------------------------------------ ------------------------------------------
Andre Levy-Lang Yoshihiko Wakumoto
Director Director
</TABLE>
Date: January 20, 1999
----------------------------
72
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,956,694
<SECURITIES> 0
<RECEIVABLES> 3,057,626
<ALLOWANCES> (89,556)
<INVENTORY> 1,333,131
<CURRENT-ASSETS> 8,805,224
<PP&E> 11,658,743
<DEPRECIATION> (6,964,278)
<TOTAL-ASSETS> 16,077,929
<CURRENT-LIABILITIES> 3,918,668
<BONDS> 0
0
0
<COMMON> 1,539,408
<OTHER-SE> 6,579,667
<TOTAL-LIABILITY-AND-EQUITY> 16,077,929
<SALES> 3,223,820
<TOTAL-REVENUES> 11,997,309
<CGS> 2,083,592
<TOTAL-COSTS> 9,034,409
<OTHER-EXPENSES> 1,640,427
<LOSS-PROVISION> 36,861
<INTEREST-EXPENSE> 150,161
<INCOME-PRETAX> 1,322,873
<INCOME-TAX> 308,674
<INCOME-CONTINUING> 1,014,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,014,199
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.81
</TABLE>
<PAGE>
10-K 1998
Exhibit 99
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into Registrant's Registration Statements on Form
S-8 Nos. 2-64089, as amended; 33-21355; 33-35606; 33-47592; 33-86424; 333-40227
and 333-62545.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
74
