SCHLUMBERGER LIMITED/NV
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 the fiscal year ended December 31, 2010 | ||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission File Number 1-4601
Schlumberger N.V. (Schlumberger
Limited)
(Exact name of registrant as
specified in its charter)
|
Curaçao
(State or other jurisdiction of incorporation or organization) |
52-0684746
(IRS Employer Identification No.) |
|
|
42, rue Saint-Dominique
Paris, France |
75007 | |
|
5599 San Felipe,
17
th
Floor
Houston, Texas, United States of America |
77056 | |
| Parkstraat 83, The Hague, | ||
| The Netherlands | 2514 JG | |
| (Addresses of principal executive offices) | (Zip Codes) |
Registrant’s telephone number in the United States,
including area code, is:
(713) 375-3400
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
|
Common Stock, par value $0.01 per share
|
New York Stock Exchange
Euronext Paris The London Stock Exchange SIX Swiss Exchange Ltd. |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
YES
x
NO
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
YES
o
NO
x
Indicate by check mark whether the 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
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files.
YES
x
NO
o
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 the 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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer
x
Accelerated
filer
o
Non-accelerated
filer
o
Smaller
reporting
company
o
(Do not check if a smaller reporting company)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
YES
o
NO
x
As of June 30, 2010, the aggregate market value of the
common stock of the registrant held by non-affiliates of the
registrant was approximately $65.9 billion.
As of January 31, 2011, the number of shares of common
stock outstanding was 1,360,993,901.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the following document have been incorporated herein
by reference into Part III of this
Form 10-K
to the extent described therein: the definitive proxy statement
relating to Schlumberger’s 2011 Annual General Meeting of
Stockholders (“2011 Proxy Statement”).
SCHLUMBERGER
LIMITED
Table of Contents
Form 10-K
Table of Contents
Part I, Item 1
PART I
Item 1.
Business.
All references in this report to “Registrant,”
“Company,” “Schlumberger,” “we” or
“our” are to Schlumberger Limited (Schlumberger N.V.,
incorporated in Curaçao) and its consolidated subsidiaries.
Founded in 1926, Schlumberger is the world’s leading
supplier of technology, integrated project management and
information solutions to the international oil and gas
exploration and production industry. Having invented wireline
logging as a technique for obtaining downhole data in oil and
gas wells, the Company today provides the industry’s widest
range of products and services from exploration through
production. As of December 31, 2010, the Company employed
approximately 108,000 people of over 140 nationalities
operating in approximately 80 countries. Schlumberger has
principal executive offices in Paris, Houston and The Hague.
On August 27, 2010, Schlumberger acquired all of the
outstanding shares of Smith International, Inc.
(“Smith”), a leading supplier of premium products and
services to the oil and gas exploration and production industry.
In connection with this transaction, Schlumberger issued
176 million shares of its common stock, valued at
approximately $9.8 billion as of the acquisition date. As a
result of this transaction, Schlumberger consists of five
business segments as of December 31, 2010 –
Schlumberger Oilfield Services, WesternGeco, M-I SWACO, Smith
Oilfield and Distribution.
Schlumberger Oilfield Services
operates in each of the
major oilfield service markets, managing its business through
its GeoMarket* regions, which are grouped into four geographic
areas: North America, Latin America, Europe/CIS/Africa and
Middle East & Asia. The GeoMarket structure offers
customers a single point of contact at the local level for field
operations and brings together geographically focused teams to
meet local needs and deliver customized solutions. Within this
business structure, Schlumberger Oilfield Services products and
services are developed by a number of technology-based product
lines, or Technologies, to capitalize on technical synergies.
These products and services cover the entire life cycle of the
reservoir and correspond to a number of markets in which
Schlumberger Oilfield Services holds leading positions. The
Technologies are also responsible for overseeing operational
processes, resource allocation, personnel and quality in the
GeoMarkets.
The Technologies are:
| • | Wireline – provides the information necessary to evaluate the subsurface formation rocks and fluids to plan and monitor well construction, and to monitor and evaluate well production. Wireline offers both open-hole and cased-hole services as well as a range of well remediation services. | |
| • | Drilling & Measurements – supplies engineering support, directional-drilling, measurement-while-drilling and logging-while-drilling services for all well profiles. | |
| • | Testing Services – provides exploration and production pressure and flow-rate measurement services both at the surface and downhole. The Technology also provides tubing-conveyed perforating services. | |
| • | Well Services – provides services used during oil and gas well drilling and completion as well as those used to maintain optimal production throughout the life of a well. The services include pressure pumping, well cementing and stimulation operations as well as intervention activities. The Technology also develops coiled-tubing equipment and services. | |
| • | Completions – supplies well completion services and equipment that includes upper and lower completion systems, sand management systems and permanently installed instrumentation for all types of well completion. | |
| • | Artificial Lift – provides electrical submersible pumps and gas lift equipment together with associated instrumentation, engineering and production optimization services. | |
| • | Data & Consulting Services – supplies interpretation and integration of all exploration and production data types, as well as expert consulting services for reservoir characterization, production enhancement, field development planning and multi-disciplinary reservoir and production solutions. |
3
Table of Contents
Part I, Item 1
| • | Schlumberger Information Solutions (SIS) – provides consulting, software, information management and IT infrastructure services that support core oil and gas industry operational processes. | |
| • | Geoservices – supplies mud logging services for geological and drilling surveillance. Geological surveillance includes formation evaluation to provide information on lithology and hydrocarbons encountered while drilling. Drilling surveillance enhances safety and optimizes drilling efficiency using a range of drilling parameter measurements. Geoservices also supplies slickline services for downhole mechanical well intervention and reservoir monitoring and downhole data acquisition. |
Supporting the Technologies are various research and engineering
centers. Through this organization, Schlumberger is committed to
advanced technology programs that enhance oilfield efficiency,
lower finding and producing costs, improve productivity,
maximize reserve recovery and increase asset value while
accomplishing these goals in a safe and environmentally sound
manner.
Schlumberger Oilfield Services also offers customers its
services through a business model known as Integrated Project
Management (IPM). IPM combines the required services and
products of the Technologies with drilling rig management
expertise and project management skills to provide a complete
solution to well construction and production improvement. IPM
projects are typically of multi-year duration and include
start-up
costs and significant third-party components which cover
services that Schlumberger does not provide directly. Projects
may be fixed price in nature, contain penalties for
non-performance and may also offer opportunities for bonus
payments where performance exceeds agreed targets. IPM also
provides specialized engineering and project management
expertise when Schlumberger is requested to include these
capabilities with services and products across the Technologies
in a single contract. In no circumstances do IPM projects fail
to respect the Schlumberger business profile that precludes any
stake in the ownership of oil or gas reserves.
Schlumberger Oilfield Services uses its own personnel to market
its offerings. The customer base, business risks and
opportunities for growth are essentially uniform across all
services. There is a sharing of manufacturing and engineering
facilities as well as research centers, and the labor force is
interchangeable. Technological innovation, quality of service,
and price differentiation are the principal methods of
competition, which varies geographically with respect to the
different services offered. While there are numerous
competitors, both large and small, Schlumberger believes that it
is an industry leader in providing wireline logging, well
testing, measurement-while-drilling, logging-while-drilling and
directional-drilling services, as well as fully computerized
logging and geoscience software and computing services. A large
proportion of Schlumberger offerings is non-rig related;
consequently, revenue does not necessarily correlate to rig
count fluctuations.
WesternGeco
, the world’s most technologically
advanced surface seismic company, provides comprehensive
reservoir imaging, monitoring and development services with the
most extensive seismic crews and data processing centers in the
industry as well as a leading multiclient seismic library.
Services range from 3D and time-lapse (4D) seismic surveys to
multi-component surveys for delineating prospects and reservoir
management. WesternGeco benefits from full access to the
Schlumberger research, development and technology organization
and shares similar business risks, opportunities for growth,
principal methods of competition and means of marketing as
Schlumberger Oilfield Services. Seismic solutions include
proprietary single-sensor technologies for enhanced reservoir
description, characterization and monitoring throughout the life
of the field – from exploration through enhanced
recovery. Other WesternGeco solutions include development of
controlled-source electromagnetic and magneto-telluric surveys
and their integration with seismic data.
Positioned for meeting a full range of customer needs in land,
marine and shallow-water transition-zone services, WesternGeco
offers a wide scope of technologies and services:
| • | Land Seismic – provides comprehensive resources for seismic data acquisition on land and across shallow-water transition zones. | |
| • | Marine Seismic – provides industry-standard marine seismic acquisition and processing systems as well as a unique industry-leading, fully calibrated single-sensor marine seismic system that delivers the seismic technology needed for new-generation reservoir management. |
4
Table of Contents
Part I, Item 1
| • | Multiclient Services – supplies high-quality seismic data from the multiclient library, including industry-leading Q technology data. | |
| • | Reservoir Services – provides people, tools and technology to help customers capture the benefits of a completely integrated approach to locating, defining and monitoring the reservoir. | |
| • | Data Processing – offers extensive seismic data processing centers for complex data processing projects. | |
| • | Electromagnetics – provides controlled-source electromagnetic and magneto-telluric data processing and interpretation. |
M-I SWACO
is the leading supplier of drilling fluid
systems engineered to improve drilling performance by
anticipating fluids-related problems, fluid systems and
specialty tools designed to optimize wellbore productivity,
production technology solution to maximize production rates, and
environmental solutions that safely manage waste volumes
generated in both drilling and production operations. The M-I
SWACO solutions offering blends an understanding of technology,
application and service to enable its clients to achieve their
project-specific goals. Operationally, these solutions are
delivered through its GeoMarket regions, which are grouped into
geographic areas, similar to Schlumberger Oilfield Services.
M-I SWACO’s business is organized into four core solutions
offerings: Drilling Solutions, Wellbore Productivity, Production
Technologies and Environmental Solutions. These core offerings
are organized around the operator’s exploration and
production activities – drilling, completion and
production. Environmental Solutions are designed to include all
three of these activities, allowing M-I SWACO to leverage its
environmental technologies across all three of the
operator’s exploration and production activities.
| • | Drilling Solutions – provides a complete offering of oil-, water- and synthetic-based drilling fluids and additives as well as engineering services that include proprietary software systems, knowledge databases and laboratory capabilities. | |
| • | Wellbore Productivity – consists of a suite of services, products and technical support that focus on safeguarding well completions and formation stability by assuring the optimal quality of the wellbore and fluid systems. | |
| • | Production Technologies – provides a line of oilfield specialty chemical, equipment and related technical services that are used to enhance the flow of hydrocarbons from the wellbore. | |
| • | Environmental Solutions – focuses on the best approach to safely managing waste volumes produced during the drilling, completion and production operations in a way that allows clients to achieve their environmental performance standards. |
Prior to its acquisition of Smith, Schlumberger held a 40%
interest in M-I SWACO through a joint venture with Smith.
Smith Oilfield
provides a comprehensive suite of
technologically advanced products, services and engineering used
in oil and natural gas development activities. Smith Oilfield is
a global leader in the design, manufacture and marketing of
drill bits and borehole enlargement tools and is also a leading
supplier of drilling tools and services, tubular, completion
services and other related downhole solutions. Smith Oilfield
also leverages its proprietary suite of modeling and design
software and application data together with its comprehensive
product and service offerings to optimize the creation of the
wellbore.
Distribution
operations provide products and services to
the energy refining, petrochemical, power generation and mining
industries. The segment consists of the operations of Wilson
International, Inc., a wholly-owned subsidiary, and a majority
owned interest in C.E. Franklin Ltd., a publicly owned Canadian
distribution company. Distribution operates an extensive network
of supply branches, service centers and sales offices through
which it markets pipes, valves and fittings as well as mill,
safety and other maintenance products, predominantly in the
United States and Canada. Additionally, the Distribution segment
provides warehouse management, vendor integration and various
inventory management services.
5
Table of Contents
Part I, Item 1
Acquisitions
Information about acquisitions made by Schlumberger appears in
Note 4 of the
Consolidated Financial Statements
.
GENERAL
Patents
While Schlumberger seeks and holds numerous patents covering
various products and processes, no particular patent or group of
patents is considered material to Schlumberger’s business.
Seasonality
Although weather and natural phenomena can temporarily affect
delivery of oilfield services, the widespread geographic
location of such services precludes the overall business from
being characterized as seasonal.
Customers and
Backlog of Orders
For the year ended December 31, 2010, no single customer
exceeded 10% of consolidated revenue. Other than WesternGeco, we
have no significant backlog due to the nature of our businesses.
The WesternGeco backlog, which is based on signed contracts with
customers, was $0.9 billion at December 31, 2010
($1.0 billion at December 31, 2009).
Employees
As of December 31, 2010, Schlumberger had approximately
108,000 employees.
Financial
Information
Financial information by business segment for the years ended
December 31, 2010, 2009 and 2008 is provided in
Note 17 of the
Consolidated Financial Statements
.
Available
Information
The Schlumberger Internet website is
www.slb.com.
Schlumberger uses its Investor Relations website,
www.slb.com/ir, as a channel for routine distribution of
important information, including news releases, analyst
presentations, and financial information. Schlumberger makes
available free of charge on or through its Investor Relations
website at
www.slb.com/ir
access to its Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
its proxy statements and Forms 3, 4 and 5 filed on behalf
of directors and executive officers, and amendments to each of
those reports, as soon as reasonably practicable after such
material is filed with or furnished to the Securities and
Exchange Commission (“SEC”). Alternatively, you may
access these reports at the SEC’s Internet website at
www.sec.gov.
Schlumberger’s corporate governance materials, including
Board Committee Charters, Corporate Governance Guidelines and
Code of Ethics, may also be found at
www.slb.com/ir.
From
time to time, corporate governance materials on our website may
be updated to comply with rules issued by the SEC and the New
York Stock Exchange (“NYSE”) or as desirable to
promote the effective governance of Schlumberger.
Any stockholder wishing to receive, without charge, a copy of
any of Schlumberger’s SEC filings should write to the
Secretary, Schlumberger Limited, 5599 San Felipe, 17th
Floor, Houston, Texas 77056, USA.
Schlumberger has filed the required certifications under
Section 302 of the Sarbanes-Oxley Act of 2002 as
Exhibits 31.1 and 31.2 to this
Form 10-K.
The information on our website or any other website is not
incorporated by reference in this Report and should not be
considered part of this Report or any other filing Schlumberger
makes with the SEC.
6
Table of Contents
Part I, Item 1A
Item 1A.
Risk
Factors.
The following discussion of risk factors contains
“forward-looking statements,” which are discussed
immediately following Item 7A. of this
Form 10-K.
These risk factors may be important to understanding any
statement in this
Form 10-K
or elsewhere. The following information should be read in
conjunction with Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations, and
the consolidated financial statements and related notes included
in this
Form 10-K.
We urge you to consider carefully the risks described below,
as well as in other reports and materials that we file with the
SEC and the other information included or incorporated by
reference in
Form 10-K.
If any of the risks described below or elsewhere in this
Form 10-K
were to materialize, our business, financial condition, results
of operations, cash flows or prospects could be materially
adversely affected. In such case, the trading price of our
common stock could decline and you could lose part or all of
your investment. Additional risks and uncertainties not
currently known to us or that we currently deem immaterial may
also materially adversely affect our financial condition,
results of operations and cash flows.
Demand
for the majority of our services is substantially dependent on
the levels of expenditures by the oil and gas industry. A
substantial or an extended decline in oil and gas prices could
result in lower expenditures by the oil and gas industry, which
could have a material adverse effect on our financial condition,
results of operations and cash flows.
Demand for the majority of our services depends substantially on
the level of expenditures by the oil and gas industry for the
exploration, development and production of oil and natural gas
reserves. These expenditures are generally dependent on the
industry’s view of future oil and natural gas prices and
are sensitive to the industry’s view of future economic
growth and the resulting impact on demand for oil and natural
gas. Declines, as well as anticipated declines, in oil and gas
prices could also result in project modifications, delays or
cancellations, general business disruptions, and delays in, or
nonpayment of, amounts that are owed to us. These effects could
have a material adverse effect on our results of operations and
cash flows.
The prices for oil and natural gas have historically been
volatile and may be affected by a variety of factors, including:
| • | demand for hydrocarbons, which is affected by worldwide population growth, economic growth rates and general economic and business conditions; | |
| • | the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil; | |
| • | oil and gas production by non-OPEC countries; | |
| • | the level of excess production capacity; | |
| • | political and economic uncertainty and sociopolitical unrest; | |
| • | the level of worldwide oil and gas exploration and production activity; | |
| • | the cost of exploring for, producing and delivering oil and gas; | |
| • | technological advances affecting energy consumption; and | |
| • | weather conditions. |
The oil and gas industry has historically experienced periodic
downturns, which have been characterized by diminished demand
for oilfield services and downward pressure on the prices we
charge. A significant downturn in the oil and gas industry could
result in a reduction in demand for oilfield services and could
adversely affect our financial condition, results of operations
and cash flows.
7
Table of Contents
Part I, Item 1A
A
significant portion of our revenue is derived from our
non-United
States operations, which exposes us to risks inherent in doing
business in each of the approximately 80 countries in which we
operate.
Our
non-United
States operations accounted for approximately 76% of our
consolidated revenue in 2010, 84% in 2009 and 78% in 2008.
Operations in countries other than the United States are subject
to various risks, including:
| • | unsettled political and economic conditions in certain areas; | |
| • | exposure to possible expropriation of our assets or other governmental actions; | |
| • | social unrest, acts of terrorism, war or other armed conflict; | |
| • | confiscatory taxation or other adverse tax policies; | |
| • | deprivation of contract rights; | |
| • | trade restrictions or embargoes imposed by the United States or other countries; | |
| • | restrictions under the United States Foreign Corrupt Practices Act or similar legislation in other countries; | |
| • | restrictions on the repatriation of income or capital; | |
| • | currency exchange controls; | |
| • | inflation; and | |
| • | currency exchange rate fluctuations and devaluations. |
In addition, we are subject to risks associated with our
operations in countries, including Iran, Syria, Sudan and Cuba,
that are subject to trade and economic sanctions or other
restrictions imposed by the United States or other governments
or organizations. United States law enforcement authorities are
currently conducting a grand jury investigation and an
associated regulatory inquiry related to our operations in
certain of these countries. Additionally, in 2009 prior to its
merger with Schlumberger, Smith received an administrative
subpoena with respect to its historical business practices in
certain countries that are subject to United States trade and
economic sanctions. If any of the risks described above
materialize, or if any governmental investigation results in
criminal or civil penalties or other remedial measures, it could
reduce our earnings and our cash available for operations.
We are also subject to risks related to investment in our common
stock in connection with certain US state divestment or
investment limitation legislation applicable to companies with
operations in these countries, and similar actions by some
private investors, which could adversely affect the market price
of our common stock.
Our
merger with Smith will continue to be dilutive to our earnings
per share in the near term, which may negatively affect the
market price of our common stock.
Our merger with Smith will continue to be dilutive to earnings
per share in the near term. Future events and conditions could
decrease or delay any accretion, result in dilution or cause
greater dilution than is currently expected, including adverse
changes in:
| • | energy market conditions; | |
| • | commodity prices for oil, natural gas and natural gas liquids; | |
| • | production levels; | |
| • | reserve levels; | |
| • | operating results; | |
| • | competitive conditions; | |
| • | laws and regulations affecting the energy business; | |
| • | capital expenditure obligations; and | |
| • | general economic conditions. |
8
Table of Contents
Part I, Item 1A
Any dilution of, or decrease or delay of any accretion to, our
earnings per share could cause the price of our common stock to
decline.
Our
offshore oil and gas operations could be adversely impacted by
the Deepwater Horizon drilling rig accident and resulting oil
spill; changes in and compliance with restrictions or
regulations on offshore drilling in the US Gulf of Mexico and in
other areas around the world may adversely affect our business
and operating results.
On April 20, 2010, a fire and explosion occurred onboard
the semisubmersible drilling rig
Deepwater Horizon
, owned
by Transocean Ltd. and under contract to a subsidiary of BP plc.
As a result of the incident and related oil spill, the Secretary
of the US Department of the Interior directed the Bureau of
Ocean Energy Management, Regulation and Enforcement
(“BOEMRE”) to issue a suspension, until
November 30, 2010, of drilling activities for specified
drilling configurations and technologies. Although this
moratorium was lifted on October 12, 2010, effective
immediately, we cannot predict with certainty when drilling
operations will fully resume in the US Gulf of Mexico. The
BOEMRE has also issued new guidelines and regulations regarding
safety, environmental matters, drilling equipment and
decommissioning applicable to drilling in the US Gulf of Mexico,
and may take other additional steps that could increase the
costs of exploration and production, reduce the area of
operations and result in permitting delays.
At this time, we cannot predict with any certainty what further
impact, if any, the
Deepwater Horizon
incident may have
on the regulation of offshore oil and gas exploration and
development activity, or on the cost or availability of
insurance coverage to cover the risks of such operations.
Ongoing effects of and delays from the lifted suspension of
drilling activity in the US Gulf of Mexico, or the enactment of
new or stricter regulations in the United States and other
countries where we operate, could materially adversely affect
our financial condition, results of operations or cash flows.
Environmental
compliance costs and liabilities could reduce our earnings and
cash available for operations.
We are subject to increasingly stringent laws and regulations
relating to importation and use of hazardous materials,
radioactive materials and explosives, environmental protection,
including laws and regulations governing air emissions, water
discharges and waste management. We incur, and expect to
continue to incur, capital and operating costs to comply with
environmental laws and regulations. The technical requirements
of these laws and regulations are becoming increasingly complex,
stringent and expensive to implement. These laws may provide for
“strict liability” for damages to natural resources or
threats to public health and safety. Strict liability can render
a party liable for damages without regard to negligence or fault
on the part of the party. Some environmental laws provide for
joint and several strict liability for remediation of spills and
releases of hazardous substances.
We use and generate hazardous substances and wastes in our
operations. In addition, many of our current and former
properties are, or have been, used for industrial purposes.
Accordingly, we could become subject to potentially material
liabilities relating to the investigation and cleanup of
contaminated properties, and to claims alleging personal injury
or property damage as the result of exposures to, or releases
of, hazardous substances. In addition, stricter enforcement of
existing laws and regulations, new laws and regulations, the
discovery of previously unknown contamination or the imposition
of new or increased requirements could require us to incur costs
or become the basis of new or increased liabilities that could
reduce our earnings and our cash available for operations. We
believe we are currently in substantial compliance with
environmental laws and regulations.
We could
be subject to substantial liability claims, which would
adversely affect our financial condition, results of operations
and cash flows.
Certain equipment used in the delivery of oilfield services,
such as directional drilling equipment, perforating systems,
subsea completion equipment, radioactive materials and
explosives and well completion systems, are used in hostile
environments, such as exploration, development and production
applications. An accident or a failure of a product could cause
personal injury, loss of life, damage to property, equipment or
the environment, and suspension of operations. Our insurance may
not protect us against liability for some kinds of events,
including events involving pollution, or against losses
resulting from business interruption. Moreover, in the future we
may not be able to maintain insurance at levels of risk coverage
or policy limits that we deem adequate. Substantial claims made
under our policies could cause our premiums to increase. Any
future damages caused by our products that are not covered by
insurance, or
9
Table of Contents
Part I, Item 1A
are in excess of policy limits or are subject to substantial
deductibles, could adversely affect our financial condition,
results of operations and cash flows.
If we are
unable to maintain technology leadership, this could adversely
affect any competitive advantage we hold.
If we are unable to develop and produce competitive technology
or deliver it to our clients in the form of service offerings in
a timely and cost-competitive manner in the various markets we
serve, it could adversely affect our financial condition,
results of operations and cash flows.
Limitations
on our ability to protect our intellectual property rights,
including our trade secrets, could cause a loss in revenue and
any competitive advantage we hold.
Some of our products or services, and the processes we use to
produce or provide them, have been granted patent protection,
have patent applications pending or are trade secrets. Our
business may be adversely affected if our patents are
unenforceable, the claims allowed under our patents are not
sufficient to protect our technology, our patent applications
are denied, or our trade secrets are not adequately protected.
Our competitors may be able to develop technology independently
that is similar to ours without infringing on our patents or
gaining access to our trade secrets.
We may be
subject to litigation if another party claims that we have
infringed upon its intellectual property rights.
The tools, techniques, methodologies, programs and components we
use to provide our services may infringe upon the intellectual
property rights of others. Infringement claims generally result
in significant legal and other costs and may distract management
from running our core business. Royalty payments under licenses
from third parties, if available, would increase our costs. If a
license were not available we might not be able to continue
providing a particular service or product, which could adversely
affect our financial condition, results of operations and cash
flows. Additionally, developing non-infringing technologies
would increase our costs.
Failure
to obtain and retain skilled technical personnel could impede
our operations.
We require highly skilled personnel to operate and provide
technical services and support for our business. Competition for
the personnel required for our businesses intensifies as
activity increases. In periods of high utilization it may become
more difficult to find and retain qualified individuals. This
could increase our costs or have other adverse effects on our
operations.
Severe
weather conditions may affect our operations.
Our business may be materially affected by severe weather
conditions in areas where we operate. This may entail the
evacuation of personnel and stoppage of services. In addition,
if particularly severe weather affects platforms or structures,
this may result in a suspension of activities until the
platforms or structures have been repaired. Any of these events
could adversely affect our financial condition, results of
operations and cash flows.
Demand
for our products and services could be reduced or eliminated by
governmental regulation or a change in the law.
International, national, and state governments and agencies are
currently evaluating and promulgating climate-related
legislation and regulations that are focused on restricting
greenhouse gas (“GHG”) emissions. In the United
States, the Environmental Protection Agency (“EPA”) is
taking steps to require monitoring and reporting of GHG
emissions and to regulate GHGs as pollutants under the Clean Air
Act (“CAA”). The EPA’s “Mandatory Reporting
of Greenhouse Gases” rule established a comprehensive
scheme of regulations that require monitoring and reporting of
GHG emissions that began in 2010. Furthermore, the EPA recently
proposed additional GHG reporting rules specifically for the oil
and gas industry. The EPA has also published a final rule, the
“Endangerment Finding,” finding that GHGs in the
atmosphere endanger public health and welfare, and that
emissions of GHGs from mobile sources cause or
10
Table of Contents
Part I, Item 1A
contribute to the GHG pollution. Following issuance of the
Endangerment Finding, the EPA promulgated final motor vehicle
GHG emission standards on April 1, 2010. The EPA has
asserted that the final motor vehicle GHG emission standards
will trigger construction and operating permit requirements for
stationary sources. In addition, climate change legislation is
pending in the United States Congress. These developments may
curtail production and demand for fossil fuels such as oil and
gas in areas of the world where our customers operate and thus
adversely affect future demand for our services, which may in
turn adversely affect future results of operations.
Additionally, legislation to reduce greenhouse gases may have an
adverse effect on our operations, including payment of
additional costs due to carbon emissions. Higher carbon emission
activities include transportation, including marine vessels,
cement production (by third party suppliers), and electricity
generation (by third party suppliers) as well as other
activities. Finally, our business could be negatively affected
by climate change related physical changes or changes in weather
patterns, which could result in damages to or loss of our
physical assets, impacts to our ability to conduct operations
and/or
disruption of our customers’ operations.
Legislation may be introduced in the United States Congress that
would authorize the EPA to regulate hydraulic fracturing. In
addition, a number of states are evaluating the adoption of
legislation or regulations governing hydraulic fracturing. Such
legislation or regulations could reduce demand for pressure
pumping services. If federal
and/or
state
legislation or regulations were enacted, it could adversely
affect our financial condition, results of operations and cash
flows. We are unable to predict whether the proposed
legislation, regulations, or any other proposals will ultimately
be enacted.
11
Table of Contents
Part I, Item 1B, 2, 3, 4
Item 1B.
Unresolved
Staff Comments.
None.
Item 2.
Properties.
Schlumberger owns or leases numerous manufacturing facilities,
administrative offices, service centers, research centers, data
processing centers, mines, ore, drilling fluid and production
chemical processing centers, sales offices and warehouses
throughout the world. Schlumberger views its principal
manufacturing, mining and processing facilities, research
centers and data processing centers as its “principal owned
or leased facilities.”
The following sets forth Schlumberger’s principal owned or
leased facilities by business segment:
Oilfield Services:
Beijing, China; Clamart, France;
Fuchinobe, Japan; Singapore; Abingdon, Cambridge and Stonehouse,
United Kingdom; Novosibirsk, Russia; and within the United
States: Boston, Massachusetts; Houston, Rosharon and Sugar Land,
Texas; and Lawrence, Kansas.
WesternGeco:
Bergen and Oslo, Norway; Gatwick,
United Kingdom; Houston, Texas, United States; and Mumbai, India.
M-I SWACO:
Aberdeen, Edinburgh, Foss and Aberfly,
Scotland; Karmoy, Norway; and within the United States: Battle
Mountain and Greystone, Nevada; Greybull, Wyoming; Amelia and
Port Fourchon, Louisiana; Galveston and Houston, Texas;
Florence, Kentucky; and Tulsa, Oklahoma.
Smith Oilfield:
Aberdeen, Scotland; Scurelle, Italy;
Neuquen, Argentina; Jebel Ali, Dubai; Changzhou, China and
within the United States: Houston, Texas; Ponca City, Oklahoma;
Provo, Utah; and Rancho Cucuamonga, California.
Distribution:
Edmonton, Canada; and within the
United States: LaPorte, Texas; Long Beach, California; and South
Plainfield, New Jersey.
Item 3
.
Legal
Proceedings.
The information with respect to this Item 3 is set forth in
Note 16 of the
Consolidated Financial Statements
.
Item 4.
[Removed
and Reserved]
Executive
Officers of Schlumberger
The following table sets forth, as of January 31, 2011, the
names and ages of the executive officers of Schlumberger,
including all offices and positions held by each for at least
the past five years.
| Name | Age | Present Position and Five-Year Business Experience | ||||
|
Andrew Gould
|
64 | Chairman and Chief Executive Officer, since February 2003. | ||||
|
Paal Kibsgaard
|
43 | Chief Operating Officer since February 2010; President Reservoir Characterization Group, May 2009 to February 2010; Vice President Engineering, Manufacturing and Sustaining, November 2007 to May 2009; Vice President Personnel, April 2006 to November 2007; and President, Drilling and Measurements, January 2003 to April 2006. | ||||
|
Simon Ayat
|
56 | Executive Vice President and Chief Financial Officer, since March 2007; Vice President Treasurer, February 2005 to March 2007; and Vice President, Controller and Business Processes, December 2002 to February 2005. | ||||
|
Alexander Juden
|
50 | Secretary and General Counsel, since April 2009; Director of Compliance, February 2005 to April 2009; and WesternGeco General Counsel, May 2004 to February 2005. | ||||
|
Ashok Belani
|
52 | Vice President, Technology, since January 2011; President, Reservoir Characterization Group, since February 2010; Vice President and Chief Technology Officer, April 2006 to February 2010; Senior Advisor, Technology, January 2006 to April 2006; Director, President and Chief Executive Officer NPTest, May 2002 to December 2005. | ||||
|
Stephanie Cox
|
42 | Vice President Personnel, since May 2009; North Gulf Coast GeoMarket Manager, April 2006 to May 2009; and North & South America Personnel Manager, May 2004 to April 2006. | ||||
|
Mark Danton
|
54 | Vice President - Director of Taxes, since January 1999. | ||||
|
Howard Guild
|
39 | Chief Accounting Officer, since July 2005; and Director of Financial Reporting, October 2004 to July 2005. | ||||
12
Table of Contents
| Name | Age | Present Position and Five-Year Business Experience | ||||
|
Rodney Nelson
|
52 | Vice President Communications, Innovation and Collaboration, since October 2007; Vice President Innovation and Collaboration, July 2006 to October 2007; Vice President Strategic Marketing, July 2004 to July 2006; and Vice President Marketing Oilfield Services, February 2003 to July 2004. | ||||
|
Kjell-Erik Oestdahl
|
46 | Vice President Operations, since January 2011; Vice President Supply Chain Services, since May 2009; Vice President Operations WesternGeco, January 2008 to April 2009; Chief Procurement Officer at StatoilHydro ASA, March 2006 to November 2007; GeoMarket Manager, NSG, from January 2005 to February 2006. | ||||
|
Satish Pai
|
49 | Vice President, Operations, Oilfield Services, since May 2008, President Europe Africa & Caspian, March 2006 to May 2008; and Vice President Oilfield Technologies, March 2002 to March 2006. | ||||
|
Douglas Pferdehirt
|
46 | Vice President Corporate Development and Communication, since January 2011; President Reservoir Production Group, from April 2006 to January 2011; and Vice President Communications and Investor Relations, July 2003 to March 2006. | ||||
|
Jean-Francois Poupeau
|
49 | President Drilling Group, since May 2010; President Drilling & Measurements, July 2007 to April 2010; Vice President Communications and Investor Relations, April 2006 to June 2007; and Vice President Oilfield Services Product Marketing, August 2004 to March 2006. | ||||
|
Patrick Schorn
|
42 | President Reservoir Production Group, since January 2011; President Well Services, May 2008 to January 2011; President Completions, April 2006 to April 2008; Marketing Manager Well Services, August 2004 to March 2006. | ||||
|
Krishna Shivram
|
48 | Vice President Treasurer, since January 2011; Controller Drilling Group, May 2010 to January 2011; Manager Mergers & Acquisitions, May 2009 to April 2010; Controller Oilfield Services, August 2006 to April 2009; Vice President Finance WesternGeco, March 2004 to July 2006. | ||||
|
Malcolm Theobald
|
49 | Vice President Investor Relations, since June 2007; and Global Account Director, September 2001 to June 2007. | ||||
13
Table of Contents
Part II, Item 5
| Item 5. | Market for Schlumberger’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
As of January 31, 2011, there were approximately 23,924
stockholders of record. The principal United States market for
Schlumberger’s common stock is the NYSE, where it is traded
under the symbol “SLB”.
Schlumberger’s common stock is also traded on the Euronext
Paris, Euronext Amsterdam, London and SIX Swiss stock exchanges.
Common
Stock, Market Prices and Dividends Declared per
Share
Quarterly high and low prices for Schlumberger’s common
stock as reported by the NYSE (composite transactions), together
with dividends declared per share in each quarter of 2010 and
2009, were:
| Price Range |
Dividends
|
|||||||||||
| High | Low | Declared | ||||||||||
|
2010
|
||||||||||||
|
QUARTERS
|
||||||||||||
|
First
|
$ | 72.00 | $ | 59.42 | $ | 0.210 | ||||||
|
Second
|
73.99 | 51.67 | 0.210 | |||||||||
|
Third
|
63.72 | 52.91 | 0.210 | |||||||||
|
Fourth
|
84.11 | 60.57 | 0.210 | |||||||||
|
2009
|
||||||||||||
|
QUARTERS
|
||||||||||||
|
First
|
$ | 49.25 | $ | 35.05 | $ | 0.210 | ||||||
|
Second
|
63.78 | 39.11 | 0.210 | |||||||||
|
Third
|
63.00 | 48.13 | 0.210 | |||||||||
|
Fourth
|
71.10 | 56.00 | 0.210 | |||||||||
On January 21, 2011, Schlumberger announced that its Board
of Directors had approved an increase in the quarterly dividend
of 19%, to $0.25.
There are no legal restrictions on the payment of dividends or
ownership or voting of such shares, except as to shares held as
treasury stock. Under current legislation, stockholders are not
subject to any Curaçao withholding or other Curaçao
taxes attributable to the ownership of such shares.
The following graph compares the yearly percentage change in the
cumulative total stockholder return on Schlumberger common
stock, assuming reinvestment of dividends on the last day of the
month of payment into common stock of Schlumberger, with the
cumulative total return on the Standard & Poor’s
500 Index (S&P 500 Index) and the cumulative total return
on the Philadelphia Oil Service Index (OSX) over the five-year
period ending on December 31, 2010. The stockholder return
set forth below is not necessarily indicative of future
performance. The following graph and related information shall
not be deemed “soliciting material” or to be
“filed” with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that Schlumberger specifically incorporates
it by reference into such filing.
14
Table of Contents
COMPARISON
OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
SCHLUMBERGER COMMON STOCK, THE S&P 500 INDEX AND THE
PHILADELPHIA OIL SERVICE INDEX (OSX)
SCHLUMBERGER COMMON STOCK, THE S&P 500 INDEX AND THE
PHILADELPHIA OIL SERVICE INDEX (OSX)
Assumes $100 invested on December 31, 2005 in Schlumberger
common stock, in the S&P 500 Index and in the Philadelphia
Oil Service Index (OSX). Reflects reinvestment of dividends on
the last day of the month of payment.
15
Table of Contents
Share
Repurchases
On April 17, 2008, the Schlumberger Board of Directors
approved an $8 billion share repurchase program for
Schlumberger common stock, to be acquired in the open market
before December 31, 2011.
Schlumberger’s common stock repurchase program activity for
the three months ended December 31, 2010 was as follows:
| (Stated in thousands, except per share amounts) | ||||||||||||||||
|
Total
|
Maximum
|
|||||||||||||||
|
number of
|
value
|
|||||||||||||||
|
shares
|
of shares
|
|||||||||||||||
|
purchased
|
that may
|
|||||||||||||||
|
as part of
|
yet be
|
|||||||||||||||
|
Total number
|
Average price
|
publicly
|
purchased
|
|||||||||||||
|
of shares
|
paid per
|
announced
|
under the
|
|||||||||||||
| purchased | share | program | program | |||||||||||||
|
October 1 through October 31, 2010
|
1,931.0 | $ | 63.04 | 1,931.0 | $ | 5,176,181 | ||||||||||
|
November 1 through November 30, 2010
|
1,050.0 | $ | 73.46 | 1,050.0 | $ | 5,099,043 | ||||||||||
|
December 1 through December 31, 2010
|
3,074.3 | $ | 81.35 | 3,074.3 | $ | 4,848,944 | ||||||||||
| 6,055.3 | $ | 74.14 | 6,055.3 | |||||||||||||
In connection with the exercise of stock options under
Schlumberger’s incentive compensation plans, Schlumberger
routinely receives shares of its common stock from optionholders
in consideration of the exercise price of the stock options.
Schlumberger does not view these transactions as requiring
disclosure under this Item 5 as the number of shares of
Schlumberger common stock received from optionholders is not
material.
Unregistered
Sales of Equity Securities
None.
| Item 6. | Selected Financial Data. |
The following selected consolidated financial data should be
read in conjunction with both “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Item 8. Financial
Statements and Supplementary Data” of this
Form 10-K
in order to understand factors, such as business combinations
and charges and credits, which may affect the comparability of
the Selected Financial Data:
| (Stated in millions, except per share amounts) | ||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
Revenue
|
$ | 27,447 | $ | 22,702 | $ | 27,163 | $ | 23,277 | $ | 19,230 | ||||||||||
|
Income from Continuing Operations
|
$ | 4,266 | $ | 3,164 | $ | 5,422 | $ | 5,177 | $ | 3,759 | ||||||||||
|
Diluted earnings per share from Continuing Operations
|
$ | 3.38 | $ | 2.61 | $ | 4.42 | $ | 4.20 | $ | 3.01 | ||||||||||
|
Working capital
|
$ | 7,233 | $ | 6,391 | $ | 4,811 | $ | 3,551 | $ | 2,731 | ||||||||||
|
Total assets
|
$ | 51,767 | $ | 33,465 | $ | 32,094 | $ | 27,853 | $ | 22,832 | ||||||||||
|
Net
debt
(1)
|
$ | 2,638 | $ | 126 | $ | 1,129 | $ | 1,857 | $ | 2,834 | ||||||||||
|
Long-term debt
|
$ | 5,517 | $ | 4,355 | $ | 3,694 | $ | 3,794 | $ | 4,664 | ||||||||||
|
Schlumberger stockholders’ equity
|
$ | 31,226 | $ | 19,120 | $ | 16,862 | $ | 14,876 | $ | 10,420 | ||||||||||
|
Cash dividends declared per share
|
$ | 0.84 | $ | 0.84 | $ | 0.84 | $ | 0.70 | $ | 0.50 | ||||||||||
| (1) | “Net Debt” represents gross debt less cash, short-term investments and fixed income investments, held to maturity. Management believes that Net Debt provides useful information regarding the level of Schlumberger indebtedness by reflecting cash and investments that could be used to repay debt. |
16
Table of Contents
Part II, Item 7
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis contains forward-looking
statements, including, without limitation, statements relating
to our plans, strategies, objectives, expectations, intentions
and resources. Such forward-looking statements should be read in
conjunction with our disclosures under “Item 1A. Risk
Factors” of this Report.
Executive
Overview
After two consecutive years of falling oil demand in 2008 and
2009 induced by the global economic recession, a strong recovery
occurred in 2010. Consumption averaged 87.7 million barrels
per day, including an all-time peak of over 89 million
barrels per day in December, and made the
year-on-year
increase the second largest in three decades. Oil prices
remained in the range of $65-$85 per barrel for much of 2010,
but recorded a spike above $90 at the end of the year. The major
demand forecasts released during 2010 have continued to increase
as a result of the improving economic outlook –
particularly in the developing economies. On the supply side,
the adherence to production quota by the OPEC countries helped
keep the market balanced, although such adherence diminished
slightly as the year progressed. Strength in non-OPEC
production, improvement in new project developments following
the investment cuts in 2009, and lower production costs helped
provide additional assurance to the markets.
Natural gas markets behaved differently. Decreasing gas demand
during the recession, increasing unconventional gas production
in North America, and the commissioning of a number of new large
liquefied natural gas export facilities around the world led to
an over-supplied market with consequent pressure on spot prices.
Within the United States – the world’s largest
natural gas market – natural gas storage levels have
remained significantly above the five-year range since March
2010 despite lower volumes of Canadian gas imports and some
power generation fuel switching from coal to gas. With natural
gas price forecasts from the Energy Information Agency for 2011
slipping by nearly a third compared to initial projections made
at the beginning of the year, an increasing portion of the
drilling and completion activity in shale reservoirs has shifted
to liquid and condensate-rich plays in North America.
Within this market, Schlumberger Oilfield Services full-year
revenue in 2010 of $22.08 billion grew 8% versus 2009,
driven by recovery in the North America natural gas market
through increasing demand and stronger pricing for pressure
pumping services. The North America Area also benefited from
greater activity in liquids-rich plays in a number of basins.
Offshore, the tragic Macondo accident in the US Gulf of Mexico
led to a shutdown in deepwater operations that severely impacted
US offshore activity and led to slowdowns in other parts of the
world, although these were being absorbed as the fourth quarter
developed. The Middle East and Asia Area revenue climbed 7% from
a number of factors including increasing wireline logging and
expanded IPM work. Latin America revenue grew by 2%, with rapid
growth in Brazil overcoming weaker activity in Mexico as poor
weather, increasing security concerns and reduced client budgets
impacted operations. Europe/CIS/Africa revenue decreased 4%
versus 2009. Among the Technologies, growth was primarily seen
in Well Services activities, both in volume and in price
although the acquisition of Geoservices also contributed to the
increase.
In addition to growing activity, results were underpinned
through continuing market penetration of new-technology services
such as Scope* advanced logging-while-drilling measurements,
Scanner* wireline technologies, and ACTive* coiled-tubing
services. Scanner services were boosted by the commercial
introduction of the latest family member, the Dielectric
Scanner* tool, which was unveiled during the year. As a unique
industry service capable of measuring saturation in a variety of
reservoir applications, the service completed a two-year pilot
project in Saudi Arabia targeted at reservoir monitoring, where
35 logs were recorded in various fields, both on land and
offshore, to assess water flooding sweep efficiency as an aid to
field development planning.
In reservoir production, ACTive real-time coiled tubing services
saw growth, particularly with ACTive conveyance of Wireline Flow
Scanner* production logging technology, and with fiber-optic
continuous measurements of temperature and pressure along the
well bore. Growing deployment of integrated technologies such as
these confirms exciting growth possibilities across the
Schlumberger technology portfolio particularly in horizontal and
extended-reach wells.
It was however drilling services that displayed early evidence
of the opportunities provided by the acquisitions of Geoservices
and Smith International that were announced during the first
quarter. These successes included the completion of a remote
three-well exploration project offshore Greenland that used
Schlumberger technologies combined with Smith and M-I SWACO
products and services as well as Geoservices mud logging. In
Brazil, a similar combination of services helped one well record
substantial increases in rates of penetration, while meeting all
17
Table of Contents
Part II, Item 7
directional drilling goals. In this particular case the
integrated nature of the bottomhole assembly demonstrated how
technology optimization can impact performance in the high-cost
deepwater drilling environment. A third such operation offshore
Indonesia further displayed the value of integrated bottomhole
assemblies.
WesternGeco revenue of $1.99 billion in 2010 was 6% lower
than 2009 primarily as a result of lower Marine activity and
weaker pricing. While Land activity was also weaker, strong
Multiclient sales, particularly in the fourth quarter, were able
to offset some of these effects. New seismic technology scored
some significant successes with penetration of marine
single-vessel, full-azimuth coil shooting surveys into a number
of the major offshore basins around the world. Coil shooting,
unique to Schlumberger, brings better illumination of complex
pre-salt,
sub-salt
and
sub-basalt
formations in a variety of environments.
The integration of Geoservices and Smith International proceeded
smoothly during the year. The complementary nature of many of
the product and service lines concerned helped the process while
a network of integration teams and Area coordinators rapidly
identified revenue and cost-synergy opportunities that
contributed to results in 2010 and that augur well for 2011.
Total Schlumberger 2010 results reflect four months activity
from the acquired Smith businesses, which contributed revenue of
$3.30 billion.
In a related move, Schlumberger signed a letter of intent with
Eurasia to swap certain assets in Russia to build critical mass
in drilling services. Under the terms of this agreement, Eurasia
will acquire a number of Schlumberger-owned drilling rigs, while
Schlumberger will acquire a range of Eurasia service assets
including directional drilling, measurement-while-drilling, well
cementing and drilling fluids. Further, both companies agreed to
enter a strategic alliance upon completion of the transaction
whereby Schlumberger will become the preferred supplier of
drilling services to Eurasia Drilling for up to 200 rigs for a
5-year
period. This agreement not only increases the market for our
services across the rig fleet of the largest Russian drilling
company, it also encourages the development of
fit-for-purpose
bottom-hole assembly technology development as drilling
intensity increases in Russia in order to sustain hydrocarbon
production.
Two years ago we began a program called “Excellence in
Execution”. This was designed to create a step change in
our service quality and efficiency and, in deepwater, was aimed
at enabling clients to reduce the risk and cost of their
deepwater operations. The program, in addition to equipment and
procedural improvements, provides for competency certification
of all personnel involved in deepwater operations. We have been
encouraged by the initial results of this multiyear initiative,
as well as by our customers’ acceptance of it. While
additional control and oversight will undoubtedly add cost, this
will be offset in the long run by improvements in operating
procedures and technology. We therefore welcome current efforts
to better understand and control the risks associated with
deepwater operations.
For 2011, economic projections for world real GDP growth are
converging towards a median estimate of 4.2%, slightly lower
than the 2010 level, and still with a significant level of
uncertainty. A large gap exists between GDP growth rates of
Organization for Economic Cooperation and Development (OECD) and
non-OECD countries – particularly in China and in
other developing Asian economies. However there is remarkable
agreement on various oil demand forecasts for 2011, which all
lie within 1.4 million barrels per day of each other.
As we look forward to 2011 it is therefore important to remember
that the primary driver of our business has always been, and
will remain, the demand for oil and gas. Oil prices have moved
into a range that will encourage increased investment,
particularly in exploration, which remains the swing factor in
operators’ budgets. While we do not anticipate any
substantial recovery in deepwater US Gulf of Mexico, we do
expect a marked increase in deepwater activity in the rest of
the world. These factors, coupled with increases in development
activity and production enhancement in many other areas, promise
stronger growth rates as the year unfolds.
For natural gas, activity in the United States is likely to
remain strong – at least through the first half of the
year – due to the commitments necessary to retain
leases, the backlog of wells to be completed, and the
contribution of natural gas liquids to overall project
economics. Increased service capacity, however, will negatively
affect pricing at some stage during the year.
Overseas, the governing factor on gas activity, particularly in
the Middle East, will be the ability of many nations to use gas
as a substitute for oil to meet increased local energy demand,
thus freeing up more liquids for export. Elsewhere the long lead
time necessary to execute large gas projects for LNG exports
will ensure that a certain level of activity is maintained.
Unconventional gas resources will continue to attract
considerable interest outside North America. The leading
activity will continue to be in conventional gas in tight, or
low permeability, reservoirs, and in coal-bed methane
18
Table of Contents
Part II, Item 7
developments. There will be exploration activity around the
potential that shale gas offers in many other parts of the world.
Increased activity coupled with the greater technology needs of
higher exploration, deepwater, and tight gas
activity – particularly outside North
America – will make 2011 a stronger year for
Schlumberger. The importance of risk reduction and the
minimization of drilling cost make the acquisitions of
Geoservices and Smith major contributors to our future growth in
this scenario.
The following discussion and analysis of results of operations
should be read in conjunction with the
Consolidated Financial
Statements
.
Fourth Quarter
2010 Results
| (Stated in millions) | ||||||||||||||||
| Fourth Quarter 2010 | Third Quarter 2010 | |||||||||||||||
|
Income
|
Income
|
|||||||||||||||
|
before
|
before
|
|||||||||||||||
| Revenue | taxes | Revenue | taxes | |||||||||||||
|
OILFIELD SERVICES
|
||||||||||||||||
|
North America
|
$ | 1,604 | $ | 385 | $ | 1,259 | $ | 219 | ||||||||
|
Latin America
|
1,050 | 174 | 1,071 | 159 | ||||||||||||
|
Europe/CIS/Africa
|
1,783 | 339 | 1,734 | 317 | ||||||||||||
|
Middle East & Asia
|
1,491 | 434 | 1,402 | 425 | ||||||||||||
|
Elims/Other
|
81 | (1 | ) | 71 | (18 | ) | ||||||||||
| 6,009 | 1,331 | 5,537 | 1,102 | |||||||||||||
|
WESTERNGECO
|
560 | 113 | 478 | 40 | ||||||||||||
|
M-I
SWACO
(1)
|
1,185 | 149 | 383 | 48 | ||||||||||||
|
SMITH
OILFIELD
(1)
|
729 | 106 | 228 | 27 | ||||||||||||
|
DISTRIBUTION
(1)
|
576 | 21 | 199 | 9 | ||||||||||||
| 9,059 | 1,720 | 6,825 | 1,226 | |||||||||||||
|
Corporate
(2)
|
8 | (156 | ) | 20 | (81 | ) | ||||||||||
|
Interest
income
(3)
|
9 | 10 | ||||||||||||||
|
Interest
expense
(4)
|
(58 | ) | (51 | ) | ||||||||||||
|
Charges &
credits
(5)
|
(180 | ) | 836 | |||||||||||||
| $ | 9,067 | $ | 1,335 | $ | 6,845 | $ | 1,940 | |||||||||
| (1) | The third quarter of 2010 includes one month of post-merger activity following the Smith transaction on August 27, 2010. See Note 4 to the Consolidated Financial Statements for further details. | |
| (2) | Comprised principally of corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with intangible assets recorded as a result of the merger with Smith and certain other nonoperating items. | |
| (3) | Excludes interest income included in the segments’ income (fourth quarter 2010 – $1 million; third quarter 2010 – $2 million). | |
| (4) | Excludes interest expense included in the segments’ income (fourth quarter 2010 - $2 million; third quarter 2010 – $- million). | |
| (5) | Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements . |
Oilfield
Services
Fourth-quarter revenue of $6.01 billion increased 9%
sequentially. Sequentially, North America Area revenue increased
27% on strong activity on land in the US and Canada as well as
from the early payout of an IPM gain share project. In the
Middle East & Asia Area, revenue grew on year-end
equipment, Schlumberger Information Solutions (SIS) software
sales, and on higher activity in the Iraq, East Asia and
Indonesia GeoMarkets. Europe/CIS/Africa Area revenue increased
from stronger activity in the North Sea, West & South
Africa, Caspian and Continental Europe GeoMarkets, as well as
from year-end SIS software sales. These increases were partially
offset by a decrease in Latin America Area revenue primarily due
to continuing weakness in the Mexico/Central America GeoMarket.
All Technologies recorded sequential growth, most notably Well
Services due to continuing strong activity in North America, and
SIS and Artificial Lift from year-end sales. IPM revenue also
increased as a result of the early payout on the IPM project in
North America.
19
Table of Contents
Part II, Item 7
Fourth-quarter pretax operating income of $1.33 billion
increased 21% sequentially. Pretax operating margin increased
224 bps sequentially to 22.1% primarily driven by the
robust performance in North America and strong contributions
from the year-end equipment and software sales.
North
America
Fourth-quarter revenue of $1.60 billion increased 27%
sequentially and pretax operating income of $385 million
was 75% higher.
Sequentially, revenue in US land grew 24% versus a 4% increase
in rig count due to a combination of additional service
capacity, improved utilization, and high service intensity that
mostly benefited Well Services technologies. Canada revenue grew
from higher land activity for Well Services, although this was
partially offset by a slowdown in offshore activity that
impacted Drilling & Measurements services. The US Gulf
of Mexico revenue increased through a modest improvement in
shelf activity and from Completion Systems equipment sales. An
$87 million early payout relating to services on an IPM
gain share project – triggered by the customer’s
sale of the field – also contributed to Area growth.
Pretax operating margin for the Area increased 658 bps
sequentially to 24.0%. This increase was largely driven by US
land through stronger activity and increased efficiency for Well
Services operations. The IPM gain share payout contributed
approximately $55 million to Area pretax operating income.
Latin
America
Fourth-quarter revenue of $1.05 billion decreased 2% versus
the prior quarter. Pretax operating income of $174 million
increased 9% compared to the third quarter of 2010.
Sequentially, the Brazil GeoMarket achieved record high revenue
on strong deepwater activity, while revenue in the
Peru/Colombia/Ecuador GeoMarket grew from higher gain share on
IPM activity in Colombia and from Testing Services equipment
sales in Peru. These increases, however, were insufficient to
offset a significant revenue drop in the Mexico/Central America
GeoMarket where continuing security issues and client budgetary
constraints further reduced IPM activity levels.
Pretax operating margin improved 171 bps sequentially to
16.6% primarily due to a more favorable revenue mix in the
Peru/Colombia/Ecuador and Venezuela/Trinidad & Tobago
GeoMarkets.
Europe/CIS/Africa
Fourth-quarter revenue of $1.78 billion increased 3%
compared to the third quarter of 2010. Pretax operating income
of $339 million increased 7% sequentially.
Sequentially, revenue in the North Sea GeoMarket increased
primarily from higher activity in Norway and from year-end SIS
software sales. In the West & South Africa GeoMarket,
revenue grew on stronger activity that benefited Wireline and
Drilling & Measurements services and on higher
Completion Systems equipment sales. Caspian GeoMarket revenue
increased from the startup of several projects that resulted in
higher demand for Drilling & Measurements, Testing
Services and Wireline technologies as well as from a Well
Services equipment sale. Continental Europe revenue grew on
higher activity for Well Services and Testing Services
technologies and on year-end SIS software sales. These
increases, however, were partially offset by a decrease in
Nigeria & Gulf of Guinea GeoMarket revenue from lower
Completion Systems equipment sales and from delays that reduced
demand for Wireline services. Russia revenue was also lower with
the onset of the winter slowdown.
Pretax operating margin improved sequentially by 74 bps to
19.0% primarily from a stronger mix of high-margin Wireline and
Drilling & Measurements services in the North Sea and
West & South Africa GeoMarkets as well as from
year-end SIS software sales across much of the Area. These
increases were partially offset by the impact of the activity
weakness in the Nigeria & Gulf of Guinea GeoMarket.
Middle
East & Asia
Fourth-quarter revenue of $1.49 billion increased 6%
sequentially. Pretax operating income of $434 million
increased 2% sequentially.
20
Table of Contents
Part II, Item 7
Sequentially, revenue growth resulted from the continued ramp up
of IPM activity in Iraq and the start of new offshore projects
in East Asia. Year-end sales of Artificial Lift and Completion
Systems equipment, Well Services products, and SIS software also
contributed to Area growth. These increases were partially
offset by lower revenue in the Australia/Papua New Guinea
GeoMarket resulting from offshore project completions and delays
in land activity due to severe flooding, and by lower activity
in the Qatar GeoMarket that reduced demand for Wireline and
Drilling & Measurements services.
Pretax operating margin decreased 119 bps sequentially to
29.1% as the positive contribution from the year-end sales and a
more favorable revenue mix in the Arabian GeoMarket were
insufficient to offset the impact of the lower activity in the
Australia/Papua New Guinea GeoMarket and startup costs in Iraq.
WesternGeco
Fourth-quarter revenue of $560 million increased 17%
sequentially. Pretax operating income of $113 million
increased 183% sequentially.
Sequentially, revenue growth was driven by Multiclient, which
recorded strong year-end sales from the US Gulf of Mexico. This
increase was partially offset by a decrease in Marine revenue
due to the seasonal slow-down in activity. Land and Data
Processing revenues were flat sequentially.
Pretax operating margin increased 11.8 percentage points
sequentially to 20.2% as the result of the high Multiclient
sales partially offset by the impact of the lower Marine
activity.
Full-Year 2010
Results
| (Stated in millions) | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
|
Income
|
Income
|
|||||||||||||||
|
before
|
before
|
|||||||||||||||
| Revenue | taxes | Revenue | taxes | |||||||||||||
|
OILFIELD SERVICES
|
||||||||||||||||
|
North America
|
$ | 5,010 | $ | 802 | $ | 3,707 | $ | 216 | ||||||||
|
Latin America
|
4,321 | 723 | 4,225 | 753 | ||||||||||||
|
Europe/CIS/Africa
|
6,882 | 1,269 | 7,150 | 1,707 | ||||||||||||
|
Middle East & Asia
|
5,586 | 1,696 | 5,234 | 1,693 | ||||||||||||
|
Elims/Other
|
280 | (15 | ) | 202 | (43 | ) | ||||||||||
| 22,079 | 4,475 | 20,518 | 4,326 | |||||||||||||
|
WESTERNGECO
|
1,987 | 267 | 2,122 | 326 | ||||||||||||
|
M-I
SWACO
(1)
|
1,568 | 197 | ||||||||||||||
|
SMITH
OILFIELD
(1)
|
957 | 132 | ||||||||||||||
|
DISTRIBUTION
(1)
|
774 | 29 | ||||||||||||||
|
Corporate
(2)
|
82 | (405 | ) | 62 | (344 | ) | ||||||||||
|
Interest
income
(3)
|
43 | 52 | ||||||||||||||
|
Interest
expense
(4)
|
(202 | ) | (188 | ) | ||||||||||||
|
Charges &
credits
(5)
|
620 | (238 | ) | |||||||||||||
| $ | 27,447 | $ | 5,156 | $ | 22,702 | $ | 3,934 | |||||||||
| (1) | 2010 includes four months of post-merger activity following the transaction with Smith on August 27, 2010. See Note 4 to the Consolidated Financial Statements for further details. | |
| (2) | Comprised principally of corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with intangible assets recorded as a result of the merger with Smith and certain other nonoperating items. | |
| (3) | Excludes interest income included in the segments’ income (2010 – $7 million; 2009 – $10 million). | |
| (4) | Excludes interest expense included in the segments’ income (2010 – $5 million; 2009 – $33 million). | |
| (5) | Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements . |
Oilfield
Services
Full-year 2010 revenue of $22.08 billion was 8% higher than
2009. Revenue growth was strongest in the North America Area
mostly as a result of higher activity and pricing for Well
Services technologies in US Land but partially offset by
21
Table of Contents
Part II, Item 7
reduced activity in the US Gulf of Mexico. Latin America revenue
increased on strong activity in the Brazil and
Peru/Ecuador/Colombia GeoMarkets partially offset by reduced IPM
activity in Mexico/Central America due to client budgetary
constraints. Middle East & Asia Area revenue grew from
higher drilling activity in the Australia/Papua New Guinea,
China/Japan/Korea and East Asia GeoMarkets as well as from
increased IPM activity and strong demand for Well Services
technologies in the Middle Eastern GeoMarkets. The addition of
Geoservices also contributed to the increased revenue. These
increases were partially offset by a decrease in
Europe/CIS/Africa revenue as reduced activity in the North
Africa, Libya, Caspian and Continental GeoMarkets and generally
lower pricing across the Area offset higher activity in Russia.
Year-on-year,
pretax operating margin declined 82 bps to 20.3% as a
significant improvement in North America Area performance was
insufficient to offset the reduced activity and weaker pricing
in the Europe/CIS/Africa Area and lower IPM activity in Latin
America.
North
America
Revenue of $5.01 billion was 35% higher than last year
primarily due to strong activity in unconventional oil and gas
reservoirs, improved pricing in US Land for Well Services
technologies and improved activity levels in oil basins in
Canada. These increases were partially offset by a decrease in
the US Gulf of Mexico revenue as a six-month moratorium on
drilling and lingering uncertainty about rules for operating
resulted in the stoppage of deepwater drilling activity.
Year-on-year,
pretax operating margin increased 10 percentage points to
16.0% mostly due to the stronger activity and improved pricing
in the US land, partially offset by the impact of the activity
slow-down in the US Gulf of Mexico.
Latin
America
Revenue of $4.32 billion was 2% higher than the previous
year. Growth was strongest in the Brazil GeoMarket where higher
offshore activity increased demand for Wireline and
Drilling & Measurements services technologies. Revenue
also increased significantly in the Peru/Ecuador/Colombia
GeoMarket due to strong IPM activity and higher Artificial Lift
systems sales. The addition of Geoservices also contributed to
the growth. These increases were partially offset by a decrease
in the Mexico/Central America GeoMarket revenue as client
budgetary constraints reduced IPM activity.
Year-on-year,
pretax operating margin decreased 110 bps to 16.7%
primarily due to the reduced activity levels in Mexico/Central
America partially offset by the impact of lower costs in
Venezuela/Trinidad & Tobago.
Europe/CIS/Africa
Revenue of $6.88 billion was 4% lower
year-on-year.
This decrease was largely attributable to lower pricing across
much of the Area and reduced activity in the North Africa,
Libya, Caspian and Continental Europe GeoMarkets. These
decreases were partially offset by increases in Russia due to
higher IPM activity. The addition of Geoservices also
contributed to Area revenue.
Year-on-year,
pretax operating margin decreased 543 bps to 18.4%
primarily due to the lower overall activity levels and reduced
pricing.
Middle
East & Asia
Revenue of $5.59 billion was 7% higher than the previous
year primarily due to strong drilling activity in Asia,
particularly in the Australia/Papua New Guinea,
China/Japan/Korea and East Asia GeoMarkets, and to increased IPM
activity and strong demand for Well Services technologies in the
Middle Eastern GeoMarkets. The addition of Geoservices also
increased Area revenue.
Year-on-year,
pretax operating margin decreased 199 bps to 30.4%
primarily due the impact of lower pricing across the Area.
WesternGeco
Full-year 2010 revenue of $1.99 billion was 6% lower than
the prior year primarily due to reduced activity and pricing in
Marine. This decrease was partially offset by an increase in
Multiclient revenue as the result of increased acquisition and
sales of wide-azimuth surveys in the US Gulf of Mexico.
22
Table of Contents
Part II, Item 7
Year-on-year,
pretax operating margin decreased 194 bps to 13.4% as the
result of the lower pricing and activity in Marine and reduced
profitability in Land and Data Processing. These decreases were
partially offset by an improvement in Multiclient margins on the
increased activity.
Full-Year 2009
Results
| (Stated in millions) | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
|
Income
|
Income
|
|||||||||||||||
|
before
|
before
|
|||||||||||||||
| Revenue | taxes | Revenue | taxes | |||||||||||||
|
OILFIELD SERVICES
|
||||||||||||||||
|
North America
|
$ | 3,707 | $ | 216 | $ | 5,914 | $ | 1,371 | ||||||||
|
Latin America
|
4,225 | 753 | 4,230 | 858 | ||||||||||||
|
Europe/CIS/Africa
|
7,150 | 1,707 | 8,180 | 2,244 | ||||||||||||
|
Middle East & Asia
|
5,234 | 1,693 | 5,724 | 2,005 | ||||||||||||
|
Elims/Other
|
202 | (43 | ) | 234 | 27 | |||||||||||
| 20,518 | 4,326 | 24,282 | 6,505 | |||||||||||||
|
WESTERNGECO
|
2,122 | 326 | 2,838 | 836 | ||||||||||||
|
Corporate
(1)
|
62 | (344 | ) | 43 | (268 | ) | ||||||||||
|
Interest
income
(2)
|
52 | 112 | ||||||||||||||
|
Interest
expense
(3)
|
(188 | ) | (217 | ) | ||||||||||||
|
Charges &
credits
(4)
|
(238 | ) | (116 | ) | ||||||||||||
| $ | 22,702 | $ | 3,934 | $ | 27,163 | $ | 6,852 | |||||||||
| (1) | Comprised principally of corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs and certain other nonoperating items. | |
| (2) | Excludes interest income included in the segments’ income (2009 – $10 million; 2008 – $7 million). | |
| (3) | Excludes interest expense included in the segments’ income (2009 – $33 million; 2008 – $30 million). | |
| (4) | Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements. |
Oilfield
Services
Full-year 2009 revenue of $20.52 billion declined 16%
versus 2008. Lower natural gas prices and unfavorable market
fundamentals resulted in a 37% decline in North America revenue,
primarily in the US Land and Canada GeoMarkets.
Europe/CIS/Africa revenue decreased 13% mainly due to the
weakening of local currencies against the US dollar and reduced
activity in the Russia, North Sea, West & South Africa
and Caspian GeoMarkets as well as in Framo, which was partially
offset by increased activity in the North Africa GeoMarket.
Middle East & Asia revenue also fell by 9% primarily
due to decreases in the East Asia, East Mediterranean, Arabian
and Australia/Papua New Guinea GeoMarkets. Latin America revenue
was only marginally lower than last year as the impact of the
weakening of local currencies against the US dollar and much
lower activity in Venezuela/Trinidad & Tobago and
Peru/Colombia/Ecuador were nearly offset by stronger activity in
Mexico/Central America and Brazil. Weakening of local currencies
against the US dollar reduced 2009 revenue by approximately 4%.
Across the Areas, all of the Technologies recorded revenue
declines except Testing Services. IPM recorded revenue growth
compared to the same period last year.
Full-year 2009 pretax operating margin decreased
5.7 percentage points to 21.1%, on the significant drop in
activity and pricing pressure experienced across all the Areas,
but most notably in North America.
North
America
Revenue of $3.71 billion was 37% lower than last year with
reductions across the entire Area. The decreases were highest in
US Land and Canada, where lower natural gas prices resulted in a
steep drop in activity and consequent pressure on pricing.
Canada revenue was also lower as the result of the weakening of
the Canadian dollar against the US dollar. Revenue in the
US Gulf of Mexico GeoMarket was severely impacted by weaker
shelf drilling activity and strong pricing pressure.
Pretax operating margin fell 17.3 percentage points to 5.8%
due to the significant decline in activity levels across the
Area, combined with the severe pricing erosion.
23
Table of Contents
Part II, Item 7
Latin
America
Revenue of $4.22 billion was marginally lower compared to
2008. The weakening of local currencies against the
US dollar reduced 2009 revenue by approximately 3%. In
addition, Venezuela/Trinidad & Tobago revenue fell due
to significantly reduced customer spending while
Peru/Colombia/Ecuador revenue was lower due to reduced gain
share in IPM projects. These decreases were mostly offset by
higher IPM activity in Mexico/Central America and increased
offshore activity in Brazil.
Pretax operating margin decreased 245 bps to 17.8%
primarily as the result of the sharp activity decline in
Venezuela/Trinidad & Tobago and the lower gain share
in Peru/Colombia/Ecuador.
Europe/CIS/Africa
Revenue of $7.15 billion was 13% lower than last year
largely due to the weakening of local currencies against the
US dollar, which reduced revenue by approximately 7%. In
addition, revenue was negatively impacted by reduced customer
spending that resulted in significantly lower activity and
pricing erosion in Russia and the North Sea. Revenue in the
West & South Africa and Caspian GeoMarkets and in
Framo was also negatively impacted by lower activity levels.
These decreases were partially offset by a revenue increase in
the North Africa GeoMarket due to strong Testing Services
product sales.
Pretax operating margins declined 357 bps to 23.9% on a
combination of the overall lower activity and heavy pricing
pressure across the Area.
Middle
East & Asia
Revenue of $5.23 billion was 9% below 2008. Revenue was
down across much of the Middle East, especially in the East
Mediterranean and Arabian GeoMarkets, due to reduced demand for
Drilling & Measurements, Wireline and Testing Services
technologies. Revenue in Asia also fell, primarily due to a
decrease in offshore exploration activity, which was most
significant in the East Asia and Australia/Papua New Guinea
GeoMarkets, resulting in lower demand for Testing Services and
Wireline technologies as well as Completion Systems products.
Pretax operating margin decreased 268 bps to 32.4%
primarily as a result of the lower overall activity and a less
favorable revenue mix across the Area.
WesternGeco
Full-year revenue of $2.12 billion was 25% lower than 2008.
Revenue decreased across all product lines, with the largest
declines experienced in Marine and Multiclient. Marine revenue
declined due to lower activity combined with reduced pricing as
the result of weak market conditions. Multiclient revenue
decreased primarily in North America, as customers continued to
reduce discretionary spending. Land revenue fell on lower crew
utilization, while Data Processing revenue was down reflecting
lower activity primarily in Europe/Africa and in North America.
Pretax margin decreased 14.1 percentage points to 15.4%
primarily due to the weaker Marine activity and pricing as well
as lower Multiclient sales.
Interest
and Other Income
Interest and other income consisted of the following:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Interest income
|
$ | 50 | $ | 61 | $ | 119 | ||||||
|
Equity in net earnings of affiliated companies:
|
||||||||||||
|
M-I SWACO
|
78 | 131 | 210 | |||||||||
|
Others
|
86 | 78 | 83 | |||||||||
|
Other
|
– | 3 | – | |||||||||
| $ | 214 | $ | 273 | $ | 412 | |||||||
24
Table of Contents
Part II, Item 7
Interest
Income
The average return on investments decreased to 1.2% in 2010 from
1.4% in 2009 and the weighted average investment balance of
$4.0 billion in 2010 decreased $0.5 billion compared
to 2009.
The average return on investments decreased to 1.4% in 2009 from
3.5% in 2008 and the weighted average investment balance of
$4.5 billion in 2009 increased $1.1 billion compared
to 2008.
Equity in
Net Earnings of Affiliated Companies
Equity income from the M-I SWACO joint venture in 2010
represents eight months of equity income through the closing of
the Smith transaction. The decrease in equity income relating to
this joint venture from 2008 to 2009 was attributable to a
significant decline in M-I SWACO activity levels, primarily in
its United States and Europe/Africa regions, as well as
increased pricing pressures.
Interest
Expense
Interest expense of $207 million in 2010 decreased by
$14 million compared to 2009 due to a decline in the
weighted average borrowing rates, from 3.9% to 3.2%. The
weighted average debt balance of $6.4 billion in 2010
increased $0.8 billion compared to 2009.
Interest expense of $221 million in 2009 decreased by
$26 million compared to 2008 primarily due to a decline in
the weighted average borrowing rates, from 4.5% to 3.9%.
Other
Gross margin was 21.7%, 24.0% and 30.2% in 2010, 2009 and 2008,
respectively.
The decline in gross margin in 2010 compared to 2009 was
primarily attributable to the inclusion of the acquired Smith
businesses as well as pricing pressure for Oilfield Services,
particularly in the Europe/CIS/Africa Area, partially offset by
improved activity levels and pricing in the North America Area.
The decline in gross margin in 2009 compared to 2008 was
primarily attributable to lower activity coupled with the impact
of a significant reduction in pricing across all of Oilfield
Services, most notably in North America and Europe/CIS/Africa.
Weaker Marine activity and pricing and reduced Multiclient sales
in WesternGeco also contributed to the margin decline.
Research & engineering
and
General & administrative
expenses, as a percentage
of
Revenue
, were as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Research & engineering
|
3.3 | % | 3.5 | % | 3.0 | % | ||||||
|
General & administrative
|
2.4 | % | 2.4 | % | 2.1 | % | ||||||
Research & engineering
expenditures were as
follows:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Oilfield Services
|
$ | 748 | $ | 679 | $ | 686 | ||||||
|
WesternGeco
|
103 | 108 | 118 | |||||||||
|
Acquired Smith businesses
|
58 | – | – | |||||||||
|
Other
|
10 | 15 | 15 | |||||||||
| $ | 919 | $ | 802 | $ | 819 | |||||||
Income
Taxes
The Schlumberger effective tax rate was 17.3% in 2010, 19.6% in
2009, and 20.9% in 2008.
The Schlumberger effective tax rate is sensitive to the
geographic mix of earnings. When the percentage of pretax
earnings generated outside of North America increases, the
Schlumberger effective tax rate will generally decrease.
Conversely, when the percentage of pretax earnings generated
outside of North America decreases, the Schlumberger effective
tax rate will generally increase.
25
Table of Contents
Part II, Item 7
The effective tax rate for 2010 was significantly impacted by
the charges and credits described in Note 3 to the
Consolidated Financial Statements
. The effective tax rate
for 2009 was also impacted by charges, but to a much lesser
extent. Excluding charges and credits, the effective tax rate in
2010 was approximately 20.6% compared to 19.2% in 2009. This
increase is largely attributable to the geographic mix of
earnings as well as the inclusion of four months results from
the merger with Smith. Smith, which as a US company has a US tax
rate applicable to its worldwide operations and as such, will
serve to increase Schlumberger’s overall effective tax rate.
The decrease in the Schlumberger effective tax rate in 2009 as
compared to 2008 was primarily attributable to the geographic
mix of earnings. Schlumberger generated a lower proportion of
its pretax earnings in North America in 2009 as compared to
2008. In addition, outside North America, various GeoMarkets
with lower tax rates contributed a greater percentage to pretax
earnings in 2009 as compared to 2008.
Charges and
Credits
Schlumberger recorded significant charges and credits in
continuing operations during 2010, 2009 and 2008. These charges
and credits, which are summarized below, are more fully
described in Note 3 to the
Consolidated Financial
Statements
.
The following is a summary of the 2010 charges and credits:
| (Stated in millions) | ||||||||||||||||||
|
Non-
|
||||||||||||||||||
|
controlling
|
||||||||||||||||||
| Pretax | Tax | Interest | Net | Income Statement Classification | ||||||||||||||
|
Restructuring and Merger-related Charges:
|
||||||||||||||||||
|
Severance and other
|
$ | 90 | $ | 13 | $ | – | $ | 77 | Restructuring & other | |||||||||
|
Impairment relating to WesternGeco’s first
|
||||||||||||||||||
|
generation
Q-Land
acquisition system
|
78 | 7 | – | 71 | Restructuring & other | |||||||||||||
|
Other WesternGeco-related charges
|
63 | – | – | 63 | Restructuring & other | |||||||||||||
|
Professional fees and other
|
107 | 1 | – | 106 | Merger & integration | |||||||||||||
|
Merger-related employee benefits
|
58 | 10 | – | 48 | Merger & integration | |||||||||||||
|
Inventory fair value adjustments
|
153 | 56 | – | 97 | Cost of revenue | |||||||||||||
|
Mexico restructuring
|
40 | 4 | – | 36 | Restructuring & other | |||||||||||||
|
Repurchase of bonds
|
60 | 23 | 37 | Restructuring & other | ||||||||||||||
|
Total restructuring and merger-related charges
|
649 | 114 | – | 535 | ||||||||||||||
|
Gain on investment in M-I SWACO
|
(1,270 | ) | (32) | – | (1,238 | ) | Gain on Investment in M-I SWACO | |||||||||||
|
Impact of elimination of tax deduction related to Medicare
Part D subsidy
|
– | (40) | – | 40 | Taxes on income | |||||||||||||
| $ | (621 | ) | $ | 42 | $ | – | $ | (663 | ) | |||||||||
The following is a summary of the 2009 charges:
| (Stated in millions) | ||||||||||||||||||
|
Non-
|
||||||||||||||||||
|
controlling
|
||||||||||||||||||
| Pretax | Tax | Interest | Net | Income Statement Classification | ||||||||||||||
|
Workforce reductions
|
$ | 102 | $ | 17 | $ | – | $ | 85 | Restructuring & other | |||||||||
|
Postretirement benefits curtailment
|
136 | 14 | – | 122 | Restructuring & other | |||||||||||||
| $ | 238 | $ | 31 | $ | – | $ | 207 | |||||||||||
The following is a summary of the 2008 charges:
| (Stated in millions) | ||||||||||||||||||
|
Non-
|
||||||||||||||||||
|
controlling
|
||||||||||||||||||
| Pretax | Tax | Interest | Net | Income Statement Classification | ||||||||||||||
|
Workforce reductions
|
$ | 74 | $ | 9 | $ | – | $ | 65 | Restructuring & other | |||||||||
|
Provision for doubtful accounts
|
32 | 8 | 6 | 18 | Restructuring & other | |||||||||||||
|
Other
|
10 | – | – | 10 | Interest and other income, net | |||||||||||||
| $ | 116 | $ | 17 | $ | 6 | $ | 93 | |||||||||||
26
Table of Contents
Part II, Item 7
Cash
Flow
Net Debt represents gross debt less cash, short-term investments
and fixed income investments, held to maturity. Management
believes that Net Debt provides useful information regarding the
level of Schlumberger’s indebtedness by reflecting cash and
investments that could be used to repay debt.
Details of Net Debt follow:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Net Debt, beginning of year
|
$ | (126 | ) | $ | (1,129 | ) | $ | (1,857 | ) | |||
|
Net income
|
4,266 | 3,142 | 5,460 | |||||||||
|
Depreciation and
amortization
(1)
|
2,759 | 2,476 | 2,269 | |||||||||
|
Gain on M-I SWACO investment
|
(1,270 | ) | – | – | ||||||||
|
Pension and other postretirement benefits expense
|
299 | 306 | 127 | |||||||||
|
Pension and other postretirement benefits curtailment charge
|
– | 136 | – | |||||||||
|
Pension and other postretirement benefits funding
|
(868 | ) | (1,149 | ) | (318 | ) | ||||||
|
Excess of equity income over dividends received
|
(85 | ) | (103 | ) | (235 | ) | ||||||
|
Stock -based compensation expense
|
198 | 186 | 172 | |||||||||
|
Other non-cash items
|
327 | 162 | 128 | |||||||||
|
Decrease (increase) in working capital
|
268 | (204 | ) | (592 | ) | |||||||
|
Capital expenditures
|
(2,914 | ) | (2,395 | ) | (3,723 | ) | ||||||
|
Multiclient seismic data capitalized
|
(326 | ) | (230 | ) | (345 | ) | ||||||
|
Dividends paid
|
(1,040 | ) | (1,006 | ) | (964 | ) | ||||||
|
Stock repurchase program
|
(1,717 | ) | (500 | ) | (1,819 | ) | ||||||
|
Proceeds from employee stock plans
|
401 | 206 | 351 | |||||||||
|
Net debt assumed in merger with Smith
|
(1,829 | ) | – | – | ||||||||
|
Geoservices acquisition, net of debt acquired
|
(1,033 | ) | – | – | ||||||||
|
Other business acquisitions and minority interest investments
|
(212 | ) | (514 | ) | (345 | ) | ||||||
|
Conversion of debentures
|
320 | – | 448 | |||||||||
|
Translation effect on net debt
|
30 | (59 | ) | 166 | ||||||||
|
Other
|
(86 | ) | 549 | (52 | ) | |||||||
|
Net Debt, end of year
|
$ | (2,638 | ) | $ | (126 | ) | $ | (1,129 | ) | |||
| (1) | Includes multiclient seismic data costs. |
| (Stated in millions) | ||||||||||||
|
Dec. 31
|
Dec. 31
|
Dec. 31
|
||||||||||
| Components of Net Debt | 2010 | 2009 | 2008 | |||||||||
|
Cash
|
$ | 1,764 | $ | 617 | $ | 609 | ||||||
|
Short-term investments
|
3,226 | 3,999 | 3,083 | |||||||||
|
Fixed income investments, held to maturity
|
484 | 738 | 470 | |||||||||
|
Short-term borrowings and current
|
||||||||||||
|
portion of long-term debt
|
(2,595 | ) | (804 | ) | (1,598 | ) | ||||||
|
Convertible debentures
|
– | (321 | ) | (321 | ) | |||||||
|
Long-term debt
|
(5,517 | ) | (4,355 | ) | (3,372 | ) | ||||||
| $ | (2,638 | ) | $ | (126 | ) | $ | (1,129 | ) | ||||
Key liquidity events during 2010, 2009 and 2008 included:
| • | As a result of the Smith merger, Schlumberger assumed net debt of $1.8 billion. This amount consisted of $2.2 billion of debt (including a $0.4 billion adjustment to increase Smith’s long-term fixed rate debt to its estimated fair value) and $0.4 billion of cash. | |
| • | During the second quarter of 2010, Schlumberger completed the acquisition of Geoservices for cash of $0.9 billion. Schlumberger assumed net debt of $0.1 billion in connection with this transaction. |
27
Table of Contents
Part II, Item 7
| • | During the third and fourth quarters of 2010, Schlumberger repurchased the following debt: |
| (Stated in millions) | ||||
|
Carrying
|
||||
| Value | ||||
|
6.50% Notes due 2012
|
$ | 649 | ||
|
6.75% Senior Notes due 2011
|
224 | |||
|
9.75% Senior Notes due 2019
|
212 | |||
|
6.00% Senior Notes due 2016
|
102 | |||
|
8.625% Senior Notes due 2014
|
88 | |||
| $ | 1,275 | |||
The premium paid in excess of the carrying value to repurchase
the $1.275 billion of debt was approximately
$67 million.
| • | During the first quarter of 2009, Schlumberger entered into a €3.0 billion Euro Medium Term Note program. This program provides for the issuance of various types of debt instruments such as fixed or floating rate notes in Euro, US dollar or other currencies. |
Schlumberger issued €1.0 billion 2.75% Guaranteed
Notes due 2015 in the fourth quarter of 2010 under this program.
Schlumberger entered into agreements to swap these euro notes
for US dollars on the date of issue until maturity, effectively
making this a US denominated debt on which Schlumberger will pay
interest in US dollars at a rate of 2.56%. The proceeds from
these notes will be used for general corporate purposes.
During the first quarter of 2009, Schlumberger issued
€1.0 billion 4.50% Guaranteed Notes due 2014 under
this program. Schlumberger entered into agreements to swap these
euro notes for US dollars on the date of issue until maturity,
effectively making this a US dollar denominated debt on which
Schlumberger will pay interest in US dollars at a rate of 4.95%.
The proceeds from these notes were used to refinance existing
debt obligations and for general corporate purposes.
| • | During the third quarter of 2009, Schlumberger issued $450 million of 3.00% Guaranteed Notes due 2013. The proceeds from these notes were used to refinance existing debt obligations. | |
| • | In September 2008, Schlumberger issued €500 million 5.25% Guaranteed Notes due 2013. Schlumberger entered into agreements to swap these Euro notes for US dollars on the date of issue until maturity, effectively making this a US dollar denominated debt on which Schlumberger will pay interest in US dollars at a rate of 4.74%. The proceeds from these notes were used to repay commercial paper borrowings. | |
| • | On April 20, 2006, the Schlumberger Board of Directors approved a share repurchase program of up to 40 million shares of common stock to be acquired in the open market before April 2010, subject to market conditions. This program was completed during the second quarter of 2008. |
On April 17, 2008, the Schlumberger Board of Directors
approved an $8 billion share repurchase program for shares
of Schlumberger common stock, to be acquired in the open market
before December 31, 2011, of which $3.15 billion had
been repurchased as of December 31, 2010.
The following table summarizes the activity under these share
repurchase programs during 2010, 2009 and 2008:
| (Stated in thousands except per share amounts and prices) | ||||||||||||
|
Total cost
|
Total number
|
Average
|
||||||||||
|
of shares
|
of shares
|
price paid
|
||||||||||
| purchased | purchased | per share | ||||||||||
|
2010
|
$ | 1,716,675 | 26,624.8 | $ | 64.48 | |||||||
|
2009
|
$ | 500,097 | 7,825.0 | $ | 63.91 | |||||||
|
2008
|
$ | 1,818,841 | 21,064.7 | $ | 86.35 | |||||||
| • | Cash flow provided by operations was $5.5 billion in 2010, $5.3 billion in 2009 and $6.9 billion in 2008. The decline in cash flow from operations in 2009 as compared to 2008 was primarily driven by the decrease in net |
28
Table of Contents
Part II, Item 7
| income experienced in 2009 and the significant pension plan contributions made during 2009, offset by an improvement in working capital requirements. |
At times in recent periods, Schlumberger has experienced delays
in payments from certain of its customers. Schlumberger operates
in approximately 80 countries. At December 31, 2010, only
three of those countries individually accounted for greater than
5% of Schlumberger’s accounts receivable balance of which
only one, the United States, represented greater than 10%.
| • | Dividends paid during 2010, 2009 and 2008 were $1.04 billion, $1.01 billion and $0.96 billion, respectively. |
In January 2011, Schlumberger announced that its Board of
Directors had approved an increase in the quarterly dividend of
19%, to $0.25.
| • | Capital expenditures were $2.9 billion in 2010, $2.4 billion in 2009 and $3.7 billion in 2008. Capital expenditures in 2008 reflected the record activity levels experienced in that year. The decrease in capital expenditures in 2009 as compared to 2008 is primarily due to the significant activity decline during 2009. Capital expenditures are expected to approach $4.0 billion for the full year 2011. | |
| • | During 2010, 2009 and 2008 Schlumberger made contributions of $868 million, $1.1 billion and $290 million, respectively, to its postretirement benefit plans. The US pension plans were 95% funded at December 31, 2010 based on the projected benefit obligation. This compares to 92% funded at December 31, 2009. |
Schlumberger’s international defined benefit pension plans
are a combined 92% funded at December 31, 2010 based on the
projected benefit obligation. This compares to 85% funded at
December 31, 2009.
Schlumberger currently anticipates contributing approximately
$600 million to $650 million to its postretirement
benefit plans in 2011, subject to market and business conditions.
| • | During 2010 and 2008, certain holders of Schlumberger Limited 1.5% Series A Convertible Debentures due June 1, 2023 and 2.125% Series B Convertible Debentures due June 1, 2023 converted their debentures into Schlumberger common stock. The following table summarizes these conversions: |
| (Stated in millions) | ||||||||||||||||
| 2010 | 2008 | |||||||||||||||
| Conversions | Shares issued | Conversions | Shares issued | |||||||||||||
|
1.5% Series A debentures
|
$ | – | – | $ | 353 | 9.76 | ||||||||||
|
2.125% Series B debentures
|
321 | 8.00 | 95 | 2.36 | ||||||||||||
| $ | 321 | 8.00 | $ | 448 | 12.12 | |||||||||||
At December 31, 2008, there were no outstanding
Series A debentures. There were $321 million
outstanding Series B debentures at December 31, 2009.
During 2010, $320 million of the 2.125% Series B
Convertible Debentures due June 1, 2023 were converted by
holders into 8.0 million shares of Schlumberger common
stock and the remaining $1 million of outstanding
Series B debentures were redeemed for cash.
As of December 31, 2010, Schlumberger had approximately
$5.0 billion of cash and short-term investments on hand.
Schlumberger had separate committed debt facility agreements
aggregating $6.0 billion with commercial banks, of which
$3.7 billion was available and unused as of
December 31, 2010. This included $4.9 billion of
committed facilities which support commercial paper borrowings
in the United States and Europe. Schlumberger believes that
these amounts are sufficient to meet future business
requirements for at least the next twelve months.
Schlumberger’s total outstanding debt at December 31,
2010 was $8.1 billion and included approximately
$1.9 billion of commercial paper borrowings. The total
outstanding debt increased approximately $2.6 billion
compared to December 31, 2009.
On January 10, 2011, Schlumberger issued $1.1 billion
of 4.200% Senior Notes due 2021 and $500 million of
2.650% Senior Notes due 2016.
29
Table of Contents
Part II, Item 7
Summary of
Major Contractual Obligations
| (Stated in millions) | ||||||||||||||||||||
| Payment Period | ||||||||||||||||||||
| Contractual Obligations | Total | 2011 | 2012 – 2013 | 2014 – 2015 | After 2015 | |||||||||||||||
|
Debt
(1)
|
$ | 8,112 | $ | 2,595 | $ | 1,608 | $ | 2,915 | $ | 994 | ||||||||||
|
Operating Leases
|
1,334 | 325 | 409 | 223 | 377 | |||||||||||||||
|
Purchase
Obligations
(2)
|
1,874 | 1,848 | 26 | – | – | |||||||||||||||
| $ | 11,320 | $ | 4,768 | $ | 2,043 | $ | 3,138 | $ | 1,371 | |||||||||||
| (1) | Excludes future payments for interest. | |
| (2) | Represents an estimate of contractual obligations in the ordinary course of business. Although these contractual obligations are considered enforceable and legally binding, the terms generally allow Schlumberger the option to reschedule and adjust its requirements based on business needs prior to the delivery of goods. |
Refer to Note 18 of the
Consolidated Financial
Statements
for details regarding Schlumberger’s pension
and other postretirement benefit obligations.
As discussed in Note 14 of the
Consolidated Financial
Statements
, included in the Schlumberger
Consolidated
Balance Sheet
at December 31, 2010 is approximately
$1.17 billion of liabilities associated with uncertain tax
positions in the over 100 jurisdictions in which Schlumberger
conducts business. Due to the uncertain and complex application
of tax regulations, combined with the difficulty in predicting
when tax audits throughout the world may be concluded,
Schlumberger cannot make reliable estimates of the timing of
cash outflows relating to these liabilities.
Schlumberger has outstanding letters of credit/guarantees which
relate to business performance bonds, custom/excise tax
commitments, facility lease/rental obligations, etc. These were
entered into in the ordinary course of business and are
customary practices in the various countries where Schlumberger
operates.
Critical
Accounting Policies and Estimates
The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in
the United States requires Schlumberger to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
and the reported amounts of revenue and expenses. The following
accounting policies involve “critical accounting
estimates” because they are particularly dependent on
estimates and assumptions made by Schlumberger about matters
that are inherently uncertain. A summary of all of
Schlumberger’s significant accounting policies is included
in Note 2 to the
Consolidated Financial Statements
.
Schlumberger bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
Multiclient
Seismic Data
The WesternGeco segment capitalizes the costs associated with
obtaining multiclient seismic data. The carrying value of the
multiclient seismic data library at December 31, 2010 and
2009 was $394 million and $288 million, respectively.
Such costs are charged to
Cost of revenue
based on the
percentage of the total costs to the estimated total revenue
that Schlumberger expects to receive from the sales of such
data. However, under no circumstances will an individual survey
carry a net book value greater than a
4-year
straight-line amortized value.
The carrying value of surveys is reviewed for impairment
annually as well as when an event or change in circumstance
indicates an impairment may have occurred. Adjustments to the
carrying value are recorded when it is determined that estimated
future revenues, which involve significant judgment on the part
of Schlumberger, would not be sufficient to recover the carrying
value of the surveys. Significant adverse changes in
Schlumberger’s estimated future cash flows could result in
impairment charges in a future period. For purposes of
performing the annual impairment test of the multiclient
library, future cash flows are analyzed primarily based on two
pools of surveys: United States and
non-United
States. The United States and
non-United
States pools were determined to be the most appropriate level at
which to perform the impairment review based upon a number of
factors including (i) various macroeconomic factors that
30
Table of Contents
Part II, Item 7
influence the ability to successfully market surveys and
(ii) the focus of the sales force and related costs.
Certain larger surveys, which are typically prefunded by
customers, are analyzed for impairment on a survey by survey
basis.
Allowance
for Doubtful Accounts
Schlumberger maintains an allowance for doubtful accounts in
order to record accounts receivable at their net realizable
value. Judgment is involved in recording and making adjustments
to this reserve. Allowances have been recorded for receivables
believed to be uncollectible, including amounts for the
resolution of potential credit and other collection issues such
as disputed invoices. Depending on how such potential issues are
resolved, or if the financial condition of Schlumberger
customers were to deteriorate resulting in an impairment of
their ability to make payments, adjustments to the allowance may
be required.
Inventory
Reserves
Inventory is recorded at the lower of cost or net realizable
value. Schlumberger maintains a reserve for excess and obsolete
inventory. This requires management to make assumptions about
future demand and market conditions. If actual future demand or
market conditions are less favorable than those projected by
management, additional provisions for excess or obsolete
inventory may be required.
Goodwill,
Intangible Assets and Long-Lived Assets
Schlumberger records the excess of purchase price over the fair
value of the tangible and identifiable intangible assets
acquired as goodwill. Goodwill is tested for impairment annually
as well as when an event or change in circumstance indicates an
impairment may have occurred. Goodwill is tested for impairment
by comparing the fair value of Schlumberger’s individual
reporting units to their carrying amount to determine if there
is a potential goodwill impairment. If the fair value of the
reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the implied fair value of
the goodwill of the reporting unit is less than its carrying
value.
For purposes of performing the impairment test for goodwill,
Schlumberger’s reporting units are primarily the geographic
areas comprising the Oilfield Services segment in addition to
the WesternGeco, M-I SWACO, Smith Oilfield and Distribution
segments. Schlumberger estimates the fair value of these
reporting units using a discounted cash flow analysis
and/or
applying various market multiples. Determining the fair value of
a reporting unit is a matter of judgment and often involves the
use of significant estimates and assumptions.
Schlumberger’s estimate of the fair value of each of its
reporting units comprising Oilfield Services as well as its
WesternGeco reporting unit were substantially in excess of their
respective carrying values at the time of their annual goodwill
impairment tests for 2010. Due to the fact that the M-I SWACO,
Smith Oilfield and Distribution reporting units were acquired on
August 27, 2010, just prior to their annual goodwill
impairment tests, the fair value of these reporting units
approximated their carrying value.
Long-lived assets, including fixed assets and intangible assets,
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. In reviewing for impairment, the carrying value of
such assets is compared to the estimated undiscounted future
cash flows expected from the use of the assets and their
eventual disposition. If such cash flows are not sufficient to
support the asset’s recorded value, an impairment charge is
recognized to reduce the carrying value of the long-lived asset
to its estimated fair value. The determination of future cash
flows as well as the estimated fair value of long-lived assets
involves significant estimates on the part of management. If
there is a material change in economic conditions or other
circumstances influencing the estimate of future cash flows or
fair value, Schlumberger could be required to recognize
impairment charges in the future. Schlumberger evaluates the
remaining useful life of its intangible assets on a periodic
basis to determine whether events and circumstances warrant a
revision to the remaining estimated amortization period.
Income
Taxes
Schlumberger’s tax filings are subject to regular audit by
the tax authorities in most of the over 100 jurisdictions in
which it conducts business. These audits may result in
assessments for additional taxes which are resolved with the
authorities or, potentially, through the courts. Tax liabilities
are recorded based on estimates of additional taxes which will
be due upon the conclusion of these audits. Estimates of these
tax liabilities are made based upon prior experience
31
Table of Contents
Part II, Item 7
and are updated in light of changes in facts and circumstances.
However, due to the uncertain and complex application of tax
regulations, it is possible that the ultimate resolution of
audits may result in liabilities which could be materially
different from these estimates. In such an event, Schlumberger
will record additional tax expense or tax benefit in the period
in which such resolution occurs.
Pension
and Postretirement Benefits
Schlumberger’s pension and postretirement benefit
obligations are described in detail in Note 18 to the
Consolidated Financial Statements
. The obligations and
related costs are calculated using actuarial concepts, which
include critical assumptions related to the discount rate,
expected return on plan assets and medical cost trend rates.
These assumptions are important elements of expense
and/or
liability measurement and are updated on an annual basis, or
upon the occurrence of significant events.
The discount rate Schlumberger uses reflects the prevailing
market rate of a portfolio of high-quality debt instruments with
maturities matching the expected timing of the payment of the
benefit obligations. The following summarizes the discount rates
utilized by Schlumberger for its various pension and
postretirement benefit plans:
| • | The discount rate utilized to determine the liability for Schlumberger’s United States pension plans and postretirement medical plans was 5.50% at December 31, 2010 and 6.00% at December 31, 2009. | |
| • | The weighted-average discount rate utilized to determine the liability for Schlumberger’s international pension plans was 5.47% at December 31, 2010 and 5.89% at December 31, 2009. | |
| • | The weighted-average discount rate utilized to determine expense for Schlumberger’s United States pension plans and postretirement medical plans decreased from 6.94% in 2009 to 6.00% in 2010. | |
| • | The weighted-average discount rate utilized to determine expense for Schlumberger’s international pension plans was decreased from 6.81% in 2009 to 5.89% in 2010. |
A higher discount rate decreases the present value of benefit
obligations and decreases expense.
The expected rate of return for our retirement benefit plans
represents the average rate of return expected to be earned on
plan assets over the period that benefits included in the
benefit obligation are expected to be paid. The expected rate of
return for Schlumberger’s United States pension plans has
been determined based upon expectations regarding future rates
of return for the investment portfolio, with consideration given
to the distribution of investments by asset class and historical
rates of return for each individual asset class. The expected
rate of return on plan assets for the United States pension
plans was 8.50% in both 2010 and 2009. The weighted average
expected rate of return on plan assets for the international
plans was 8.00% in 2010 and 8.35% in 2009. A lower expected rate
of return would increase pension expense.
Schlumberger’s medical cost trend rate assumptions are
developed based on historical cost data, the near-term outlook
and an assessment of likely long-term trends. The overall
medical cost trend rate assumption utilized to determine both
the 2010 postretirement medical expense as well as the
postretirement medical liability as of December 31, 2010
was 8% graded to 5% over the next six years.
The following illustrates the sensitivity to changes in certain
assumptions, holding all other assumptions constant, for the
United States and international pension plans:
| (Stated in millions) | ||||||||
|
Effect on 2010
|
Effect on
|
|||||||
|
Pretax Pension
|
Dec. 31, 2010
|
|||||||
| Change in Assumption | Expense | Liability | ||||||
|
25 basis point decrease in discount rate
|
+$ | 18 | +$ | 261 | ||||
|
25 basis point increase in discount rate
|
-$ | 17 | -$ | 246 | ||||
|
25 basis point decrease in expected return on plan assets
|
+$ | 13 | – | |||||
|
25 basis point increase in expected return on plan assets
|
-$ | 13 | – | |||||
32
Table of Contents
The following illustrates the sensitivity to changes in certain
assumptions, holding all other assumptions constant, for
Schlumberger’s United States postretirement medical plans:
| (Stated in millions) | ||||||||
|
Effect on 2010
|
Effect on
|
|||||||
|
Pretax Postretirement
|
Dec. 31, 2010
|
|||||||
| Change in Assumption | Medical Expense | Liability | ||||||
|
25 basis point decrease in discount rate
|
+$ | 4 | +$ | 39 | ||||
|
25 basis point increase in discount rate
|
-$ | 4 | -$ | 37 | ||||
|
100 basis point decrease per annum in medical cost trend
rate
|
-$ | 22 | -$ | 145 | ||||
|
100 basis point increase per annum in medical cost trend
rate
|
+$ | 26 | +$ | 177 | ||||
33
Table of Contents
Part II, Item 7A
Schlumberger is subject to market risks primarily associated
with changes in foreign currency exchange rates, commodity
prices and interest rates.
As a multinational company, Schlumberger conducts business in
approximately 80 countries. Schlumberger’s functional
currency is primarily the US dollar, which is consistent with
the oil and gas industry. Approximately 80% of
Schlumberger’s revenue in 2010 was denominated in US
dollars. However, outside the United States, a significant
portion of Schlumberger’s expenses is incurred in foreign
currencies. Therefore, when the US dollar weakens in relation to
the foreign currencies of the countries in which Schlumberger
conducts business, the US dollar-reported expenses will increase.
A 5% increase or decrease in the average exchange rates of all
the foreign currencies in 2010 would have changed revenue by
approximately 1%. If the 2010 average exchange rates of the US
dollar against all foreign currencies had strengthened by 5%,
Schlumberger’s income from continuing operations would have
increased by approximately 2%. Conversely, a 5% weakening of the
US dollar average exchange rates would have decreased income
from continuing operations by approximately 3%.
Although the functional currency of Schlumberger’s
operations in Venezuela is the US dollar, a portion of the
transactions are denominated in local currency. For financial
reporting purposes, such transactions are remeasured into US
dollars at the official exchange rate, which until January 2010
was fixed at 2.15 Venezuela bolivares fuertes per US dollar,
despite significant inflation in recent periods. In January
2010, Venezuela’s currency was devalued and a new exchange
rate system was announced. During the first quarter of 2010,
Schlumberger began to apply an exchange rate of 4.3 Venezuelan
bolivares fuertes per US dollar to its local currency
denominated transactions in Venezuela. The devaluation did not
have an immediate significant impact to Schlumberger. Further,
although this devaluation does result in a reduction in the US
dollar reported amount of local currency denominated revenues
and expenses, the impact is not material to Schlumberger’s
consolidated financial statements.
Schlumberger maintains a foreign-currency risk management
strategy that uses derivative instruments to protect its
interests from unanticipated fluctuations in earnings and cash
flows caused by volatility in currency exchange rates. Foreign
currency forward contracts and foreign currency options provide
a hedge against currency fluctuations either on monetary
assets/liabilities denominated in other than a functional
currency or on expenses.
At December 31, 2010, contracts were outstanding for the US
dollar equivalent of $7.3 billion in various foreign
currencies.
Schlumberger is subject to the risk of market price fluctuations
of certain commodities, such as metals and fuel. Schlumberger
utilizes forward contracts to manage a small percentage of the
price risk associated with forecasted metal purchases. As of
December 31, 2010, $12 million of commodity forward
contracts were outstanding.
Schlumberger is subject to interest rate risk on its debt and
its investment portfolio. Schlumberger maintains an interest
rate risk management strategy that uses a mix of variable and
fixed rate debt combined with its investment portfolio and
interest rate swaps to mitigate the exposure to changes in
interest rates. At December 31, 2010, Schlumberger had
fixed rate debt aggregating approximately $5.4 billion and
variable rate debt aggregating approximately $2.8 billion.
Schlumberger has entered into interest rate swaps relating to
$0.5 billion of its fixed rate debt as of December 31,
2010 whereby Schlumberger will receive interest at a fixed rate
and pay interest at a variable rate.
Schlumberger’s exposure to interest rate risk associated
with its debt is also partially mitigated by its investment
portfolio. Both
Short-term investments
and
Fixed
income investments
,
held to maturity
, which totaled
approximately $3.7 billion at December 31, 2010, are
comprised primarily of money market funds, eurodollar time
deposits, certificates of deposit, commercial paper, euro notes
and Eurobonds and are substantially all denominated in US
dollars. The average return on investment was 1.1% in 2010.
34
Table of Contents
The following table represents carrying amounts of
Schlumberger’s debt at December 31, 2010 by year of
maturity:
| (Stated in millions) | ||||||||||||||||||||||||||||||||
| Expected Maturity Dates | ||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2019 | Total | |||||||||||||||||||||||||
|
Fixed rate debt
|
||||||||||||||||||||||||||||||||
|
5.875% Guaranteed Bonds
|
$ | 334 | $ | 334 | ||||||||||||||||||||||||||||
|
5.25% Guaranteed Notes
|
$ | 659 | 659 | |||||||||||||||||||||||||||||
|
3.00% Guaranteed Notes
|
463 | 463 | ||||||||||||||||||||||||||||||
|
4.50% Guaranteed Notes
|
$ | 1,319 | 1,319 | |||||||||||||||||||||||||||||
|
8.625% Senior Notes
|
272 | 272 | ||||||||||||||||||||||||||||||
|
2.75% Guaranteed Notes
|
$ | 1,310 | 1,310 | |||||||||||||||||||||||||||||
|
6.00% Senior Notes
|
$ | 218 | 218 | |||||||||||||||||||||||||||||
|
9.75% Senior Notes
|
$ | 776 | 776 | |||||||||||||||||||||||||||||
|
Total fixed rate debt
|
$ | 334 | $ | – | $ | 1,122 | $ | 1,591 | $ | 1,310 | $ | 218 | $ | 776 | $ | 5,351 | ||||||||||||||||
|
Variable rate debt
|
2,261 | 445 | 41 | 14 | – | – | – | 2,761 | ||||||||||||||||||||||||
|
Total
|
$ | 2,595 | $ | 445 | $ | 1,163 | $ | 1,605 | $ | 1,310 | $ | 218 | $ | 776 | $ | 8,112 | ||||||||||||||||
The fair market value of the outstanding fixed rate debt was
approximately $5.5 billion as of December 31, 2010.
The weighted average interest rate on the variable rate debt as
of December 31, 2010 was approximately 1.0%.
Schlumberger does not enter into derivatives for speculative
purposes.
Forward-looking
Statements
This
Form 10-K
and other statements we make contain “forward-looking
statements” within the meaning of the federal securities
laws, which include any statements that are not historical
facts, such as our forecasts or expectations regarding business
outlook; growth for Schlumberger as a whole and for each of
Oilfield Services and WesternGeco (and for specified products or
geographic areas within each segment); the integration of both
Smith and Geoservices into our business; the anticipated
benefits of those transactions; oil and natural gas demand and
production growth; oil and natural gas prices; improvements in
operating procedures and technology; capital expenditures by
Schlumberger and the oil and gas industry; the business
strategies of Schlumberger’s customers; future global
economic conditions; and future results of operations. These
statements are subject to risks and uncertainties, including,
but not limited to, the current global economic downturn;
changes in exploration and production spending by
Schlumberger’s customers and changes in the level of oil
and natural gas exploration and development; general economic
and business conditions in key regions of the world; pricing
erosion; seasonal factors; changes in government regulations and
regulatory requirements, including those related to offshore oil
and gas exploration, radioactive sources, explosives, chemicals,
hydraulic fracturing services and climate-related initiatives;
continuing operational delays or program reductions as of result
of the lifted drilling moratorium in the Gulf of Mexico; the
inability to successfully integrate the merged Smith and
Geoservices businesses and to realize expected synergies, the
inability to retain key employees; and other risks and
uncertainties detailed in the Risk Factors section of this
Form 10-K
and other filings that we make with the Securities and Exchange
Commission. If one or more of these or other risks or
uncertainties materialize (or the consequences of such a
development changes), or should our underlying assumptions prove
incorrect, actual outcomes may vary materially from those
reflected in our forward-looking statements. Schlumberger
disclaims any intention or obligation to update publicly or
revise such statements, whether as a result of new information,
future events or otherwise.
35
Table of Contents
Part II, Item 8
SCHLUMBERGER
LIMITED AND SUBSIDIARIES
| (Stated in millions, except per share amounts) | ||||||||||||
| Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
|
Revenue
|
$ | 27,447 | $ | 22,702 | $ | 27,163 | ||||||
|
Interest and other income, net
|
214 | 273 | 412 | |||||||||
|
Gain on investment in M-I SWACO
|
1,270 | – | – | |||||||||
|
Expenses
|
||||||||||||
|
Cost of revenue
|
21,499 | 17,245 | 18,957 | |||||||||
|
Research & engineering
|
919 | 802 | 819 | |||||||||
|
General & administrative
|
650 | 535 | 584 | |||||||||
|
Merger & integration
|
169 | – | – | |||||||||
|
Restructuring & other
|
331 | 238 | 116 | |||||||||
|
Interest
|
207 | 221 | 247 | |||||||||
|
Income from Continuing Operations before taxes
|
5,156 | 3,934 | 6,852 | |||||||||
|
Taxes on income
|
890 | 770 | 1,430 | |||||||||
|
Income from Continuing Operations
|
4,266 | 3,164 | 5,422 | |||||||||
|
Income (Loss) from Discontinued Operations
|
– | (22 | ) | 38 | ||||||||
|
Net Income
|
4,266 | 3,142 | 5,460 | |||||||||
|
Net (income) loss attributable to noncontrolling interests
|
1 | (8 | ) | (25 | ) | |||||||
|
Net Income attributable to Schlumberger
|
$ | 4,267 | $ | 3,134 | $ | 5,435 | ||||||
|
Schlumberger amounts attributable to:
|
||||||||||||
|
Income from Continuing Operations
|
$ | 4,267 | $ | 3,156 | $ | 5,397 | ||||||
|
Income (Loss) from Discontinued Operations
|
– | (22 | ) | 38 | ||||||||
|
Net Income
|
$ | 4,267 | $ | 3,134 | $ | 5,435 | ||||||
|
Basic earnings per share of Schlumberger:
|
||||||||||||
|
Income from Continuing Operations
|
$ | 3.41 | $ | 2.63 | $ | 4.51 | ||||||
|
Income (Loss) from Discontinued Operations
|
– | (0.02 | ) | 0.03 | ||||||||
|
Net
Income
(1)
|
$ | 3.41 | $ | 2.62 | $ | 4.54 | ||||||
|
Diluted earnings per share of Schlumberger:
|
||||||||||||
|
Income from Continuing Operations
|
$ | 3.38 | $ | 2.61 | $ | 4.42 | ||||||
|
Income (Loss) from Discontinued Operations
|
– | (0.02 | ) | 0.03 | ||||||||
|
Net Income
|
$ | 3.38 | $ | 2.59 | $ | 4.45 | ||||||
|
Average shares outstanding
|
||||||||||||
|
Basic
|
1,250 | 1,198 | 1,196 | |||||||||
|
Assuming dilution
|
1,263 | 1,214 | 1,224 | |||||||||
(1)
Amounts
may not add due to rounding
See the
Notes to Consolidated
Financial Statements
36
Table of Contents
Part II, Item 8
SCHLUMBERGER
LIMITED AND SUBSIDIARIES
| (Stated in millions) | ||||||||
| December 31, | 2010 | 2009 | ||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash
|
$ | 1,764 | $ | 617 | ||||
|
Short-term investments
|
3,226 | 3,999 | ||||||
|
Receivables less allowance for doubtful accounts
(2010 – $185; 2009 – $160)
|
8,278 | 6,088 | ||||||
|
Inventories
|
3,804 | 1,866 | ||||||
|
Deferred taxes
|
51 | 154 | ||||||
|
Other current assets
|
975 | 926 | ||||||
| 18,098 | 13,650 | |||||||
|
Fixed Income Investments, held to maturity
|
484 | 738 | ||||||
|
Investments in Affiliated Companies
|
1,071 | 2,306 | ||||||
|
Fixed Assets less accumulated depreciation
|
12,071 | 9,660 | ||||||
|
Multiclient Seismic Data
|
394 | 288 | ||||||
|
Goodwill
|
13,952 | 5,305 | ||||||
|
Intangible Assets
|
5,162 | 786 | ||||||
|
Deferred Taxes
|
– | 376 | ||||||
|
Other Assets
|
535 | 356 | ||||||
| $ | 51,767 | $ | 33,465 | |||||
| LIABILITIES AND EQUITY | ||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable and accrued liabilities
|
$ | 6,488 | $ | 5,003 | ||||
|
Estimated liability for taxes on income
|
1,493 | 878 | ||||||
|
Long-term debt – current portion
|
2,214 | 444 | ||||||
|
Short-term borrowings
|
381 | 360 | ||||||
|
Dividend payable
|
289 | 253 | ||||||
|
Convertible debentures
|
– | 321 | ||||||
| 10,865 | 7,259 | |||||||
|
Long-term Debt
|
5,517 | 4,355 | ||||||
|
Postretirement Benefits
|
1,262 | 1,660 | ||||||
|
Deferred Taxes
|
1,636 | – | ||||||
|
Other Liabilities
|
1,043 | 962 | ||||||
| 20,323 | 14,236 | |||||||
|
Equity
|
||||||||
|
Common stock
|
11,920 | 4,777 | ||||||
|
Treasury stock
|
(3,136 | ) | (5,002 | ) | ||||
|
Retained earnings
|
25,210 | 22,019 | ||||||
|
Accumulated other comprehensive loss
|
(2,768 | ) | (2,674 | ) | ||||
|
Schlumberger stockholders’ equity
|
31,226 | 19,120 | ||||||
|
Noncontrolling interests
|
218 | 109 | ||||||
| 31,444 | 19,229 | |||||||
| $ | 51,767 | $ | 33,465 | |||||
See the
Notes to Consolidated
Financial Statements
37
Table of Contents
Part II, Item 8
SCHLUMBERGER
LIMITED AND SUBSIDIARIES
| (Stated in millions) | ||||||||||||
| Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net Income
|
$ | 4,266 | $ | 3,142 | $ | 5,460 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation and
amortization
(1)
|
2,759 | 2,476 | 2,269 | |||||||||
|
Gain on investment in M-I SWACO
|
(1,270 | ) | – | – | ||||||||
|
Earnings of companies carried at equity, less dividends received
|
(85 | ) | (103 | ) | (235 | ) | ||||||
|
Deferred income taxes
|
(109 | ) | 373 | (6 | ) | |||||||
|
Stock-based compensation expense
|
198 | 186 | 172 | |||||||||
|
Other non-cash items
|
327 | 162 | 128 | |||||||||
|
Pension and other postretirement benefits expense
|
299 | 306 | 127 | |||||||||
|
Pension and other postretirement benefits curtailment charge
|
– | 136 | – | |||||||||
|
Pension and other postretirement benefits funding
|
(868 | ) | (1,149 | ) | (318 | ) | ||||||
|
Change in operating assets and
liabilities:
(2)
|
||||||||||||
|
(Increase) decrease in receivables
|
(289 | ) | 155 | (944 | ) | |||||||
|
(Increase) decrease in inventories
|
(67 | ) | 64 | (299 | ) | |||||||
|
Decrease (increase) in other current assets
|
136 | 9 | (198 | ) | ||||||||
|
(Decrease) increase in accounts payable and accrued liabilities
|
(103 | ) | (293 | ) | 683 | |||||||
|
Increase (decrease) in estimated liability for taxes on income
|
480 | (361 | ) | (94 | ) | |||||||
|
(Decrease) increase in other liabilities
|
(89 | ) | 43 | 97 | ||||||||
|
Other – net
|
(91 | ) | 165 | 57 | ||||||||
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
5,494 | 5,311 | 6,899 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Capital expenditures
|
(2,914 | ) | (2,395 | ) | (3,723 | ) | ||||||
|
Multiclient seismic data capitalized
|
(326 | ) | (230 | ) | (345 | ) | ||||||
|
Cash acquired in merger with Smith International, Inc.
|
399 | – | – | |||||||||
|
Acquisition of Geoservices, net of cash acquired
|
(889 | ) | – | – | ||||||||
|
Other business acquisitions and investments, net of cash acquired
|
(212 | ) | (514 | ) | (345 | ) | ||||||
|
Sale (purchase) of investments, net
|
1,023 | (1,159 | ) | (604 | ) | |||||||
|
Other
|
(19 | ) | 228 | (132 | ) | |||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(2,938 | ) | (4,070 | ) | (5,149 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Dividends paid
|
(1,040 | ) | (1,006 | ) | (964 | ) | ||||||
|
Proceeds from employee stock purchase plan
|
179 | 96 | 177 | |||||||||
|
Proceeds from exercise of stock options
|
222 | 110 | 174 | |||||||||
|
Tax benefit on stock options
|
14 | 4 | 137 | |||||||||
|
Stock repurchase program
|
(1,717 | ) | (500 | ) | (1,819 | ) | ||||||
|
Proceeds from issuance of long-term debt
|
2,815 | 1,973 | 1,281 | |||||||||
|
Repayment of long-term debt
|
(1,814 | ) | (1,754 | ) | (601 | ) | ||||||
|
Net decrease in short-term borrowings
|
(68 | ) | (111 | ) | (210 | ) | ||||||
|
NET CASH USED IN FINANCING ACTIVITIES
|
(1,409 | ) | (1,188 | ) | (1,825 | ) | ||||||
|
Cash flow from discontinued operations – operating
activities
|
– | (45 | ) | 63 | ||||||||
|
Net increase (decrease) in cash before translation effect
|
1,147 | 8 | (12 | ) | ||||||||
|
Translation effect on cash
|
– | – | (2 | ) | ||||||||
|
Cash, beginning of year
|
617 | 609 | 623 | |||||||||
|
Cash, end of year
|
$ | 1,764 | $ | 617 | $ | 609 | ||||||
| (1) | Includes multiclient seismic data costs. | |
| (2) | Net of the effect of business acquisitions. |
See the
Notes to Consolidated
Financial Statements
38
Table of Contents
Part II, Item 8
SCHLUMBERGER
LIMITED AND SUBSIDIARIES
| (Stated in millions) | ||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||
| Common Stock |
Other
|
|||||||||||||||||||||||
|
In
|
Retained
|
Comprehensive
|
Noncontrolling
|
|||||||||||||||||||||
| Issued | Treasury | Earnings | Income (Loss) | Interests | Total | |||||||||||||||||||
|
Balance, January 1, 2008
|
$ | 4,136 | $ | (3,549 | ) | $ | 15,462 | $ | (1,173 | ) | $ | 62 | $ | 14,938 | ||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
5,435 | 25 | ||||||||||||||||||||||
|
Currency translation adjustments
|
(82 | ) | (1 | ) | ||||||||||||||||||||
|
Changes in fair value of derivatives
|
(135 | ) | ||||||||||||||||||||||
|
Deferred employee benefits liabilities
|
(1,511 | ) | ||||||||||||||||||||||
|
Total comprehensive income
|
3,731 | |||||||||||||||||||||||
|
Shares sold to optionees less shares exchanged
|
20 | 154 | 174 | |||||||||||||||||||||
|
Shares granted to Directors
|
1 | 1 | ||||||||||||||||||||||
|
Shares issued under employee stock purchase plan
|
115 | 57 | 172 | |||||||||||||||||||||
|
Stock repurchase program
|
(1,819 | ) | (1,819 | ) | ||||||||||||||||||||
|
Stock-based compensation cost
|
172 | 172 | ||||||||||||||||||||||
|
Shares issued on conversions of debentures
|
86 | 361 | 447 | |||||||||||||||||||||
|
Other
|
1 | (14 | ) | (13 | ) | |||||||||||||||||||
|
Dividends declared ($0.84 per share)
|
(1,006 | ) | (1,006 | ) | ||||||||||||||||||||
|
Tax benefit on stock options
|
137 | 137 | ||||||||||||||||||||||
|
Balance, December 31, 2008
|
4,668 | (4,796 | ) | 19,891 | (2,901 | ) | 72 | 16,934 | ||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
3,134 | 8 | ||||||||||||||||||||||
|
Currency translation adjustments
|
17 | 1 | ||||||||||||||||||||||
|
Changes in fair value of derivatives
|
143 | |||||||||||||||||||||||
|
Deferred employee benefits liabilities
|
67 | |||||||||||||||||||||||
|
Total comprehensive income
|
3,370 | |||||||||||||||||||||||
|
Shares sold to optionees less shares exchanged
|
(22 | ) | 132 | 110 | ||||||||||||||||||||
|
Shares granted to Directors
|
1 | 1 | ||||||||||||||||||||||
|
Vesting of restricted stock
|
(20 | ) | 20 | – | ||||||||||||||||||||
|
Shares issued under employee stock purchase plan
|
25 | 141 | 166 | |||||||||||||||||||||
|
Stock repurchase program
|
(500 | ) | (500 | ) | ||||||||||||||||||||
|
Stock-based compensation cost
|
186 | 186 | ||||||||||||||||||||||
|
Other
|
(64 | ) | 28 | (36 | ) | |||||||||||||||||||
|
Dividends declared ($0.84 per share)
|
(1,006 | ) | (1,006 | ) | ||||||||||||||||||||
|
Tax benefit on stock options
|
4 | 4 | ||||||||||||||||||||||
|
Balance, December 31, 2009
|
4,777 | (5,002 | ) | 22,019 | (2,674 | ) | 109 | 19,229 | ||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
4,267 | (1 | ) | |||||||||||||||||||||
|
Currency translation adjustments
|
(26 | ) | ||||||||||||||||||||||
|
Changes in fair value of derivatives
|
5 | |||||||||||||||||||||||
|
Deferred employee benefits liabilities
|
(73 | ) | ||||||||||||||||||||||
|
Total comprehensive income
|
4,172 | |||||||||||||||||||||||
|
Shares sold to optionees less shares exchanged
|
(8 | ) | 230 | 222 | ||||||||||||||||||||
|
Shares granted to Directors
|
1 | 1 | 2 | |||||||||||||||||||||
|
Vesting of restricted stock
|
(11 | ) | 11 | – | ||||||||||||||||||||
|
Shares issued under employee stock purchase plan
|
49 | 130 | 179 | |||||||||||||||||||||
|
Stock repurchase program
|
(1,717 | ) | (1,717 | ) | ||||||||||||||||||||
|
Stock-based compensation cost
|
198 | 198 | ||||||||||||||||||||||
|
Shares issued on conversions of debentures
|
17 | 303 | 320 | |||||||||||||||||||||
|
Acquisition of Smith International, Inc.
|
6,880 | 2,948 | 111 | 9,939 | ||||||||||||||||||||
|
Acquisition of noncontrolling interests
|
3 | 3 | ||||||||||||||||||||||
|
Other
|
(40 | ) | (1 | ) | (41 | ) | ||||||||||||||||||
|
Dividends declared ($0.84 per share)
|
(1,076 | ) | (1,076 | ) | ||||||||||||||||||||
|
Tax benefit on stock options
|
14 | 14 | ||||||||||||||||||||||
|
Balance, December 31, 2010
|
$ | 11,920 | $ | (3,136 | ) | $ | 25,210 | $ | (2,768 | ) | $ | 218 | $ | 31,444 | ||||||||||
See the
Notes to Consolidated
Financial Statements
39
Table of Contents
Part II, Item 8
SCHLUMBERGER
LIMITED AND SUBSIDIARIES
SHARES OF
COMMON STOCK
| (Stated in millions) | ||||||||||||
|
Shares
|
||||||||||||
| Issued | In Treasury | Outstanding | ||||||||||
|
Balance, January 1, 2008
|
1,334 | (138 | ) | 1,196 | ||||||||
|
Shares sold to optionees less shares exchanged
|
– | 5 | 5 | |||||||||
|
Shares issued under employee stock purchase plan
|
– | 2 | 2 | |||||||||
|
Stock repurchase program
|
– | (21 | ) | (21 | ) | |||||||
|
Issued on conversions of debentures
|
– | 12 | 12 | |||||||||
|
Balance, December 31, 2008
|
1,334 | (140 | ) | 1,194 | ||||||||
|
Shares sold to optionees less shares exchanged
|
– | 4 | 4 | |||||||||
|
Vesting of restricted stock
|
– | 1 | 1 | |||||||||
|
Shares issued under employee stock purchase plan
|
– | 4 | 4 | |||||||||
|
Stock repurchase program
|
– | (8 | ) | (8 | ) | |||||||
|
Balance, December 31, 2009
|
1,334 | (139 | ) | 1,195 | ||||||||
|
Acquisition of Smith International, Inc.
|
100 | 76 | 176 | |||||||||
|
Shares sold to optionees less shares exchanged
|
– | 6 | 6 | |||||||||
|
Shares issued under employee stock purchase plan
|
– | 3 | 3 | |||||||||
|
Stock repurchase program
|
– | (27 | ) | (27 | ) | |||||||
|
Issued on conversions of debentures
|
– | 8 | 8 | |||||||||
|
Balance, December 31, 2010
|
1,434 | (73 | ) | 1,361 | ||||||||
See the
Notes to Consolidated
Financial Statements
40
Table of Contents
Part II, Item 8
| 1. | Business Description |
Schlumberger Limited (Schlumberger N.V., incorporated in
Curaçao) and its consolidated subsidiaries (collectively,
“Schlumberger”) form the world’s leading supplier
of technology, integrated project management, and information
solutions to customers in the oil and gas industry worldwide,
providing the industry’s widest range of oilfield services
from exploration to production.
| 2. | Summary of Accounting Policies |
The
Consolidated Financial Statements
of Schlumberger
have been prepared in accordance with accounting principles
generally accepted in the United States of America.
Principles of
Consolidation
The accompanying
Consolidated Financial Statements
include the accounts of Schlumberger, its wholly-owned
subsidiaries, and subsidiaries over which it exercises a
controlling financial interest. All significant intercompany
transactions and balances have been eliminated. Investments in
entities in which Schlumberger does not have a controlling
financial interest, but over which it has significant influence
are accounted for using the equity method. Schlumberger’s
share of the after-tax earnings of equity method investees is
included in
Interest and other income, net
. Investments
in which Schlumberger does not have the ability to exercise
significant influence are accounted for using the cost method.
Both equity and cost method investments are classified in
Investments in Affiliated Companies
.
Reclassifications
Certain prior year items have been reclassified to conform to
the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. On an
on-going basis, Schlumberger evaluates its estimates, including
those related to collectibility of accounts receivable;
valuation of inventories and investments; recoverability of
goodwill, intangible assets and investments in affiliates;
income taxes; multiclient seismic data; contingencies and
actuarial assumptions for employee benefit plans. Schlumberger
bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
Revenue
Recognition
Schlumberger recognizes revenue based upon purchase orders,
contracts or other persuasive evidence of an arrangement with
the customer that include fixed or determinable prices provided
that collectibility is reasonably assured. Revenue is recognized
for services when they are rendered. Revenue is recognized for
products upon delivery, when the customer assumes the risks and
rewards of ownership. Certain products may be provided on a
consigned basis in which case revenue is recognized when the
products are consumed provided that all other revenue
recognition criteria have been met.
Revenue from seismic contract services performed on a dayrate
basis is recognized as the service is performed. Revenue from
other contract services, including pre-funded multiclient
surveys, is recognized as the seismic data is acquired
and/or
processed on a proportionate basis as work is performed. This
method requires revenue to be recognized based upon quantifiable
measures of progress, such as square kilometers acquired.
Multiclient data surveys are licensed or sold to customers on a
non-transferable basis. Revenue on completed multiclient data
surveys is recognized upon obtaining a signed licensing
agreement and providing customers with access to such data.
41
Table of Contents
Part II, Item 8
Revenue is occasionally generated from contractual arrangements
that include multiple deliverables. Revenue from these
arrangements is recognized as each item is delivered based on
their relative fair value and when the delivered items have
stand-alone value to the customer.
Revenue derived from the sale of licenses of Schlumberger
software may include installation, maintenance, consulting and
training services. If services are not essential to the
functionality of the software, the revenue for each element of
the contract is recognized separately based on its respective
vendor specific objective evidence of fair value when all of the
following conditions are met: a signed contract is obtained,
delivery has occurred, the fee is fixed or determinable and
collectibility is probable.
Translation of
Non-United
States Currencies
The functional currency of Schlumberger is primarily the US
dollar. Assets and liabilities recorded in functional currencies
other than US dollars are translated at period end exchange
rates. The resulting adjustments are charged or credited
directly to the
Equity
section of the
Consolidated
Balance Sheet
. Revenue and expenses are translated at the
weighted-average exchange rates for the period. Realized and
unrealized transaction gains and losses are included in income
in the period in which they occur. Transaction losses of
$27 million net of hedging activities, were recognized in
2010. In 2009 and 2008, transaction gains net of hedging
activities of $73 million and $8 million,
respectively, were recognized.
Investments
The
Consolidated Balance Sheet
reflects the Schlumberger
investment portfolio separated between current and long term,
based on maturity. Both
Short-term investments
and
Fixed Income Investments, held to maturity
are comprised
primarily of money market funds, eurodollar time deposits,
certificates of deposit, commercial paper, euro notes and
Eurobonds, and are substantially denominated in US dollars.
Under normal circumstances it is the intent of Schlumberger to
hold the investments until maturity, with the exception of
investments that are considered trading (December 31,
2010 – $189 million; December 31,
2009 – $184 million). Short-term investments that
are designated as trading are stated at fair value, which is
estimated using quoted market prices for those or similar
investments. All other investments are stated at cost plus
accrued interest, which approximates market. The unrealized
gains/losses on investments designated as trading were not
significant at both December 31, 2010 and 2009.
For purposes of the
Consolidated Statement of Cash Flows
,
Schlumberger does not consider short-term investments to be cash
equivalents as a significant portion have original maturities in
excess of three months.
Fixed Income Investments, held to maturity
at
December 31, 2010 of $484 million mature as follows:
$289 million in 2012, $80 million in 2013 and
$115 million in 2014.
Inventories
Inventories
are stated at average cost or at market,
whichever is lower. Costs included in
Inventories
consist
of materials, direct labor and manufacturing overhead.
Fixed Assets
and Depreciation
Fixed assets are stated at cost less accumulated depreciation,
which is provided for by charges to income over the estimated
useful lives of the assets using the straight-line method. Fixed
assets include the manufacturing cost of oilfield technical
equipment manufactured or assembled by subsidiaries of
Schlumberger. Expenditures for replacements and improvements are
capitalized. Maintenance and repairs are charged to operating
expenses as incurred. Upon sale or other disposition, the
applicable amounts of asset cost and accumulated depreciation
are removed from the balance sheet and the net amount, less
proceeds from disposal, is charged or credited to income.
Multiclient
Seismic Data
The multiclient library consists of completed and in-process
seismic surveys that are licensed on a nonexclusive basis.
Multiclient surveys are primarily generated utilizing
Schlumberger resources. Schlumberger capitalizes costs directly
42
Table of Contents
Part II, Item 8
incurred in acquiring and processing the multiclient seismic
data. Such costs are charged to
Cost of revenue
based on
the percentage of the total costs to the estimated total revenue
that Schlumberger expects to receive from the sales of such
data. However, under no circumstance will an individual survey
carry a net book value greater than a 4- year straight-line
amortized value.
The carrying value of the multiclient library is reviewed for
impairment annually as well as when an event or change in
circumstance indicating impairment may have occurred.
Adjustments to the carrying value are recorded when it is
determined that estimated future cash flows, which involves
significant judgment on the part of Schlumberger, would not be
sufficient to recover the carrying value of the surveys.
Significant adverse changes in Schlumberger’s estimated
future cash flows could result in impairment charges in a future
period.
Goodwill,
Other Intangibles and Long-lived Assets
Schlumberger records the excess of purchase price over the fair
value of the tangible and identifiable intangible assets
acquired as goodwill. Goodwill is tested for impairment annually
as well as when an event or change in circumstance indicates an
impairment may have occurred. Goodwill is tested for impairment
by comparing the fair value of Schlumberger’s individual
reporting units to their carrying amount to determine if there
is a potential goodwill impairment. If the fair value of the
reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the implied fair value of
the goodwill of the reporting unit is less than its carrying
value.
Long-lived assets, including fixed assets and intangible assets,
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. In reviewing for impairment, the carrying value of
such assets is compared to the estimated undiscounted future
cash flows expected from the use of the assets and their
eventual disposition. If such cash flows are not sufficient to
support the asset’s recorded value, an impairment charge is
recognized to reduce the carrying value of the long-lived asset
to its estimated fair value. The determination of future cash
flows as well as the estimated fair value of long-lived assets
involve significant estimates on the part of management. If
there is a material change in economic conditions or other
circumstances influencing the estimate of future cash flows or
fair value, Schlumberger could be required to recognize
impairment charges in the future.
Intangible assets consist primarily of customer relationships,
technology/technical know-how and tradenames acquired in
business combinations. Customer relationships are generally
amortized over periods ranging from 7 to 28 years, acquired
technology/technical know-how are generally amortized over
periods ranging from 5 to 18 years and tradenames are
generally amortized over periods ranging from 5 years to
30 years.
Taxes on
Income
Schlumberger computes taxes on income in accordance with the tax
rules and regulations of the many taxing authorities where the
income is earned. The income tax rates imposed by these taxing
authorities vary substantially. Taxable income may differ from
pretax income for financial accounting purposes. To the extent
that differences are due to revenue or expense items reported in
one period for tax purposes and in another period for financial
accounting purposes, an appropriate provision for deferred
income taxes is made. Any effect of changes in income tax rates
or tax laws are included in the provision for income taxes in
the period of enactment. When it is more likely than not that a
portion or all of the deferred tax asset will not be realized in
the future, Schlumberger provides a corresponding valuation
allowance against deferred tax assets.
Schlumberger’s tax filings are subject to regular audit by
the tax authorities in most of the jurisdictions in which it
conducts business. These audits may result in assessments for
additional taxes which are resolved with the authorities or,
potentially, through the courts. Schlumberger recognizes the
impact of a tax position in its financial statements if that
position is more likely than not of being sustained on audit,
based on the technical merits of the position. Tax liabilities
are recorded based on estimates of additional taxes which will
be due upon the conclusion of these audits. Estimates of these
tax liabilities are made based upon prior experience and are
updated in light of changes in facts and circumstances. However,
due to the uncertain and complex application of tax regulations,
it is possible that the ultimate resolution of audits may result
in liabilities which could be materially different from these
estimates. In such an event, Schlumberger will record additional
tax expense or tax benefit in the year in which such resolution
occurs.
43
Table of Contents
Part II, Item 8
Schlumberger generally does not provide income taxes relating to
undistributed earnings, as the earnings either would not be
taxable when remitted or are considered to be indefinitely
reinvested.
Concentration
of Credit Risk
Schlumberger’s assets that are exposed to concentrations of
credit risk consist primarily of cash, short-term investments,
fixed income investments held to maturity, receivables from
clients and derivative financial instruments. Schlumberger
places its cash, short-term investments and fixed income
investments held to maturity with financial institutions and
corporations, and limits the amount of credit exposure with any
one of them. Schlumberger regularly evaluates the
creditworthiness of the issuers in which it invests. The
receivables from clients are spread over many countries and
customers. Schlumberger maintains an allowance for uncollectible
accounts receivable based on expected collectibility and
performs ongoing credit evaluations of its customers’
financial condition. By using derivative financial instruments
to hedge exposure to changes in exchange rates and commodity
prices, Schlumberger exposes itself to some credit risk.
Schlumberger minimizes this credit risk by entering into
transactions with high-quality counterparties, limiting the
exposure to each counterparty and monitoring the financial
condition of its counterparties.
Research &
Engineering
All research and engineering expenditures are expensed as
incurred.
Earnings per
Share
Basic earnings per share is calculated by dividing net income by
the weighted average number of common shares outstanding during
the year. Diluted earnings per share is calculated by first
adding back to net income the interest expense on any
outstanding convertible debentures and then dividing this
adjusted net income attributable to Schlumberger by the sum of
(i) unvested restricted stock units; and (ii) the
weighted average number of common shares outstanding assuming
dilution. The weighted average number of common shares
outstanding assuming dilution assumes (a) that all stock
options which are in the money are exercised at the beginning of
the period and that the proceeds are used by Schlumberger to
purchase shares at the average market price for the period, and
(b) the conversion of any outstanding convertible
debentures.
44
Table of Contents
Part II, Item 8
The following is a reconciliation from basic to diluted earnings
per share from continuing operations for each of the last three
years:
| (Stated in million except per share amounts) | |||||||||||||||
|
Schlumberger
|
Weighted
|
Earnings Per
|
|||||||||||||
|
Income from
|
Average
|
Share from
|
|||||||||||||
|
Continuing
|
Shares
|
Continuing
|
|||||||||||||
| Operations | Outstanding | Operations | |||||||||||||
|
2010:
|
|||||||||||||||
|
Basic
|
$ | 4,267 | 1,250 | $ | 3.41 | ||||||||||
|
Assumed conversion of debentures
|
3 | 2 | |||||||||||||
|
Assumed exercise of stock options
|
– | 9 | |||||||||||||
|
Unvested restricted stock
|
– | 2 | |||||||||||||
|
Diluted
|
$ | 4,270 | 1,263 | $ | 3.38 | ||||||||||
|
2009:
|
|||||||||||||||
|
Basic
|
$ | 3,156 | 1,198 | $ | 2.63 | ||||||||||
|
Assumed conversion of debentures
|
8 | 8 | |||||||||||||
|
Assumed exercise of stock options
|
– | 7 | |||||||||||||
|
Unvested restricted stock
|
– | 1 | |||||||||||||
|
Diluted
|
$ | 3,164 | 1,214 | $ | 2.61 | ||||||||||
|
2008:
|
|||||||||||||||
|
Basic
|
$ | 5,397 | 1,196 | $ | 4.51 | ||||||||||
|
Assumed conversion of debentures
|
12 | 13 | |||||||||||||
|
Assumed exercise of stock options
|
– | 13 | |||||||||||||
|
Unvested restricted stock
|
– | 2 | |||||||||||||
|
Diluted
|
$ | 5,409 | 1,224 | $ | 4.42 | ||||||||||
Employee stock options to purchase approximately
12.5 million, 17.1 million and 5.8 million shares
of common stock at December 31, 2010, 2009 and 2008,
respectively, were outstanding but were not included in the
computation of diluted earnings per share because the option
exercise price was greater than the average market price of the
common stock, and therefore, the effect on diluted earnings per
share would have been anti-dilutive.
| 3. | Charges and Credits |
Schlumberger recorded the following Charges and Credits in
continuing operations during 2010, 2009 and 2008:
2010
Fourth quarter of 2010:
| • | In connection with Schlumberger’s merger with Smith International, Inc. (“Smith”) (see Note 4 – Acquisitions ), Schlumberger recorded the following pretax charges: $115 million ($73 million after-tax) relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value, $17 million ($16 million after-tax) of professional and other fees and $16 million ($12 million after-tax) relating to employee benefits. | |
| • | Schlumberger repurchased the following debt: |
| (Stated in millions) | |||||
|
Carrying
|
|||||
| Value | |||||
|
6.50% Notes due 2012
|
$ | 297 | |||
|
6.75% Senior Notes due 2011
|
$ | 123 | |||
|
9.75% Senior Notes due 2019
|
$ | 212 | |||
|
6.00% Senior Notes due 2016
|
$ | 102 | |||
|
8.625% Senior Notes due 2014
|
$ | 88 | |||
45
Table of Contents
Part II, Item 8
As a result of these transactions, Schlumberger incurred pretax
charges of $32 million ($20 million after-tax).
Third quarter of 2010:
| • | As a result of the decision to rationalize support costs across the organization as well as to restructure the North America land operations to provide greater operating efficiency, Schlumberger recorded a pretax charge of $90 million ($77 million after-tax). | |
| • | Following the recent successful introduction of UniQ, a new generation single-sensor land acquisition system, Schlumberger recorded a $78 million pretax charge ($71 million after-tax), related to the impairment of WesternGeco’s first generation Q-Land system assets. | |
| • | A pretax and after-tax charge of $63 million primarily relating to the early termination of a vessel lease associated with WesternGeco’s electromagnetic service offering as well as related assets, including a $30 million impairment related to an equity-method investment. | |
| • | In connection with the Schlumberger’s merger with Smith (see Note 4 – Acquisitions ), Schlumberger recorded the following pretax charges: $56 million ($55 million after-tax) of merger-related transaction costs including advisory and legal fees, $41 million ($35 million after-tax) relating to employee benefits for change in control payments and retention bonuses and $38 million ($24 million after-tax) relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value. | |
| • | $40 million pretax charge ($36 million after-tax) for the early termination of rig contracts and workforce reductions in Mexico due to the slowdown of project activity. | |
| • | Schlumberger repurchased $352 million of its 6.50% Notes due 2012 and, as a result, incurred a pretax charge of $28 million ($18 million after-tax). | |
| • | Schlumberger recorded a pretax gain of $1.27 billion ($1.24 billion after-tax) as a result of remeasuring its previously held 40% equity interest in the M-I SWACO joint venture. Refer to Note 4 – Acquisitions for further details. |
First quarter of 2010:
| • | Schlumberger incurred $35 million of pretax and after-tax merger-related costs in connection with the Smith and Geoservices transactions (see Note 4 – Acquisitions ). These costs primarily consisted of advisory and legal fees. | |
| • | During March 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law in the United States. Among other things, the PPACA eliminates the tax deductibility of retiree prescription drug benefits to the extent of the Medicare Part D subsidy that companies, such as Schlumberger, receive. As a result of this change in law, Schlumberger recorded a $40 million charge to adjust its deferred tax assets to reflect the loss of this future tax deduction. |
46
Table of Contents
Part II, Item 8
The following is a summary of 2010 Charges and Credits:
| (Stated in millions) | |||||||||||||||||||||||
|
Non-
|
|||||||||||||||||||||||
|
controlling
|
|||||||||||||||||||||||
| Pretax | Tax | Interests | Net | Income Statement Classification | |||||||||||||||||||
|
Restructuring and Merger-related Charges:
|
|||||||||||||||||||||||
|
Severance and other
|
$ | 90 | $ | 13 | $ | – | $ | 77 | Restructuring & other | ||||||||||||||
|
Impairment relating to WesternGeco’s first generation
Q-Land
acquisition system
|
78 | 7 | – | 71 | Restructuring & other | ||||||||||||||||||
|
Other WesternGeco-related charges
|
63 | – | – | 63 | Restructuring & other | ||||||||||||||||||
|
Professional fees and other
|
107 | 1 | – | 106 | Merger & integration | ||||||||||||||||||
|
Merger-related employee benefits
|
58 | 10 | – | 48 | Merger & integration | ||||||||||||||||||
|
Inventory fair value adjustments
|
153 | 56 | – | 97 | Cost of revenue | ||||||||||||||||||
|
Mexico restructuring
|
40 | 4 | – | 36 | Restructuring & other | ||||||||||||||||||
|
Repurchase of bonds
|
60 | 23 | 37 | Restructuring & other | |||||||||||||||||||
|
Total restructuring and merger-related charges
|
649 | 114 | – | 535 | |||||||||||||||||||
|
Gain on investment in M-I SWACO
|
(1,270 | ) | (32 | ) | – | (1,238 | ) | Gain on Investment in M-I SWACO | |||||||||||||||
|
Impact of elimination of tax deduction related to Medicare
Part D subsidy
|
– | (40 | ) | – | 40 | Taxes on income | |||||||||||||||||
| $ | (621 | ) | $ | 42 | $ | – | $ | (663 | ) | ||||||||||||||
Approximately $165 million of the $649 million of
pretax restructuring and merger-related charges described above
represent non-cash charges. The vast majority of the balance of
the charges have either been paid or are expected to be paid
within the next three months.
2009
Second quarter of 2009:
| • | Schlumberger continued to reduce its global workforce as a result of the slowdown in oil and gas exploration and production spending and its effect on activity in the oilfield services sector. As a result of these actions, Schlumberger recorded a pretax charge of $102 million ($85 million after-tax). These workforce reductions were completed by the end of 2009. | |
| • | As a consequence of these workforce reductions, Schlumberger recorded pretax non-cash pension and other postretirement benefit curtailment charges of $136 million ($122 million after-tax). Refer to Note 18 – Pension and Other Benefit Plans for further details. |
The following is a summary of these charges:
| (Stated in millions) | |||||||||||||||||||||||||
|
Non-
|
|||||||||||||||||||||||||
|
controlling
|
|||||||||||||||||||||||||
| Pretax | Tax | Interests | Net | Income Statement Classification | |||||||||||||||||||||
|
Workforce reductions
|
$ | 102 | $ | 17 | $ | – | $ | 85 | Restructuring & other | ||||||||||||||||
|
Postretirement benefits curtailment
|
136 | 14 | – | 122 | Restructuring & other | ||||||||||||||||||||
| $ | 238 | $ | 31 | $ | – | $ | 207 | ||||||||||||||||||
2008
Fourth quarter of 2008:
| • | Due to the continuing slowdown in oil and gas exploration and production spending and its effect on activity in the oilfield services sector, Schlumberger took actions to reduce its global workforce. As a result of these actions, Schlumberger recorded a pretax charge of $74 million ($65 million after-tax). |
47
Table of Contents
Part II, Item 8
| • | Schlumberger wrote off certain assets, primarily accounts receivable relating to one client with liquidity issues. Accordingly, Schlumberger recorded a pretax charge of $42 million ($28 million after-tax and noncontrolling interest). |
The following is a summary of these charges:
| (Stated in millions) | |||||||||||||||||||||||
|
Non-
|
|||||||||||||||||||||||
|
controlling
|
|||||||||||||||||||||||
| Pretax | Tax | Interests | Net | Income Statement Classification | |||||||||||||||||||
|
Workforce reductions
|
$ | 74 | $ | 9 | $ | – | $ | 65 | Restructuring & other | ||||||||||||||
|
Provision for doubtful accounts
|
32 | 8 | 6 | 18 | Restructuring & other | ||||||||||||||||||
|
Other
|
10 | – | – | 10 | Restructuring & other | ||||||||||||||||||
| $ | 116 | $ | 17 | $ | 6 | $ | 93 | ||||||||||||||||
| 4. | Acquisitions |
Merger with Smith
International, Inc.
On August 27, 2010, Schlumberger acquired all of the
outstanding shares of Smith, a leading supplier of premium
products and services to the oil and gas exploration and
production industry. The merger brings together the
complementary drilling and measurements technologies and
expertise of Schlumberger and Smith in order to facilitate the
engineering of complete drilling systems which optimize all of
the components of the drill string. Such systems will enable
Schlumberger’s customers to achieve improved drilling
efficiency, better well placement and increased wellbore
assurance as they face increasingly more challenging
environments. In addition, Schlumberger’s geographic
footprint will facilitate the extension of joint offerings on a
worldwide basis.
Under the terms of the merger agreement, Smith became a
wholly-owned subsidiary of Schlumberger. Each share of Smith
common stock issued and outstanding immediately prior to the
effective time of the merger was converted into the right to
receive 0.6966 shares of Schlumberger common stock, with
cash paid in lieu of fractional shares.
At the effective time of the merger, each outstanding option to
purchase Smith common stock was converted pursuant to the merger
agreement into a stock option to acquire shares of Schlumberger
common stock on the same terms and conditions as were in effect
immediately prior to the completion of the merger. The number of
shares of Schlumberger common stock underlying each converted
Smith stock option was determined by multiplying the number of
Smith stock options by the 0.6966 exchange ratio, and rounding
down to the nearest whole share. The exercise price per share of
each converted Smith stock option was determined by dividing the
per share exercise price of such stock option by the 0.6966
exchange ratio, and rounded up to the nearest whole cent. Smith
stock options, whether or not then vested and exercisable,
became fully vested and exercisable and assumed by Schlumberger
at the effective date of the merger in accordance with
preexisting
change-in-control
provisions. Smith stock options were converted into
0.6 million of Schlumberger stock options.
At the effective time of the merger, Smith restricted stock
units, whether or not then vested, became fully vested (except
for grants between the date of the merger agreement and closing,
which were not significant and did not automatically vest) and
were converted into shares of Schlumberger common stock in
connection with the merger, determined by multiplying the number
of shares of Smith common stock subject to each award by the
0.6966 exchange ratio, rounded to the nearest whole share
(assuming, in the case of performance-based Smith restricted
stock unit awards, the deemed attainment of the performance
goals under the award at the target level).
Calculation
of Consideration Transferred
The following details the fair value of the consideration
transferred to effect the merger with Smith.
48
Table of Contents
Part II, Item 8
| (Stated in millions, except exchange ratio and per share amounts) | |||||
|
Number of shares of Smith common stock outstanding as of the
acquisition date
|
248 | ||||
|
Number of Smith unvested restricted stock units outstanding as
of the acquisition date
|
4 | ||||
| 252 | |||||
|
Multiplied by the exchange ratio
|
0.6966 | ||||
|
Equivalent Schlumberger shares of common stock issued
|
176 | ||||
|
Schlumberger closing stock price on August 27, 2010
|
$ | 55.76 | |||
|
Common stock equity consideration
|
$ | 9,812 | |||
|
Fair value of Schlumberger equivalent stock options issued
|
$ | 16 | |||
|
Total fair value of the consideration transferred
|
$ | 9,828 | |||
Certain
amounts reflect rounding adjustments
Preliminary
Allocation of Consideration Transferred to Net Assets
Acquired
The following amounts represent the preliminary estimates of the
fair value of identifiable assets acquired and liabilities
assumed in the merger. The final determination of fair value for
certain assets and liabilities will be completed as soon as the
information necessary to complete the analysis is obtained.
These amounts will be finalized as soon as possible, but no
later than one year from the acquisition date.
| (Stated in millions) | |||||
|
Cash
|
$ | 399 | |||
|
Accounts receivable
|
1,831 | ||||
|
Inventory
(1)
|
2,013 | ||||
|
Fixed assets
|
2,017 | ||||
|
Intangible assets:
|
|||||
|
Tradenames (weighted-average life of 25 years)
|
1,560 | ||||
|
Technology (weighted-average life of 16 years)
|
1,170 | ||||
|
Customer relationships (weighted average life of 23 years)
|
1,360 | ||||
|
Other assets
|
429 | ||||
|
Accounts payable and accrued liabilities
|
(1,460 | ) | |||
|
Long-term
debt
(2)
|
(2,141 | ) | |||
|
Deferred
taxes
(3)
|
(1,936 | ) | |||
|
Other liabilities
|
(528 | ) | |||
|
sub-total
|
$ | 4,714 | |||
|
Less:
|
|||||
|
Investment in M-I
SWACO
(4)
|
(1,429 | ) | |||
|
Noncontrolling interests
|
(111 | ) | |||
|
Total identifiable net assets
|
$ | 3,174 | |||
|
Gain on investment in M-I
SWACO
(4)
|
(1,238 | ) | |||
|
Goodwill
(5)
|
7,892 | ||||
|
Total consideration transferred
|
$ | 9,828 | |||
| (1) | Schlumberger recorded an adjustment of approximately $155 million to write-up the acquired inventory to its estimated fair value. Schlumberger’s cost of revenue reflected this increased valuation as this inventory was sold. Accordingly, Schlumberger’s margins were temporarily reduced in the initial periods subsequent to the merger. | |
| (2) | In connection with the merger, Schlumberger assumed all of the debt obligations of Smith including its long-term fixed rate notes consisting of the following: $220 million 6.75% Senior Notes due 2011, $300 million 8.625% Senior Notes due 2014, $275 million 6.00% Senior Notes due 2016 and $700 million 9.75% Senior Notes due 2019. Schlumberger recorded a $417 million adjustment to increase the carrying amount of these notes to their estimated fair value. This adjustment will be amortized as a reduction of interest expense over the remaining term of the respective obligations. | |
| (3) | In connection with the acquisition accounting, Schlumberger provided deferred taxes related to, among other items, the estimated fair value adjustments for acquired inventory, intangible assets and assumed debt obligations. Included in the provisions for deferred taxes are amounts relating to the outside basis difference associated with shares in certain Smith non-US subsidiaries for which no taxes have previously been provided. Schlumberger expects to reverse the outside basis difference primarily through the reorganization of those subsidiaries as well as through repatriating earnings in lieu of permanently reinvesting them. In this regard, Schlumberger is in the process of assessing certain factors that impact the ultimate amount of deferred taxes to be recorded. The amount of deferred taxes recorded will likely be revised after this assessment is completed. Any revision to the amount of deferred taxes recorded will impact the amount of goodwill recorded. |
49
Table of Contents
Part II, Item 8
| (4) | Prior to the completion of the merger, Smith and Schlumberger operated M-I SWACO, a drilling fluids joint venture that was 40% owned by Schlumberger and 60% owned by Smith. Effective at the closing of the merger, M-I SWACO is now owned 100% by Schlumberger. As a result of obtaining control of this joint venture, Schlumberger was required under generally accepted accounting principles to remeasure its previously held equity interest in the joint venture at its merger-date fair value and recognize the resulting pretax gain of $1.3 billion ($1.2 billion after-tax) in earnings. This gain is classified as Gain on Investment in M-I SWACO in the Consolidated Statement of Income . | |
| Prior to acquiring Smith, Schlumberger recorded income relating to this venture using the equity method of accounting. The carrying value of Schlumberger’s investment in the joint venture on December 31, 2009 was $1.4 billion, and was included within Investments in Affiliated Companies on the Consolidated Balance Sheet . Schlumberger’s equity income from this joint venture was $78 million in 2010 (representing the period from January 1, 2010 to August 27, 2010), $131 million in 2009 and $210 million in 2008. Schlumberger received cash distributions from the joint venture of $50 million in 2010, $106 million in 2009 and $57 million in 2008. | ||
| (5) | The goodwill recognized is primarily attributable to expected synergies that will result from combining the operations of Schlumberger and Smith as well as intangible assets that do not qualify for separate recognition. Approximately $0.2 billion of the goodwill is deductible for income tax purposes. |
Acquisition of
Geoservices
On April 23, 2010, Schlumberger completed the acquisition
of Geoservices, a privately owned oilfield services company
specializing in mud logging, slickline and production
surveillance operations, for $915 million in cash.
The purchase price has been allocated to the net assets acquired
upon their estimated fair values as follows:
| (Stated in millions) | |||||
|
Cash
|
$ | 26 | |||
|
Other assets
|
184 | ||||
|
Fixed assets
|
90 | ||||
|
Goodwill
|
599 | ||||
|
Intangible assets
|
377 | ||||
|
Long-term debt
|
(145 | ) | |||
|
Deferred tax liabilities
|
(64 | ) | |||
|
Other liabilities
|
(152 | ) | |||
| $ | 915 | ||||
The long-term debt was repaid at the time of closing.
Intangible assets recorded in connection with this transaction,
which primarily relate to customer relationships, will be
amortized over a weighted average period of approximately
17 years. The amount allocated to goodwill represents the
excess of the purchase price over the fair value of the net
assets acquired and is not tax deductible for income tax
purposes.
Other
Acquisitions
Schlumberger has made other acquisitions and minority
investments, none of which were significant on an individual
basis, for cash payments, net of cash acquired, of
$212 million during 2010, $514 million during 2009,
and $345 million during 2008.
Supplemental Pro
Forma Data
Smith’s results of operations have been included in
Schlumberger’s financial statements for periods subsequent
to the effective date of the merger. Smith contributed revenues
of $3.3 billion and net income of $160 million
(including the recurring effects of purchase accounting) to
Schlumberger for the period from the closing of the merger
through December 31, 2010. The following unaudited
supplemental pro forma data (“pro forma data”)
presents consolidated information as if the merger with Smith
and the acquisition of Geoservices had been completed on
January 1, 2009:
| (Stated in millions, except per share data) | ||||||||||
| 2010 | 2009 | |||||||||
|
Revenue
|
$ | 33,468 | $ | 31,182 | ||||||
|
Net income
|
$ | 3,376 | $ | 3,271 | ||||||
|
Net income attributable to Schlumberger
|
$ | 3,370 | $ | 3,244 | ||||||
|
Diluted earnings per share
|
$ | 2.44 | $ | 2.34 | ||||||
50
Table of Contents
Part II, Item 8
The pro forma data was prepared based on the historical
financial information of Schlumberger, Smith and Geoservices and
has been adjusted to give effect to pro forma adjustments that
are (i) directly attributable to the transactions,
(ii) factually supportable and (iii) expected to have
a continuing impact on the combined results. The pro forma data
is not necessarily indicative of what Schlumberger’s
results of operations actually would have been had the
transactions been completed on January 1, 2009.
Additionally, the pro forma data does not purport to project the
future results of operations of the combined company nor do they
reflect the expected realization of synergies associated with
the transactions. The pro forma data reflects the application of
the following adjustments:
| • | Elimination of the gain resulting from Schlumberger’s remeasurement of its previously held 40% equity interest in M-I SWACO, which is considered non-recurring. | |
| • | Additional depreciation and amortization expense associated with fair value adjustments to acquired identifiable intangible assets and property, plant and equipment. | |
| • | Elimination of charges incurred in 2010 related to the fair value adjustments to Smith’s inventory that has been sold as they will not have a long-term continuing impact. | |
| • | Reductions in interest expense as a result of increasing the carrying value of acquired debt obligations to its estimated fair value. | |
| • | Elimination of transaction costs incurred in 2010 that are directly related to the transactions, and do not have a continuing impact on the combined company’s operating results. | |
| • | The issuance of 176 million of shares of Schlumberger common stock. |
Included in the 2010 and 2009 pro forma net income attributable
to Schlumberger and diluted earnings per share presented above
are the following significant charges and credits:
| (Stated in millions, except per share data) | ||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||
|
Diluted
|
Diluted
|
|||||||||||||||||||
|
Net Income
|
EPS
|
Net Income
|
EPS
|
|||||||||||||||||
| Impact | Impact * | Impact | Impact | |||||||||||||||||
|
Severance and
other
(1)
|
$ | 77 | $ | 0.06 | $ | 85 | $ | 0.06 | ||||||||||||
|
Impairment relating to WesternGeco’s first generation
Q-Land
acquisition
system
(1)
|
71 | 0.05 | – | – | ||||||||||||||||
|
Other WesternGeco-related
charges
(1)
|
63 | 0.05 | – | – | ||||||||||||||||
|
Impact of elimination of tax deduction related to Medicare
Part D
subsidy
(1)
|
40 | 0.03 | – | – | ||||||||||||||||
|
Mexico
restructuring
(1)
|
36 | 0.03 | – | – | ||||||||||||||||
|
Venezuelan currency-related
losses
(2)
|
35 | 0.03 | – | – | ||||||||||||||||
|
Repurchase of
bonds
(1)
|
37 | 0.03 | – | – | ||||||||||||||||
|
Gain on remeasurement of investment in
@Balance
(2)
|
(18 | ) | (0.01 | ) | – | – | ||||||||||||||
|
Postretirement benefits
curtailment
(1)
|
– | – | 122 | 0.09 | ||||||||||||||||
|
Employee
severance
(2)
|
– | – | 32 | 0.02 | ||||||||||||||||
| $ | 341 | $ | 0.25 | $ | 239 | $ | 0.17 | |||||||||||||
| * | Does not add due to rounding |
| (1) | Relates to Schlumberger’s historical operations and is more fully described in Note 3 – Charges and Credits . | |
| (2) | Relates to Smith’s historical operations. |
| 5. | Inventory |
A summary of inventory follows:
| (Stated in millions) | ||||||||||
| As at December 31, | 2010 | 2009 | ||||||||
|
Raw materials & field materials
|
$ | 1,833 | $ | 1,646 | ||||||
|
Work in process
|
249 | 74 | ||||||||
|
Finished goods
|
1,722 | 146 | ||||||||
| $ | 3,804 | $ | 1,866 | |||||||
51
Table of Contents
Part II, Item 8
| 6. | Fixed Assets |
A summary of fixed assets follows:
| (Stated in millions) | ||||||||||
| As at December 31, | 2010 | 2009 | ||||||||
|
Land
|
$ | 314 | $ | 141 | ||||||
|
Buildings & improvements
|
2,631 | 1,806 | ||||||||
|
Machinery & equipment
|
21,873 | 17,939 | ||||||||
|
Seismic vessels and related equipment
|
1,861 | 924 | ||||||||
|
Seismic vessels under construction
|
– | 695 | ||||||||
| 26,679 | 21,505 | |||||||||
|
Less accumulated depreciation
|
14,608 | 11,845 | ||||||||
| $ | 12,071 | $ | 9,660 | |||||||
The estimated useful lives of Buildings & improvements
are primarily 30 to 40 years. The estimated useful lives of
Machinery & equipment are primarily 5 to
10 years. Seismic vessels are depreciated over periods
ranging from 20 to 30 years with the related equipment
generally depreciated over 5 years.
Depreciation expense relating to fixed assets was
$2.4 billion, $2.1 billion and $1.9 billion in
2010, 2009 and 2008, respectively.
| 7. | Multiclient Seismic Data |
The change in the carrying amount of multiclient seismic data is
as follows:
| (Stated in millions) | ||||||||
| 2010 | 2009 | |||||||
|
Balance at beginning of year
|
$ | 288 | $ | 287 | ||||
|
Capitalized in year
|
326 | 230 | ||||||
|
Charged to expense
|
(220 | ) | (229 | ) | ||||
| $ | 394 | $ | 288 | |||||
| 8. | Goodwill |
The changes in the carrying amount of goodwill by business
segment were as follows:
| (Stated in millions) | ||||||||||||||||||||||||
|
Oilfield
|
Western
|
M-I
|
Smith
|
|||||||||||||||||||||
| Services | Geco | SWACO | Oilfield | Distribution | Total | |||||||||||||||||||
|
Balance, January 1, 2009
|
$4,174 | $1,015 | $– | $– | $– | $5,189 | ||||||||||||||||||
|
Additions
|
121 | – | – | – | – | 121 | ||||||||||||||||||
|
Impact of change in exchange rates
|
(5 | ) | – | – | – | – | (5 | ) | ||||||||||||||||
|
Balance, December 31, 2009
|
4,290 | 1,015 | – | – | – | 5,305 | ||||||||||||||||||
|
Acquisition of Smith
|
1,030 | – | 3,443 | 3,349 | 70 | 7,892 | ||||||||||||||||||
|
Additions
|
740 | 17 | 4 | – | – | 761 | ||||||||||||||||||
|
Transfers
|
58 | (58 | ) | – | – | – | – | |||||||||||||||||
|
Impact of change in exchange rates
|
(6 | ) | – | – | – | – | (6 | ) | ||||||||||||||||
|
Balance, December 31, 2010
|
$6,112 | $974 | $3,447 | $3,349 | $70 | $13,952 | ||||||||||||||||||
52
Table of Contents
Part II, Item 8
| 9. | Intangible Assets |
Intangible assets principally comprise technology/technical
know-how, tradenames and customer relationships. At
December 31, the gross book value and accumulated
amortization of intangible assets were as follows:
| (Stated in millions ) | ||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||
|
Gross
|
Accumulated
|
Net Book
|
Gross
|
Accumulated
|
Net Book
|
|||||||||||||||||||
| Book Value | Amortization | Value | Book Value | Amortization | Value | |||||||||||||||||||
|
Technology/Technical Know-How
|
$1,846 | $215 | $1,631 | $527 | $163 | $364 | ||||||||||||||||||
|
Tradenames
|
1,678 | 61 | 1,617 | 84 | 32 | 52 | ||||||||||||||||||
|
Customer Relationships
|
1,963 | 129 | 1,834 | 355 | 80 | 275 | ||||||||||||||||||
|
Other
|
378 | 298 | 80 | 376 | 281 | 95 | ||||||||||||||||||
| $5,865 | $703 | $5,162 | $1,342 | $556 | $786 | |||||||||||||||||||
Amortization expense was $190 million in 2010,
$114 million in 2009 and $124 million in 2008.
The weighted average amortization period for all intangible
assets is approximately 21 years.
Amortization expense for the subsequent five years is estimated
to be as follows: 2011 – $323 million,
2012 – $316 million, 2013 –
$298 million, 2014 – $292 million and
2015 – $277 million.
| 10. |
|
Long-term
Debt
consists
of the following:
| (Stated in millions) | ||||||||
| As at December 31, | 2010 | 2009 | ||||||
|
4.50% Guaranteed Notes due 2014
|
$ | 1,319 | $ | 1,449 | ||||
|
2.75% Guranteed Notes due 2015
|
1,310 | – | ||||||
|
5.25% Guaranteed Notes due 2013
|
659 | 727 | ||||||
|
9.75% Senior Notes due
2019
(1)
|
776 | – | ||||||
|
3.00% Guaranteed Notes due 2013
|
450 | 449 | ||||||
|
8.625% Senior Notes due
2014
(1)
|
272 | – | ||||||
|
6.00% Senior Notes due
2016
(1)
|
218 | – | ||||||
|
6.5% Notes due 2012
|
– | 649 | ||||||
|
5.875% Guaranteed Bonds due 2011
|
– | 362 | ||||||
|
Commercial paper borrowings
|
367 | 358 | ||||||
|
Other variable rate debt
|
133 | 360 | ||||||
| 5,504 | 4,354 | |||||||
|
Fair value adjustment – hedging
|
13 | 1 | ||||||
| $ | 5,517 | $ | 4,355 | |||||
| (1) | Represents long-term fixed rate debt obligations assumed in connection with the merger of Smith, net of amounts repurchased subsequent to the closing of the transaction. |
The fair value adjustment presented above represents changes in
the fair value of the portion of Schlumberger’s fixed rate
debt that is hedged through the use of interest rate swaps.
During the third and fourth quarters of 2010, Schlumberger
repurchased all of its $650 million 6.50% Notes due
2012.
During the first quarter of 2009, Schlumberger entered into a
€3.0 billion Euro Medium Term Note program. This
program provides for the issuance of various types of debt
instruments such as fixed or floating rate notes in euro, US
dollar or other currencies.
Schlumberger issued €1.0 billion 2.75% Guaranteed
Notes due 2015 in the fourth quarter of 2010 under this program.
Schlumberger entered into agreements to swap these euro notes
for US dollars on the date of issue until maturity, effectively
making this a US dollar denominated debt on which Schlumberger
will pay interest in US dollars at a rate of 2.56%. Schlumberger
also issued €1.0 billion 4.50% Guaranteed Notes due
2014 in the first quarter of 2009 under this program.
Schlumberger entered into agreements to swap these euro notes
for US dollars on the date of issue until maturity, effectively
making this a US dollar denominated debt on which Schlumberger
will pay interest in US dollars at a rate of 4.95%.
During the third quarter of 2009, Schlumberger issued
$450 million of 3.00% Guaranteed Notes due 2013.
53
Table of Contents
Part II, Item 8
In September 2008, Schlumberger issued €500 million
5.25% Guaranteed Notes due 2013. Schlumberger entered into
agreements to swap these euro notes for US dollars on the date
of issue until maturity, effectively making this a US dollar
denominated debt on which Schlumberger will pay interest in US
dollars at a rate of 4.74%.
Commercial paper borrowings outstanding at December 31,
2010 and 2009 include certain notes issued in currencies other
than the US dollar which were swapped for US dollars and pounds
sterling on the date of issue until maturity. Commercial paper
borrowings are classified as long-term debt to the extent of
their backup by available and unused committed credit facilities
maturing in more than one year and to the extent it is
Schlumberger’s intent to maintain these obligations for
longer than one year.
At December 31, 2010, Schlumberger had separate committed
debt facility agreements aggregating $6.0 billion with
commercial banks, of which $3.7 billion was available and
unused. This included $4.9 billion of committed facilities
which support commercial paper programs in the United States and
Europe, of which $2.5 billion mature in December 2011 and
$2.4 billion mature in April 2012. Interest rates and other
terms of borrowing under these lines of credit vary from country
to country. Borrowings under the commercial paper programs at
December 31, 2010 were $1.9 billion ($0.4 billion
at December 31, 2009). At December 31, 2010,
$1.5 billion of the commercial paper borrowings were
classified within
Long-term debt – current portion
in the
Consolidated Balance Sheet
.
On January 10, 2011, Schlumberger issued $1.1 billion
of 4.200% Senior Notes due 2021 and $500 million of
2.650% Senior Notes due 2016.
A summary of
Long-term Debt
by currency, analyzed by
Bonds and Notes, Commercial Paper (CP) and Other, at December 31
follows. As described in further detail above, the currencies
are presented after taking into account currency swaps entered
into on the date of issuance until maturity.
| (Stated in millions) | ||||||||||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Bonds and
|
Bonds and
|
|||||||||||||||||||||||||||||||
| Notes | CP | Other | Total | Notes | CP | Other | Total | |||||||||||||||||||||||||
|
US dollar
|
$5,017 | $ | – | $ | 104 | $ | 5,121 | $3,275 | $ | – | $ | 59 | $ | 3,334 | ||||||||||||||||||
|
Euro
|
– | 183 | – | 183 | 362 | 135 | 231 | 728 | ||||||||||||||||||||||||
|
Pound sterling
|
– | 184 | – | 184 | – | 223 | 51 | 274 | ||||||||||||||||||||||||
|
Norwegian kroner
|
– | – | 17 | 17 | – | – | 19 | 19 | ||||||||||||||||||||||||
|
Other
|
– | – | 12 | 12 | – | – | – | – | ||||||||||||||||||||||||
| $5,017 | $ | 367 | $ | 133 | $ | 5,517 | $3,637 | $ | 358 | $ | 360 | $ | 4,355 | |||||||||||||||||||
The weighted average interest rate on variable rate debt as of
December 31, 2010 was 1.0%.
Long-term Debt
as of December 31, 2010, is due as
follows: $445 million in 2012, $1.163 billion in 2013,
$1.605 billion in 2014, $1.310 billion in 2015 and
$994 million after 2015.
The fair value of Schlumberger’s
Long-term Debt
at
December 31, 2010 and December 31, 2009 was
$5.6 billion and $4.6 billion, respectively, and was
estimated based on quoted market prices.
Convertible
Debentures
During 2003, Schlumberger Limited issued $975 million
aggregate principal amount of 1.5% Series A Convertible
Debentures due June 1, 2023 and $450 million aggregate
principal amount of 2.125% Series B Convertible Debentures
due June 1, 2023. The Series A debentures were
convertible, at the holders’ option, into shares of common
stock of Schlumberger Limited at a conversion rate of
27.651 shares for each $1,000 of principal amount
(equivalent to an initial conversion price of $36.165 per share)
while the Series B debentures were convertible into common
stock at a conversion rate of 25.000 shares for each $1,000
of principal (equivalent to an initial conversion price of
$40.00 per share).
During 2008, all of the remaining $353 million of
outstanding Series A debentures were converted into
9.8 million shares of Schlumberger common stock.
During 2008, $95 million of the Series B debentures
were converted into 2.4 million shares of Schlumberger
common stock. At December 31, 2009, there were
$321 million of the Series B debentures outstanding.
During 2010, $320 million of these debentures were
converted by holders into 8.0 million shares of
Schlumberger common stock and the remaining
54
Table of Contents
Part II, Item 8
$1 million of outstanding Series B convertible
debentures were redeemed for cash. Consequently, there are no
convertible debentures outstanding at December 31, 2010.
| 11. | Derivative Instruments and Hedging Activities |
Schlumberger is exposed to market risks related to fluctuations
in foreign currency exchange rates, commodity prices and
interest rates. To mitigate these risks, Schlumberger utilizes
derivative instruments. Schlumberger does not enter into
derivatives for speculative purposes.
Foreign
Currency Exchange Rate Risk
As a multinational company, Schlumberger conducts its business
in approximately 80 countries. Schlumberger’s functional
currency is primarily the US dollar, which is consistent with
the oil and gas industry. Approximately 80% of
Schlumberger’s revenue in 2010 was denominated in US
dollars. However, outside the United States, a significant
portion of Schlumberger’s expenses is incurred in foreign
currencies. Therefore, when the US dollar weakens (strengthens)
in relation to the foreign currencies of the countries in which
Schlumberger conducts business, the US dollar –
reported expenses will increase (decrease).
Schlumberger is exposed to risks on future cash flows to the
extent that local currency expenses exceed revenues denominated
in local currency that are other than the functional currency.
Schlumberger uses foreign currency forward contracts and foreign
currency options to provide a hedge against a portion of these
cash flow risks. These contracts are accounted for as cash flow
hedges, with the effective portion of changes in the fair value
of the hedge recorded on the
Consolidated Balance Sheet
and in
Other Comprehensive Income (Loss).
Amounts
recorded in
Other Comprehensive Income (Loss)
are
reclassified into earnings in the same period or periods that
the hedged item is recognized in earnings. The ineffective
portion of changes in the fair value of hedging instruments, if
any, is recorded directly to earnings.
At December 31, 2010, Schlumberger recognized a cumulative
net $45 million gain in
Accumulated other comprehensive
loss
relating to revaluation of foreign currency forward
contracts and foreign currency options designated as cash flow
hedges, the majority of which is expected to be reclassified
into earnings within the next twelve months.
Schlumberger is also exposed to changes in the fair value of
assets and liabilities, including certain of its long-term debt,
which are denominated in currencies other than the functional
currency. Schlumberger uses foreign currency forward contracts
and foreign currency options to hedge this exposure as it
relates to certain currencies. These contracts are accounted for
as fair value hedges with the fair value of the contracts
recorded on the
Consolidated Balance Sheet
and changes in
the fair value recognized in the
Consolidated Statement of
Income
along with the change in fair value of the hedged
item.
At December 31, 2010, contracts were outstanding for the US
dollar equivalent of $7.3 billion in various foreign
currencies.
Commodity
Price Risk
Schlumberger is exposed to the impact of market fluctuations in
the price of certain commodities, such as metals and fuel.
Schlumberger utilizes forward contracts to manage a small
percentage of the price risk associated with forecasted metal
purchases. The objective of these contracts is to reduce the
variability of cash flows associated with the forecasted
purchase of those commodities. These contracts do not qualify
for hedge accounting treatment and therefore, changes in the
fair value of the forward contracts are recorded directly to
earnings.
At December 31, 2010, $12 million of commodity forward
contracts were outstanding.
Interest
Rate Risk
Schlumberger is subject to interest rate risk on its debt and
its investment portfolio. Schlumberger maintains an interest
rate risk management strategy that uses a mix of variable and
fixed rate debt combined with its investment portfolio and
interest rate swaps to mitigate the exposure to changes in
interest rates.
During the third quarter of 2009, Schlumberger entered into
interest rate swaps relating to two of its debt instruments. The
first swap was for a notional amount of $450 million in
order to hedge changes in the fair value of
55
Table of Contents
Part II, Item 8
Schlumberger’s $450 million 3.00% Notes due 2013.
Under the terms of this swap, Schlumberger receives interest at
a fixed rate of 3.0% annually and will pay interest quarterly at
a floating rate of three-month LIBOR plus a spread of 0.765%.
This interest rate swap is designated as a fair value hedge of
the underlying debt. This derivative instrument is marked to
market with gains and losses recognized currently in income to
offset the respective losses and gains recognized on changes in
the fair value of the hedged debt. This results in no net gain
or loss being recognized in the
Consolidated Statement of
Income
.
The second swap was for a notional amount of $600 million
in order to hedge a portion of the changes in fair value of
Schlumberger’s $650 million 6.50% Notes due 2012.
Under the terms of this swap agreement, Schlumberger received
interest at a fixed rate of 6.50% semi-annually and paid
interest semi-annually at a floating rate of one-month LIBOR
plus a spread of 4.84%. During the third and fourth quarters of
2010, Schlumberger repurchased all of the outstanding
$650 million 6.50% Notes due 2012. Accordingly, this
interest rate swap, which had previously been designated as a
fair value hedge of the underlying debt, was settled during the
fourth quarter and resulted in Schlumberger receiving proceeds
of approximately $10 million.
At December 31, 2010, Schlumberger had fixed rate debt
aggregating approximately $4.9 billion and variable rate
debt aggregating approximately $3.2 billion, after taking
into account the effects of the interest rate swaps.
The fair values of outstanding derivative instruments are
summarized as follows:
| (Stated in millions) | ||||||||||
|
Fair Value of
|
||||||||||
| Derivatives | Classification | |||||||||
|
Dec. 31
|
Dec. 31
|
|||||||||
| Derivative assets | 2010 | 2009 | ||||||||
|
Derivative designated as hedges:
|
||||||||||
|
Foreign exchange contracts
|
$4 | $14 | Other current assets | |||||||
|
Foreign exchange contracts
|
37 | 216 | Other Assets | |||||||
|
Interest rate swaps
|
14 | – | Other Assets | |||||||
| $55 | $230 | |||||||||
|
Derivative not designated as hedges:
|
||||||||||
|
Commodity contracts
|
$3 | $1 | Other current assets | |||||||
|
Foreign exchange contracts
|
9 | 11 | Other current assets | |||||||
|
Foreign exchange contracts
|
9 | 28 | Other Assets | |||||||
| $21 | $40 | |||||||||
| $76 | $270 | |||||||||
|
Derivative Liabilities
|
||||||||||
|
Derivative designated as hedges:
|
||||||||||
|
Foreign exchange contracts
|
$9 | $15 | Accounts payable and accrued liabilities | |||||||
|
Foreign exchange contracts
|
77 | 51 | Other Liabilities | |||||||
|
Interest rate swaps
|
7 | – | Accounts payable and accrued liabilities | |||||||
| $93 | $66 | |||||||||
|
Derivative not designated as hedges:
|
||||||||||
|
Commodity contracts
|
$– | $3 | Accounts payable and accrued liabilities | |||||||
|
Foreign exchange contracts
|
14 | – | Accounts payable and accrued liabilities | |||||||
|
Foreign exchange contracts
|
– | 25 | Other Liabilities | |||||||
| $14 | $28 | |||||||||
| $107 | $94 | |||||||||
The fair value of all outstanding derivatives is determined
using a model with inputs that are observable in the market or
can be derived from or corroborated by observable data.
56
Table of Contents
Part II, Item 8
The effect of derivative instruments designated as fair value
hedges and not designated as hedges on the
Consolidated
Statement of Income
was as follows:
| (Stated in millions) | ||||||||||
|
Gain/(Loss) Recognized
|
||||||||||
| in Income | ||||||||||
| 2010 | 2009 | Classification | ||||||||
|
Derivatives designated as fair value hedges:
|
||||||||||
|
Foreign exchange contracts
|
$( 8 | ) | $105 | Cost of revenue | ||||||
|
Interest rate swaps
|
22 | 6 | Interest expense | |||||||
| $14 | $111 | |||||||||
|
Derivatives not designated as hedges:
|
||||||||||
|
Foreign exchange contracts
|
$(13 | ) | $32 | Cost of revenue | ||||||
|
Commodity contracts
|
1 | 2 | Cost of revenue | |||||||
| $(12 | ) | $34 | ||||||||
The effect of derivative instruments in cash flow hedging
relationships on income and other comprehensive income (OCI) was
as follows:
| (Stated in millions) | ||||||||||
|
Gain (Loss) Reclassified from
|
||||||||||
| Accumulated OCI into Income | ||||||||||
| 2010 | 2009 | Classification | ||||||||
|
Foreign exchange contracts
|
$( 260 | ) | $95 | Cost of revenue | ||||||
|
Foreign exchange contracts
|
(14 | ) | (15 | ) | Research & engineering | |||||
| $(274 | ) | $80 | ||||||||
| (Stated in millions) | ||||||||||
|
Gain (Loss) Recognized in
|
||||||||||
| OCI | ||||||||||
| 2010 | 2009 | |||||||||
|
Foreign exchange contracts
|
$(269 | ) | $223 | |||||||
| 12. | Stockholders’ Equity |
Schlumberger is authorized to issue 3,000,000,000 shares of
common stock, par value $0.01 per share, of which 1,361,171,428
and 1,194,812,901 shares were outstanding on
December 31, 2010 and 2009, respectively. Schlumberger is
also authorized to issue 200,000,000 shares of preferred
stock, par value $0.01 per share, which may be issued in series
with terms and conditions determined by the Board of Directors.
No shares of preferred stock have been issued. Holders of common
stock are entitled to one vote for each share of stock held.
57
Table of Contents
Part II, Item 8
The following is a reconciliation of
Accumulated Other
Comprehensive Income (Loss)
:
| (Stated in millions) | ||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||
|
Deferred
|
||||||||||||||||
|
Currency
|
Employee
|
|||||||||||||||
|
Translation
|
Fair Value of
|
Benefits
|
||||||||||||||
| Adjustments | Derivatives | Liabilities | Total | |||||||||||||
|
Balance, January 1, 2008
|
$(821 | ) | $32 | $(384 | ) | $(1,173 | ) | |||||||||
|
Currency translation adjustments
|
(82 | ) | (82 | ) | ||||||||||||
|
Changes in fair value of derivatives
|
(135 | ) | (135 | ) | ||||||||||||
|
Amortization of prior service cost
|
(20 | ) | (20 | ) | ||||||||||||
|
Amortization of actuarial net loss
|
34 | 34 | ||||||||||||||
|
Unrecognized prior service cost arising in the year
|
(1,077 | ) | (1,077 | ) | ||||||||||||
|
Actuarial net losses arising in the year
|
(725 | ) | (725 | ) | ||||||||||||
|
Deferred taxes
|
277 | 277 | ||||||||||||||
|
Balance, December 31, 2008
|
(903 | ) | (103 | ) | (1,895 | ) | (2,901 | ) | ||||||||
|
Currency translation adjustments
|
17 | 17 | ||||||||||||||
|
Changes in fair value of derivatives
|
143 | 143 | ||||||||||||||
|
Amortization of prior service cost
|
97 | 97 | ||||||||||||||
|
Amortization of actuarial net loss
|
32 | 32 | ||||||||||||||
|
Impact of curtailment
|
96 | 96 | ||||||||||||||
|
Unrecognized prior service cost arising in the year
|
27 | 27 | ||||||||||||||
|
Actuarial net losses arising in the year
|
(237 | ) | (237 | ) | ||||||||||||
|
Deferred taxes
|
52 | 52 | ||||||||||||||
|
Balance, December 31, 2009
|
(886 | ) | 40 | (1,828 | ) | (2,674 | ) | |||||||||
|
Currency translation adjustments
|
(26 | ) | (26 | ) | ||||||||||||
|
Changes in fair value of derivatives
|
5 | 5 | ||||||||||||||
|
Amortization of prior service cost
|
96 | 96 | ||||||||||||||
|
Amortization of actuarial net loss
|
90 | 90 | ||||||||||||||
|
Unrecognized prior service cost arising in the year
|
(162 | ) | (162 | ) | ||||||||||||
|
Actuarial net losses arising in the year
|
(117 | ) | (117 | ) | ||||||||||||
|
Deferred taxes
|
20 | 20 | ||||||||||||||
|
Balance, December 31, 2010
|
$(912 | ) | $45 | $(1,901 | ) | $(2,768 | ) | |||||||||
| 13. | Stock Compensation Plans |
Schlumberger has three types of stock-based compensation
programs: stock options, a restricted stock and restricted stock
unit program (collectively referred to as “restricted
stock”) and a discounted stock purchase plan
(“DSPP”).
Stock
Options
Key employees are granted stock options under Schlumberger stock
option plans. For all of the stock options granted, the exercise
price equals the average of the high and low sales prices of
Schlumberger stock on the date of grant; an option’s
maximum term is ten years, and options generally vest in
increments over four or five years.
The fair value of each stock option grant was estimated on the
date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions and resulting
weighted-average fair value per share:
| 2010 | 2009 | 2008 | ||||||||||
|
Dividend yield
|
1.3 | % | 1.2 | % | 1.0 | % | ||||||
|
Expected volatility
|
35 | % | 34 | % | 31 | % | ||||||
|
Risk free interest rate
|
2.9 | % | 2.2 | % | 3.2 | % | ||||||
|
Expected option life in years
|
6.9 | 6.9 | 7.0 | |||||||||
|
Weighted-average fair value per share
|
$ | 24.13 | $ | 13.92 | $ | 29.33 | ||||||
58
Table of Contents
Part II, Item 8
The following table summarizes information concerning options
outstanding and options exercisable by five ranges of exercise
prices as of December 31, 2010:
| (Shares stated in thousands) | ||||||||||||||||||||
| OPTIONS OUTSTANDING | OPTIONS EXERCISABLE | |||||||||||||||||||
|
Weighted-
|
||||||||||||||||||||
|
average
|
Weighted-
|
Weighted-
|
||||||||||||||||||
|
remaining
|
average
|
average
|
||||||||||||||||||
|
Options
|
contractual life
|
exercise
|
Options
|
exercise
|
||||||||||||||||
| Exercise prices range | Outstanding | (in years) | price | Exercisable | price | |||||||||||||||
|
$16.87-$32.46
|
5,281 | 1.78 | $ | 27.41 | 5,281 | $ | 27.41 | |||||||||||||
|
$32.62-$37.85
|
6,907 | 7.50 | $ | 37.25 | 1,887 | $ | 35.65 | |||||||||||||
|
$38.53-$55.69
|
7,714 | 5.83 | $ | 52.60 | 6,197 | $ | 53.25 | |||||||||||||
|
$56.61-$74.00
|
12,289 | 8.03 | $ | 64.86 | 2,546 | $ | 60.96 | |||||||||||||
|
$84.93-$110.78
|
5,308 | 7.05 | $ | 88.57 | 2,083 | $ | 89.33 | |||||||||||||
| 37,499 | 6.47 | $ | 55.33 | 17,994 | $ | 49.09 | ||||||||||||||
The weighted average remaining contractual life of stock options
exercisable as of December 31, 2010 was 4.6 years.
The following table summarizes stock option activity during the
years ended December 31, 2010, 2009 and 2008:
| (Shares stated in thousands) | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||
|
average
|
average
|
average
|
||||||||||||||||||||||
|
exercise
|
exercise
|
exercise
|
||||||||||||||||||||||
| Shares | price | Shares | price | Shares | price | |||||||||||||||||||
|
Outstanding at beginning of year
|
35,500 | $ | 50.30 | 32,301 | $ | 50.36 | 35,719 | $ | 41.02 | |||||||||||||||
|
Granted
|
8,283 | $ | 66.67 | 7,981 | $ | 40.87 | 5,422 | $ | 84.95 | |||||||||||||||
|
Assumed in Smith transaction
|
581 | $ | 28.77 | – | $ | – | – | $ | – | |||||||||||||||
|
Exercised
|
(5,962 | ) | $ | 37.60 | (3,851 | ) | $ | 29.00 | (5,444 | ) | $ | 32.69 | ||||||||||||
|
Forfeited
|
(903 | ) | $ | 61.28 | (931 | ) | $ | 58.82 | (3,396 | ) | $ | 42.68 | ||||||||||||
|
Outstanding at year-end
|
37,499 | $ | 55.33 | 35,500 | $ | 50.30 | 32,301 | $ | 50.36 | |||||||||||||||
The aggregate intrinsic value of stock options outstanding as of
December 31, 2010 was approximately $1.08 billion. The
aggregate intrinsic value of stock options exercisable as of
December 31, 2010 was approximately $630 million.
The total intrinsic value of options exercised during the years
ended December 31, 2010, 2009 and 2008, was
$188 million, $103 million and $119 million,
respectively.
Restricted
Stock
Restricted stock awards generally vest at the end of three
years. There have not been any grants to date that are subject
to performance-based vesting.
The following table summarizes information about restricted
stock transactions:
| (Shares stated in thousands) | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||||||||||||
|
Average
|
Average
|
Average
|
||||||||||||||||||||||
|
Restricted
|
Grant Date
|
Restricted
|
Grant Date
|
Restricted
|
Grant Date
|
|||||||||||||||||||
| Stock | Fair Value | Stock | Fair Value | Stock | Fair Value | |||||||||||||||||||
|
Unvested at beginning of year
|
1,343 | $62.75 | 1,701 | $66.49 | 885 | $65.14 | ||||||||||||||||||
|
Granted
|
1,261 | 65.79 | 304 | 48.14 | 863 | 68.04 | ||||||||||||||||||
|
Vested
|
(286 | ) | 63.92 | (580 | ) | 65.15 | (18 | ) | 65.35 | |||||||||||||||
|
Forfeited
|
(95 | ) | 64.16 | (82 | ) | 69.23 | (29 | ) | 72.44 | |||||||||||||||
|
Unvested at end of year
|
2,223 | $64.27 | 1,343 | $62.75 | 1,701 | $66.49 | ||||||||||||||||||
59
Table of Contents
Part II, Item 8
Discounted
Stock Purchase Plan
Under the terms of the DSPP, employees can choose to have a
portion of their earnings withheld, subject to certain
restrictions, to purchase Schlumberger common stock. The
purchase price of the stock is 92.5% of the lower of the stock
price at the beginning or end of the plan period at six-month
intervals.
The fair value of the employees’ purchase rights under the
DSPP was estimated using the Black-Scholes model with the
following assumptions and resulting weighted average fair value
per share:
| 2010 | 2009 | 2008 | ||||||||||
|
Dividend yield
|
1.6 | % | 1.1 | % | 0.9 | % | ||||||
|
Expected volatility
|
36 | % | 44 | % | 34 | % | ||||||
|
Risk free interest rate
|
0.3 | % | 0.3 | % | 2.7 | % | ||||||
|
Weighted average fair value per share
|
$ | 10.30 | $ | 9.76 | $ | 17.21 | ||||||
Total
Stock-based Compensation Expense
The following summarizes stock-based compensation expense
recognized in income:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Stock options
|
$ | 121 | $ | 118 | $ | 111 | ||||||
|
Restricted stock
|
44 | 32 | 31 | |||||||||
|
DSPP
|
33 | 36 | 30 | |||||||||
| $ | 198 | $ | 186 | $ | 172 | |||||||
At December 31, 2010, there was $382 million of total
unrecognized compensation cost related to nonvested stock-based
compensation arrangements. Approximately $156 million is
expected to be recognized in 2011, $122 million is expected
to be recognized in 2012, $65 million in 2013,
$35 million in 2014 and $4 million in 2015.
| 14. | Income Taxes |
Schlumberger operates in more than 100 jurisdictions, where
statutory tax rates generally vary from 0% to 50%.
Income from Continuing Operations before taxes
which were
subject to United States and
non-United
States income taxes for each of the three years ended
December 31, was as follows:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
United States
|
$ | 638 | $ | 86 | $ | 1,432 | ||||||
|
Outside United States
|
4,518 | 3,848 | 5,420 | |||||||||
| $ | 5,156 | $ | 3,934 | $ | 6,852 | |||||||
Schlumberger recorded $621 million of net pretax credits in
2010 ($226 million of net charges in the US and
$847 million of net credits outside the US). Schlumberger
recorded $238 million of pretax charges in 2009
($73 million in the US and $165 million outside the
US) and $116 million in 2008 ($15 million in the US
and $101 million outside the US). These charges and credits
are included in the table above and are more fully described in
Note 3 –
Charges and Credits
.
The components of net deferred tax assets (liabilities) were as
follows:
| (Stated in millions) | ||||||||
| 2010 | 2009 | |||||||
|
Postretirement benefits
|
$ | 327 | $ | 447 | ||||
|
Multiclient seismic data
|
43 | 104 | ||||||
|
Intangible assets
|
(1,674 | ) | (122 | ) | ||||
|
Investments in non-US subsidiaries
|
(353 | ) | – | |||||
|
Other, net
|
72 | 101 | ||||||
| $ | (1,585 | ) | $ | 530 | ||||
60
Table of Contents
Part II, Item 8
The above deferred balances at December 31, 2010 and 2009
are net of valuation allowances relating to net operating losses
in certain countries of $263 million and $251 million,
respectively. The deferred tax balances at December 31,
2009 were net of a valuation allowance relating to a foreign tax
credit carryforward of $30 million.
The components of
Taxes on income
were as follows:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Current:
|
||||||||||||
|
United States – Federal
|
$ | 76 | $ | (191 | ) | $ | 453 | |||||
|
United States – State
|
14 | (6 | ) | 34 | ||||||||
|
Outside United States
|
909 | 594 | 949 | |||||||||
| $ | 999 | $ | 397 | $ | 1,436 | |||||||
|
Deferred:
|
||||||||||||
|
United States – Federal
|
$ | 183 | $ | 247 | $ | 23 | ||||||
|
United States – State
|
2 | 13 | 1 | |||||||||
|
Outside United States
|
(281 | ) | 86 | (12 | ) | |||||||
|
Valuation allowance
|
(13 | ) | 27 | (18 | ) | |||||||
| $ | (109 | ) | $ | 373 | $ | (6 | ) | |||||
|
Consolidated taxes on income
|
$ | 890 | $ | 770 | $ | 1,430 | ||||||
A reconciliation of the United States statutory federal tax rate
(35%) to the consolidated effective tax rate is:
| 2010 | 2009 | 2008 | ||||||||||
|
US statutory federal rate
|
35 | % | 35 | % | 35 | % | ||||||
|
US state income taxes
|
– | – | 1 | |||||||||
|
Non-US income taxed at different rates
|
(14 | ) | (16 | ) | (13 | ) | ||||||
|
Effect of equity method investment
|
– | – | (1 | ) | ||||||||
|
Charges and Credits (See Note 3)
|
(3 | ) | 1 | – | ||||||||
|
Other
|
(1 | ) | – | (1 | ) | |||||||
|
Effective income tax rate
|
17 | % | 20 | % | 21 | % | ||||||
Schlumberger conducts business in more than 100 jurisdictions, a
number of which have tax laws that are not fully defined and are
evolving. Due to the geographic breadth of the Schlumberger
operations, numerous tax audits may be ongoing throughout the
world at any point in time. Tax liabilities are recorded based
on estimates of additional taxes which will be due upon the
conclusion of these audits. Estimates of these tax liabilities
are made based upon prior experience and are updated in light of
changes in facts and circumstances. However, due to the
uncertain and complex application of tax regulations, it is
possible that the ultimate resolution of audits may result in
liabilities which could be materially different from these
estimates. In such an event, Schlumberger will record additional
tax expense or tax benefit in the period in which such
resolution occurs.
A reconciliation of the beginning and ending amount of
liabilities associated with uncertain tax positions for the
years ended December 31, 2010, 2009 and 2008 is as follows:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 1,026 | $ | 877 | $ | 858 | ||||||
|
Additions based on tax positions related to the current year
|
190 | 178 | 217 | |||||||||
|
Additions for tax positions of prior years
|
8 | 36 | 19 | |||||||||
|
Additions related to acquisitions
|
115 | – | 6 | |||||||||
|
Impact of changes in exchange rates
|
(3 | ) | 39 | (72 | ) | |||||||
|
Settlements with tax authorities
|
(36 | ) | (16 | ) | (20 | ) | ||||||
|
Reductions for tax positions of prior years
|
(99 | ) | (68 | ) | (111 | ) | ||||||
|
Reductions due to the lapse of the applicable statute of
limitations
|
(36 | ) | (20 | ) | (20 | ) | ||||||
|
Balance at end of year
|
$ | 1,165 | $ | 1,026 | $ | 877 | ||||||
61
Table of Contents
Part II, Item 8
The amounts above exclude accrued interest and penalties of
$210 million, $168 million and $136 million at
December 31, 2010, 2009 and 2008 respectively. All of the
unrecognized tax benefits, if recognized, would impact the
Schlumberger effective tax rate.
Schlumberger classifies interest and penalties relating to
uncertain tax positions within
Taxes on income
in the
Consolidated Statement of Income
. During 2010, 2009 and
2008, Schlumberger recognized approximately $42 million,
$32 million and $25 million in interest and penalties,
respectively.
The following table summarizes the tax years that are either
currently under audit or remain open and subject to examination
by the tax authorities in the most significant jurisdictions in
which Schlumberger operates:
|
Brazil
|
2004 – 2010 | |
|
Canada
|
2003 – 2010 | |
|
Mexico
|
2005 – 2010 | |
|
Norway
|
2003 – 2010 | |
|
Russia
|
2007 – 2010 | |
|
Saudi Arabia
|
2001 – 2010 | |
|
United Kingdom
|
2008 – 2010 | |
|
United States
|
2005 – 2010 |
In certain of the jurisdictions noted above, Schlumberger
operates through more than one legal entity, each of which has
different open years subject to examination. The table above
presents the open years subject to examination for the most
material of the legal entities in each jurisdiction.
Additionally, it is important to note that tax years are
technically not closed until the statute of limitations in each
jurisdiction expires. In the jurisdictions noted above, the
statute of limitations can extend beyond the open years subject
to examination.
| 15. | Leases and Lease Commitments |
Total rental expense was $1.2 billion in 2010,
$1.0 billion in 2009, and $1.1 billion in 2008. Future
minimum rental commitments under noncancelable operating leases
for each of the next five years are as follows:
| (Stated in millions) | ||||
|
2011
|
$ | 325 | ||
|
2012
|
242 | |||
|
2013
|
167 | |||
|
2014
|
124 | |||
|
2015
|
99 | |||
|
Thereafter
|
377 | |||
| $ | 1,334 | |||
| 16. | Contingencies |
In 2007, Schlumberger received an inquiry from the United States
Department of Justice (“DOJ”) related to the
DOJ’s investigation of whether certain freight forwarding
and customs clearance services of Panalpina, Inc., and other
companies provided to oil and oilfield service companies,
including Schlumberger, violated the Foreign Corrupt Practices
Act. Schlumberger is cooperating with the DOJ. Schlumberger is
cooperating with the governmental authorities and is currently
unable to predict the outcome of this matter.
In 2009, Schlumberger learned that United States officials began
a grand jury investigation and an associated regulatory inquiry,
both related to certain Schlumberger operations in specified
countries that are subject to United States trade and economic
sanctions. Also in 2009, Smith received an administrative
subpoena with respect to its historical business practices in
certain countries that are subject to United States trade and
economic sanctions. Schlumberger is cooperating with the
governmental authorities and is currently unable to predict the
outcome of these matters.
On April 20, 2010, a fire and explosion occurred onboard
the semisubmersible drilling rig
Deepwater Horizon
, owned
by Transocean Ltd. and under contract to a subsidiary of BP plc.
Pursuant to a contract between M-I SWACO and BP, M-I SWACO
provided certain services under the direction of BP. A number of
legal actions, certain of which name an M-I SWACO entity as a
defendant, have been filed in connection with the
Deepwater
Horizon
incident, and additional legal
62
Table of Contents
Part II, Item 8
actions may be filed in the future. Based on information
currently known, the amount of any potential loss attributable
to M-I SWACO with respect to potential liabilities related to
the incident would not be material to Schlumberger’s
consolidated financial position.
Schlumberger and its subsidiaries are party to various other
legal proceedings from time to time. A liability is accrued when
a loss is both probable and can be reasonably estimated.
Management believes that the probability of a material loss is
remote and, as such, that any liability that might ensue would
not be material in relation to Schlumberger’s consolidated
financial position. However, litigation is inherently uncertain
and it is not possible to predict the ultimate disposition of
these proceedings.
| 17. | Segment Information |
Schlumberger operates five business segments as of
December 31, 2010: Oilfield Services, WesternGeco, M-I
SWACO, Smith Oilfield and Distribution.
The Oilfield Services segment falls into four clearly defined
economic and geographical areas and is evaluated on the
following basis: North America, Latin America, Europe including
the CIS and Africa, and Middle East & Asia. The
Oilfield Services segment provides virtually all exploration and
production services required during the life of an oil and gas
reservoir.
WesternGeco provides comprehensive worldwide reservoir imaging,
monitoring and development services with extensive seismic crews
and data processing centers, as well as a large multiclient
seismic library. Services range from 3D and time-lapse (4D)
seismic surveys to multi-component surveys for delineating
prospects and reservoir management.
M-I SWACO is a leading supplier of drilling fluid systems
engineered to improve wellbore quality and increase drilling
performance. It also offers a broad range of waste management
equipment and services, provides completion fluid and related
tools and supplies oilfield production chemicals.
The Smith Oilfield segment provides a comprehensive suite of
premium products and services used in oil and natural gas
development activities. It is comprised of drilling and
completion services operations, which include drill bits,
directional drilling services and downhole tools.
Distribution consists of the Wilson International Inc.
distribution operations and a majority-owned interest in CE
Franklin Ltd., a publicly traded Canadian distribution company.
It provides products and services to the energy, refining,
petrochemical, power generation and mining industries.
63
Table of Contents
Part II, Item 8
Financial information for the years ended December 31,
2010, 2009 and 2008, by segment, is as follows:
| (Stated in millions) | ||||||||||||||||||||
| 2010 | ||||||||||||||||||||
|
Income
|
||||||||||||||||||||
|
before
|
Depn. &
|
Capital
|
||||||||||||||||||
| Revenue | taxes | Assets | Amortn. | Expenditures | ||||||||||||||||
|
OILFIELD SERVICES
|
||||||||||||||||||||
|
North America
|
$ | 5,010 | $ | 802 | $ | 2,725 | $ | 412 | $ | 451 | ||||||||||
|
Latin America
|
4,321 | 723 | 2,947 | 289 | 417 | |||||||||||||||
|
Europe/CIS/Africa
|
6,882 | 1,269 | 4,917 | 715 | 849 | |||||||||||||||
|
Middle East & Asia
|
5,586 | 1,696 | 3,509 | 517 | 597 | |||||||||||||||
|
Elims/Other
(1)
|
280 | (15 | ) | 1,639 | 31 | 131 | ||||||||||||||
| 22,079 | 4,475 | 15,737 | 1,964 | 2,445 | ||||||||||||||||
|
WESTERNGECO
|
1,987 | 267 | 2,896 | 579 | 276 | |||||||||||||||
|
M-I SWACO
|
1,568 | 197 | 2,786 | 43 | 80 | |||||||||||||||
|
SMITH OILFIELD
|
957 | 132 | 2,329 | 76 | 110 | |||||||||||||||
|
DISTRIBUTION
|
774 | 29 | 780 | 2 | 2 | |||||||||||||||
|
Goodwill and intangible assets
|
19,114 | |||||||||||||||||||
|
All other assets
|
1,580 | |||||||||||||||||||
|
Corporate
(2)
|
82 | (405 | ) | 6,545 | 95 | 1 | ||||||||||||||
|
Interest
income
(3)
|
43 | |||||||||||||||||||
|
Interest
expense
(4)
|
(202 | ) | ||||||||||||||||||
|
Charges &
credits
(5)
|
620 | |||||||||||||||||||
| $ | 27,447 | $ | 5,156 | $ | 51,767 | $ | 2,759 | $ | 2,914 | |||||||||||
| (Stated in millions) | ||||||||||||||||||||
| 2009 | ||||||||||||||||||||
|
Income
|
||||||||||||||||||||
|
before
|
Depn. &
|
Capital
|
||||||||||||||||||
| Revenue | taxes | Assets | Amortn. | Expenditures | ||||||||||||||||
|
OILFIELD SERVICES
|
||||||||||||||||||||
|
North America
|
$ | 3,707 | $ | 216 | $ | 2,264 | $ | 433 | $ | 272 | ||||||||||
|
Latin America
|
4,225 | 753 | 3,117 | 261 | 393 | |||||||||||||||
|
Europe/CIS/Africa
|
7,150 | 1,707 | 4,603 | 653 | 824 | |||||||||||||||
|
Middle East & Asia
|
5,234 | 1,693 | 3,162 | 531 | 417 | |||||||||||||||
|
Elims/Other
(1)
|
202 | (43 | ) | 1,630 | 1 | 21 | ||||||||||||||
| 20,518 | 4,326 | 14,776 | 1,879 | 1,927 | ||||||||||||||||
|
WESTERNGECO
|
2,122 | 326 | 3,065 | 566 | 463 | |||||||||||||||
|
Goodwill and intangible assets
|
6,091 | |||||||||||||||||||
|
All other assets
|
1,873 | |||||||||||||||||||
|
Corporate
(2)
|
62 | (344 | ) | 7,660 | 31 | 5 | ||||||||||||||
|
Interest
income
(3)
|
52 | |||||||||||||||||||
|
Interest
expense
(4)
|
(188 | ) | ||||||||||||||||||
|
Charges &
credits
(5)
|
(238 | ) | ||||||||||||||||||
| $ | 22,702 | $ | 3,934 | $ | 33,465 | $ | 2,476 | $ | 2,395 | |||||||||||
64
Table of Contents
Part II, Item 8
| (Stated in millions) | ||||||||||||||||||||
| 2008 | ||||||||||||||||||||
|
Income
|
||||||||||||||||||||
|
before
|
Depn. &
|
Capital
|
||||||||||||||||||
| Revenue | taxes | Assets | Amortn. | Expenditures | ||||||||||||||||
|
OILFIELD SERVICES
|
||||||||||||||||||||
|
North America
|
$ | 5,914 | $ | 1,371 | $ | 2,728 | $ | 433 | $ | 750 | ||||||||||
|
Latin America
|
4,230 | 858 | 2,529 | 223 | 414 | |||||||||||||||
|
Europe/CIS/Africa
|
8,180 | 2,244 | 4,410 | 600 | 988 | |||||||||||||||
|
Middle East & Asia
|
5,724 | 2,005 | 3,503 | 496 | 762 | |||||||||||||||
|
Elims/Other
(1)
|
234 | 27 | 2,014 | (9 | ) | 128 | ||||||||||||||
| 24,282 | 6,505 | 15,184 | 1,743 | 3,042 | ||||||||||||||||
|
WESTERNGECO
|
2,838 | 836 | 2,956 | 518 | 680 | |||||||||||||||
|
Goodwill and intangible assets
|
6,009 | |||||||||||||||||||
|
All other assets
|
1,914 | |||||||||||||||||||
|
Corporate
(2)
|
43 | (268 | ) | 6,031 | 8 | 1 | ||||||||||||||
|
Interest
income
(3)
|
112 | |||||||||||||||||||
|
Interest
expense
(4)
|
(217 | ) | ||||||||||||||||||
|
Charges &
credits
(5)
|
(116 | ) | ||||||||||||||||||
| $ | 27,163 | $ | 6,852 | $ | 32,094 | $ | 2,269 | $ | 3,723 | |||||||||||
| (1) | Includes certain headquarter administrative costs which are not allocated geographically, manufacturing and certain other operations, and other cost and income items maintained at the Oilfield Services level. | |
| (2) | Comprised principally of corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with intangible assets recorded as a result of the merger with Smith and certain other nonoperating items. Corporate assets consist of cash, short-term investments, fixed income investments, held to maturity and investments in affiliates. | |
| (3) | Interest income excludes amounts which are included in the segments’ income (2010 - $7 million: 2009 – $10 million; 2008 – $7 million). | |
| (4) | Interest expense excludes amounts which are included in the segments’ income (2010 - $5 million; 2009 – $33 million; 2008 – $30 million). | |
| (5) | See Note 3 – Charges and Credits . |
Segment assets consist of receivables, inventories, fixed assets
and multiclient seismic data.
Depreciation & Amortization includes multiclient
seismic data costs.
During each of the three years ended December 31, 2010,
2009 and 2008, no single customer exceeded 10% of consolidated
revenue.
Schlumberger did not have revenue from third-party customers in
its country of domicile during the last three years. Revenue in
the United States in 2010, 2009 and 2008 was $6.5 billion,
$3.7 billion and $5.9 billion, respectively.
| 18. | Pension and Other Benefit Plans |
Pension
Plans
Schlumberger sponsors several defined benefit pension plans that
cover substantially all US employees hired prior to
October 1, 2004. The benefits are based on years of service
and compensation, on a career-average pay basis.
In addition to the United States defined benefit pension plans,
Schlumberger sponsors several other international defined
benefit pension plans. The most significant of these
international plans are the International Staff Pension Plan,
which was converted from a defined contribution plan to a
defined benefit pension plan during the fourth quarter of 2008,
and the UK pension plan (collectively, the “International
plans”). The International Staff Pension Plan covers
certain international employees and is based on years of service
and compensation on a career-average pay basis. The UK plan
covers employees hired prior to April 1, 1999, and is based
on years of service and compensation, on a final salary basis.
65
Table of Contents
Part II, Item 8
The weighted-average assumed discount rate, compensation
increases and the expected long-term rate of return on plan
assets used to determine the net pension cost for the US and
International plans were as follows:
| US | International | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Discount rate
|
6.00 | % | 6.94 | % | 6.50 | % | 5.89 | % | 6.81 | % | 5.80 | % | ||||||||||||
|
Compensation increases
|
4.00 | % | 4.00 | % | 4.00 | % | 4.93 | % | 4.93 | % | 4.90 | % | ||||||||||||
|
Return on plan assets
|
8.50 | % | 8.50 | % | 8.50 | % | 8.00 | % | 8.00 | % | 8.00 | % | ||||||||||||
Net pension cost for 2010, 2009 and 2008 included the following
components:
| (Stated in millions) | ||||||||||||||||||||||||
| US | International | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Service cost – benefits earned during the period
|
$ | 56 | $ | 52 | $ | 56 | $ | 51 | $ | 67 | $ | 33 | ||||||||||||
|
Interest cost on projected benefit obligation
|
142 | 143 | 130 | 208 | 189 | 58 | ||||||||||||||||||
|
Expected return on plan assets
|
(191 | ) | (166 | ) | (162 | ) | (228 | ) | (181 | ) | (75 | ) | ||||||||||||
|
Amortization of net loss
|
60 | 29 | 13 | 19 | – | 11 | ||||||||||||||||||
|
Amortization of prior service cost
|
4 | 5 | 7 | 113 | 117 | 1 | ||||||||||||||||||
| 71 | 63 | 44 | 163 | 192 | 28 | |||||||||||||||||||
|
Curtailment charge
|
– | 32 | – | – | 98 | – | ||||||||||||||||||
| $ | 71 | $ | 95 | $ | 44 | $ | 163 | $ | 290 | $ | 28 | |||||||||||||
During 2009, due to the actions taken by Schlumberger to reduce
its global workforce (See Note 3 –
Charges and
Credits
), Schlumberger experienced a significant reduction
in the expected aggregate years of future service of its
employees in certain of its pension plans and its postretirement
medical plan. Accordingly, Schlumberger recorded a curtailment
charge of $136 million during the second quarter of 2009
($130 million relating to the pension plans and
$6 million relating to the postretirement medical plan).
The curtailment charge includes recognition of the change in
benefit obligations as well as a portion of the previously
unrecognized prior service costs, reflecting the reduction in
expected future service for the impacted plans. As a result of
the curtailment, Schlumberger performed a remeasurement of the
impacted plans using a discount rate of 7.25% (as compared to
6.50% at December 31, 2008). All other significant
assumptions were unchanged from December 31, 2008
measurement date.
As the International Staff Pension Plan was converted to a
defined benefit pension plan during the fourth quarter of 2008,
the net pension cost for this plan was not significant in 2008.
The weighted-average assumed discount rate and compensation
increases used to determine the projected benefit obligations
for the US and International plans were as follows:
| US | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Discount rate
|
5.50 | % | 6.00 | % | 5.47 | % | 5.89 | % | ||||||||
|
Compensation increases
|
4.00 | % | 4.00 | % | 4.91 | % | 4.93 | % | ||||||||
66
Table of Contents
Part II, Item 8
The changes in the projected benefit obligation, plan assets and
funded status of the plans were as follows:
| (Stated in millions) | ||||||||||||||||
| US | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Change in Projected Benefit Obligations
|
||||||||||||||||
|
Projected benefit obligation at beginning of year
|
$ | 2,439 | $ | 2,150 | $ | 3,518 | $ | 2,767 | ||||||||
|
Service cost
|
56 | 52 | 51 | 67 | ||||||||||||
|
Interest cost
|
142 | 143 | 208 | 189 | ||||||||||||
|
Contributions by plan participants
|
– | – | 76 | 61 | ||||||||||||
|
Actuarial losses
|
172 | 191 | 310 | 449 | ||||||||||||
|
Currency effect
|
– | – | (28 | ) | 69 | |||||||||||
|
Benefits paid
|
(122 | ) | (110 | ) | (121 | ) | (97 | ) | ||||||||
|
Plan amendments
|
82 | – | 74 | 16 | ||||||||||||
|
Impact of curtailment
|
– | 13 | – | (3 | ) | |||||||||||
|
Projected benefit obligation at end of year
|
$ | 2,769 | $ | 2,439 | $ | 4,088 | $ | 3,518 | ||||||||
|
Change in Plan Assets
|
||||||||||||||||
|
Plan assets at fair value at beginning of year
|
$ | 2,254 | $ | 1,490 | $ | 2,976 | $ | 1,913 | ||||||||
|
Actual return on plan assets
|
316 | 358 | 426 | 444 | ||||||||||||
|
Currency effect
|
– | – | (26 | ) | 69 | |||||||||||
|
Company contributions
|
187 | 516 | 433 | 586 | ||||||||||||
|
Contributions by plan participants
|
– | – | 76 | 61 | ||||||||||||
|
Benefits paid
|
(122 | ) | (110 | ) | (121 | ) | (97 | ) | ||||||||
|
Plan assets at fair value at end of year
|
$ | 2,635 | $ | 2,254 | $ | 3,764 | $ | 2,976 | ||||||||
|
Unfunded Liability
|
$ | (134 | ) | $ | (185 | ) | $ | (324 | ) | $ | (542 | ) | ||||
|
Amounts Recognized in Balance Sheet
|
||||||||||||||||
|
Postretirement Benefits
|
$ | (134 | ) | $ | (185 | ) | $ | (367 | ) | $ | (542 | ) | ||||
|
Other Assets
|
– | – | 43 | – | ||||||||||||
| $ | (134 | ) | $ | (185 | ) | $ | (324 | ) | $ | (542 | ) | |||||
|
Amounts Recognized in Accumulated Other Comprehensive
Income
|
||||||||||||||||
|
Actuarial losses
|
$ | 819 | $ | 833 | $ | 447 | $ | 335 | ||||||||
|
Prior service cost
|
114 | 36 | 840 | 881 | ||||||||||||
| $ | 933 | $ | 869 | $ | 1,287 | $ | 1,216 | |||||||||
|
Accumulated benefit obligation
|
$ | 2,568 | $ | 2,226 | $ | 3,785 | $ | 3,257 | ||||||||
The funded status position represents the difference between the
plan assets and the projected benefit obligation
(“PBO”). The PBO represents the actuarial present
value of benefits based on employee service and compensation and
includes an assumption about future compensation levels. The
accumulated benefit obligation represents the actuarial present
value of benefits based on employee service and compensation,
but does not include an assumption about future compensation
levels.
The weighted-average allocation of plan assets and the target
allocation by asset category are as follows:
| US | International | |||||||||||||||||||||||
| Target | 2010 | 2009 | Target | 2010 | 2009 | |||||||||||||||||||
|
Equity securities
|
50 – 60 | % | 52 | % | 48 | % | 55 – 70 | % | 61 | % | 59 | % | ||||||||||||
|
Debt securities
|
28 – 38 | 40 | 38 | 20 – 35 | 31 | 32 | ||||||||||||||||||
|
Cash and cash equivalents
|
– | 2 | 8 | – | 3 | 4 | ||||||||||||||||||
|
Other investments
|
0 – 12 | 6 | 6 | 0 – 10 | 5 | 5 | ||||||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||
Schlumberger’s investment policy includes various
guidelines and procedures designed to ensure that assets are
prudently invested in a manner necessary to meet the future
benefit obligation of the pension plans. The policy does not
permit the direct investment of plan assets in any Schlumberger
security. Schlumberger’s investment horizon is long-term
and accordingly the target asset allocations encompass a
strategic, long-term perspective of capital markets, expected
risk and return behavior and perceived future economic
conditions. The key investment principles of
67
Table of Contents
Part II, Item 8
diversification, assessment of risk and targeting the optimal
expected returns for given levels of risk are applied. The
target asset allocation is reviewed periodically and is
determined based on a long-term projection of capital market
outcomes, inflation rates, fixed income yields, returns,
volatilities and correlation relationships. The inclusion of any
given asset class in the target asset allocation is considered
in relation to its impact on the overall risk/return
characteristics as well as its impact on the overall investment
return. As part of its strategy, Schlumberger may utilize
certain derivative instruments, such as options, futures, swaps
and forwards, within the plans to manage risks (currency,
interest rate, etc.) or as a substitute for physical securities
or to obtain exposure to different markets.
Asset performance is monitored frequently with an overall
expectation that plan assets will meet or exceed the weighted
index of its target asset allocation and component benchmark
over rolling five year periods.
The expected long-term rate of return on assets assumptions
reflect the average rate of earnings expected on funds invested
or to be invested. The assumptions have been determined by
reflecting expectations regarding future rates of return for the
portfolio considering the asset allocation and related
historical rates of return. The appropriateness of the
assumptions is reviewed annually.
The fair value of Schlumberger’s pension plan assets at
December 31, 2010, by asset category, was as follows:
The fair values presented below were determined based on
valuation techniques categorized as follows:
| • | Level one: The use of quoted prices in active markets for identical instruments. | |
| • | Level two: The use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or other inputs that are observable in the market or can be corroborated by observable market data. | |
| • | Level three: The use of significantly unobservable inputs that typically require the use of management’s estimates of assumptions that market participants would use in pricing. |
| (Stated in millions) | ||||||||||||||||||||||||||||||||
| US Plan Assets | ||||||||||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Level
|
Level
|
Level
|
Level
|
Level
|
Level
|
|||||||||||||||||||||||||||
| Total | One | Two | Three | Total | One | Two | Three | |||||||||||||||||||||||||
|
Asset Category:
|
||||||||||||||||||||||||||||||||
|
Cash and Cash Equivalents
|
$ | 67 | $ | 35 | $ | 32 | $ | – | $ | 191 | $ | 191 | $ | – | $ | – | ||||||||||||||||
|
Equity Securities:
|
||||||||||||||||||||||||||||||||
|
US
(a)
|
885 | 885 | 710 | 710 | ||||||||||||||||||||||||||||
|
International
(b)
|
473 | 370 | 103 | 355 | 280 | 75 | ||||||||||||||||||||||||||
|
Debt securities:
|
||||||||||||||||||||||||||||||||
|
Corporate
bonds
(c)
|
220 | 220 | 193 | 193 | ||||||||||||||||||||||||||||
|
Government and government-related debt
securities
(d)
|
554 | 148 | 406 | 462 | 161 | 301 | ||||||||||||||||||||||||||
|
Government agency collateralized mortgage obligations and
mortgage backed
securities
(e)
|
201 | 201 | 136 | 136 | ||||||||||||||||||||||||||||
|
Other collateralized mortgage obligations and mortgage-backed
securities
(f)
|
67 | 67 | 71 | 71 | ||||||||||||||||||||||||||||
|
Other Investments:
|
||||||||||||||||||||||||||||||||
|
Private
equity
(g)
|
128 | 128 | 99 | 99 | ||||||||||||||||||||||||||||
|
Real
estate
(h)
|
40 | 40 | 37 | 37 | ||||||||||||||||||||||||||||
|
Total
|
$ | 2,635 | $ | 1,438 | $ | 1,029 | $ | 168 | $ | 2,254 | $ | 1,342 | $ | 776 | $ | 136 | ||||||||||||||||
68
Table of Contents
Part II, Item 8
| (Stated in millions) | ||||||||||||||||||||||||||||||||
| International Plan Assets | ||||||||||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Level
|
Level
|
Level
|
Level
|
Level
|
Level
|
|||||||||||||||||||||||||||
| Total | One | Two | Three | Total | One | Two | Three | |||||||||||||||||||||||||
|
Asset Category:
|
||||||||||||||||||||||||||||||||
|
Cash and Cash Equivalents
|
$ | 106 | $ | 106 | $ | – | $ | – | $ | 111 | $ | 111 | $ | – | $ | – | ||||||||||||||||
|
Equity Securities:
|
||||||||||||||||||||||||||||||||
|
US
(a)
|
1,268 | 1,268 | 1,113 | 1,113 | ||||||||||||||||||||||||||||
|
International
(b)
|
1,031 | 1,031 | 643 | 643 | ||||||||||||||||||||||||||||
|
Debt securities:
|
||||||||||||||||||||||||||||||||
|
Corporate
bonds
(c)
|
289 | 15 | 274 | 257 | 11 | 246 | ||||||||||||||||||||||||||
|
Government and
government-related
(d)
|
693 | 522 | 171 | 492 | 378 | 114 | ||||||||||||||||||||||||||
|
Government agency collateralized mortgage obligations and
mortgage backed
securities
(e)
|
125 | 44 | 81 | 137 | 20 | 117 | ||||||||||||||||||||||||||
|
Other collateralized mortgage obligations and mortgage-backed
securities
(f)
|
74 | 74 | 70 | 70 | ||||||||||||||||||||||||||||
|
Other Investments:
|
||||||||||||||||||||||||||||||||
|
Private
equity
(g)
|
114 | 114 | 87 | 87 | ||||||||||||||||||||||||||||
|
Real
estate
(h)
|
64 | 64 | 66 | 66 | ||||||||||||||||||||||||||||
|
Total
|
$ | 3,764 | $ | 2,986 | $ | 600 | $ | 178 | $ | 2,976 | $ | 2,276 | $ | 547 | $ | 153 | ||||||||||||||||
| (a) | US equities include companies that are well diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks. | |
| (b) | International equities are invested in companies that are traded on exchanges outside the US and are well diversified by industry sector, country and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets with a small percentage in emerging markets. | |
| (c) | Corporate bonds consist primarily of investment grade bonds from diversified industries. | |
| (d) | Government and government-related debt securities are comprised primarily of inflation protected US treasuries and, to a lesser extent, other government-related securities. | |
| (e) | Government agency collateralized mortgage obligations and mortgage backed-securities are debt obligations that represent claims to the cash flows from pools of mortgage loans which are purchased from banks, mortgage companies, and other originators and then assembled into pools by governmental and quasi-governmental entities. | |
| (f) | Other collateralized mortgage obligations and mortgage-backed securities are debt obligations that represent claims to the cash flows from pools of mortgage loans which are purchased from banks, mortgage companies, and other originators and then assembled into pools by private entities. | |
| (g) | Private equity includes investments in several fund of funds limited partnerships. | |
| (h) | Real estate primarily includes investments in real estate limited partnerships, concentrated in commercial real estate. |
The funding policy is to annually contribute amounts that are
based upon a number of factors including the actuarial accrued
liability, amounts that are deductible for income tax purposes,
legal funding requirements and available cash flow. Schlumberger
currently anticipates contributing approximately
$600 million to $650 million to its postretirement
benefit plans in 2011, subject to market and business conditions.
Postretirement
Benefits Other than Pensions
Schlumberger provides certain health care benefits to former US
employees who have retired.
The actuarial assumptions used to determine the accumulated
postretirement benefit obligation and net periodic benefit cost
for the US postretirement medical plan were as follows:
|
Benefit Obligation
|
Net Periodic Benefit Cost
|
|||||||||||||||||||
| at December 31, | for the year | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2008 | ||||||||||||||||
|
Discount rate
|
5.50 | % | 6.00 | % | 6.00 | % | 6.94 | % | 6.50 | % | ||||||||||
|
Return on plan assets
|
– | – | 8.00 | % | 8.00 | % | 8.00 | % | ||||||||||||
|
Current medical cost trend rate
|
8.00 | % | 8.00 | % | 8.00 | % | 8.00 | % | 9.00 | % | ||||||||||
|
Ultimate medical cost trend rate
|
5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | ||||||||||
|
Year that the rate reaches the ultimate trend rate
|
2017 | 2016 | 2016 | 2015 | 2012 | |||||||||||||||
69
Table of Contents
Part II, Item 8
The net periodic benefit cost for the US postretirement medical
plan included the following components:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Service cost – benefits earned during the period
|
$ | 23 | $ | 19 | $ | 23 | ||||||
|
Interest cost on projected benefit obligation
|
58 | 56 | 52 | |||||||||
|
Expected return on plan assets
|
(6 | ) | (2 | ) | (3 | ) | ||||||
|
Amortization of prior service credit
|
(21 | ) | (25 | ) | (27 | ) | ||||||
|
Amortization of net loss
|
11 | 3 | 10 | |||||||||
| 65 | 51 | 55 | ||||||||||
|
Curtailment charge
|
– | 6 | – | |||||||||
| $ | 65 | $ | 57 | $ | 55 | |||||||
The changes in the accumulated postretirement benefit
obligation, plan assets and funded status were as follows:
| (Stated in millions) | ||||||||
| 2010 | 2009 | |||||||
|
Change in Accumulated Postretirement Benefit
Obligation
|
||||||||
|
Benefit obligation at beginning of year
|
$ | 991 | $ | 862 | ||||
|
Service cost
|
23 | 19 | ||||||
|
Interest cost
|
58 | 56 | ||||||
|
Contributions by plan participants
|
4 | 5 | ||||||
|
Actuarial losses
|
8 | 67 | ||||||
|
Benefits paid
|
(33 | ) | (31 | ) | ||||
|
Impact of curtailment
|
– | 13 | ||||||
|
Benefit obligation at end of year
|
$ | 1,051 | $ | 991 | ||||
|
Change in Plan Assets
|
||||||||
|
Plan assets at fair value at beginning of year
|
$ | 58 | $ | 29 | ||||
|
Company contributions
|
248 | 47 | ||||||
|
Contributions by plan participants
|
5 | 5 | ||||||
|
Benefits paid
|
(33 | ) | (31 | ) | ||||
|
Actual return on plan assets
|
12 | 8 | ||||||
|
Plan assets at fair value at end of year
|
$ | 290 | $ | 58 | ||||
|
Unfunded Liability
|
$ | (761 | ) | $ | (933 | ) | ||
|
Amounts Recognized in Accumulated
|
||||||||
|
Other Comprehensive Income
|
||||||||
|
Actuarial losses
|
$ | 212 | $ | 223 | ||||
|
Prior service cost
|
(35 | ) | (56 | ) | ||||
| $ | 177 | $ | 167 | |||||
The unfunded position is included in
Postretirement Benefits
in the
Consolidated Balance Sheet.
The assets of the US postretirement medical plan are invested
60% in US equity securities and 40% in government and
government-related debt securities. The fair value of these
assets were determined based on quoted prices in active markets
for identical instruments.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the US postretirement medical plan.
A one percentage point change in assumed health care cost trend
rates would have the following effects:
| (Stated in millions) | ||||||||
|
One percentage
|
One percentage
|
|||||||
| point increase | point decrease | |||||||
|
Effect on total service and interest cost components
|
$ | 15 | $ | (12 | ) | |||
|
Effect on accumulated postretirement benefit obligation
|
$ | 177 | $ | (145 | ) | |||
70
Table of Contents
Part II, Item 8
Other
Information
The expected benefits to be paid under the US and International
pension plans as well as the postretirement medical plan (which
is disclosed net of the annual Medicare Part D subsidy,
which ranges from $3 million to $7 million per year)
were as follows:
| (Stated in millions) | ||||||||||||
| Pension Benefits |
Postretirement
|
|||||||||||
| US | International | Medical Plan | ||||||||||
|
2011
|
$ | 125 | $ | 134 | $ | 40 | ||||||
|
2012
|
129 | 146 | 43 | |||||||||
|
2013
|
134 | 158 | 46 | |||||||||
|
2014
|
139 | 170 | 50 | |||||||||
|
2015
|
145 | 182 | 53 | |||||||||
|
2016- 2020
|
856 | 1,083 | 312 | |||||||||
Included in
Accumulated Other Comprehensive Income
at
December 31, 2010 are non-cash pretax charges which have
not yet been recognized in net periodic benefit cost. The
estimated amounts that will be amortized from the estimated
portion of each component of
Accumulated Other Comprehensive
Income
which is expected to be recognized as a component of
net periodic benefit cost during the year-ending
December 31, 2011 are as follows:
| (Stated in millions) | ||||||||
|
Postretirement
|
||||||||
|
Pension
|
Medical
|
|||||||
| Plans | Plan | |||||||
|
Net actuarial losses
|
$ | 89 | $ | 11 | ||||
|
Prior service cost/(credit)
|
$ | 132 | $ | (12 | ) | |||
In addition to providing defined pension benefits and a
postretirement medical plan, Schlumberger and its subsidiaries
have other deferred benefit programs, primarily profit sharing
and defined contribution pension plans. Expenses for these
programs were $403 million, $418 million and
$482 million in 2010, 2009 and 2008, respectively.
| 19. | Supplementary Information |
Cash paid for interest and income taxes was as follows:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Interest
|
$ | 234 | $ | 249 | $ | 289 | ||||||
|
Income taxes
|
$ | 571 | $ | 665 | $ | 1,158 | ||||||
Accounts payable and accrued liabilities
are summarized
as follows:
| (Stated in millions) | ||||||||
| 2010 | 2009 | |||||||
|
Payroll, vacation and employee benefits
|
$ | 1,414 | $ | 1,047 | ||||
|
Trade
|
2,649 | 1,793 | ||||||
|
Other
|
2,425 | 2,163 | ||||||
| $ | 6,488 | $ | 5,003 | |||||
Interest and other income, net
includes the following:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Interest income
|
$ | 50 | $ | 61 | $ | 119 | ||||||
|
Equity in net earnings of affiliated companies:
|
– | |||||||||||
|
M-I SWACO
|
78 | 131 | 210 | |||||||||
|
Others
|
86 | 78 | 83 | |||||||||
|
Other
|
– | 3 | – | |||||||||
| $ | 214 | $ | 273 | $ | 412 | |||||||
71
Table of Contents
Part II, Item 8
Allowance for doubtful accounts
is as follows:
| (Stated in millions) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 160 | $ | 133 | $ | 86 | ||||||
|
Provision
|
38 | 54 | 65 | |||||||||
|
Amounts written off
|
(13 | ) | (27 | ) | (18 | ) | ||||||
|
Balance at end of year
|
$ | 185 | $ | 160 | $ | 133 | ||||||
Discontinued
Operations
During the fourth quarter of 2009, Schlumberger recorded a net
$22 million charge related to the resolution of a customs
assessment pertaining to its former offshore contract drilling
business, as well as the resolution of certain contingencies
associated with other previously disposed of businesses. This
amount is included in
Income (Loss) from Discontinued
Operations
in the
Consolidated Statement of Income
.
During the first quarter of 2008, Schlumberger recorded a gain
of $38 million related to the resolution of a contingency
associated with a previously disposed of business. This gain is
included in
Income (Loss) from Discontinued Operations
in
the
Consolidated Statement of Income
.
72
Table of Contents
Part II, Item 8
Management’s
Report on Internal Control Over Financial Reporting
The management of Schlumberger Limited is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a –
15(f) of the Securities Exchange Act of 1934, as amended.
Schlumberger Limited’s internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Schlumberger Limited management assessed the effectiveness of
its internal control over financial reporting as of
December 31, 2010. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in
Internal
Control – Integrated Framework.
Based on this
assessment Schlumberger Limited management has concluded that,
as of December 31, 2010, its internal control over
financial reporting is effective based on those criteria.
The effectiveness of Schlumberger Limited’s internal
control over financial reporting as of December 31, 2010,
has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
73
Table of Contents
Table of Contents
(Unaudited)
The following table summarizes Schlumberger’s results by
quarter for the years ended December 31, 2010 and 2009.
| (Stated in millions except per share amounts) | ||||||||||||||||||||
|
Earnings per
|
||||||||||||||||||||
|
Net Income
|
share of
|
|||||||||||||||||||
|
Gross
|
attributable to
|
Schlumberger 2 | ||||||||||||||||||
| Revenue | Margin 1,2 | Schlumberger 2 | Basic | Diluted | ||||||||||||||||
|
Quarters-2010
|
||||||||||||||||||||
|
First
3
|
$ | 5,598 | $ | 1,256 | $ | 672 | $ | 0.56 | $ | 0.56 | ||||||||||
|
Second
|
5,937 | 1,361 | 818 | 0.69 | 0.68 | |||||||||||||||
|
Third
4
|
6,845 | 1,461 | 1,734 | 1.39 | 1.38 | |||||||||||||||
|
Fourth
5
|
9,067 | 1,870 | 1,043 | 0.76 | 0.76 | |||||||||||||||
| $ | 27,447 | $ | 5,948 | $ | 4,267 | $ | 3.41 | $ | 3.38 | |||||||||||
|
Quarters-2009
|
||||||||||||||||||||
|
First
|
$ | 6,000 | $ | 1,490 | $ | 938 | $ | 0.78 | $ | 0.78 | ||||||||||
|
Second
6
|
5,528 | 1,333 | 613 | 0.51 | 0.51 | |||||||||||||||
|
Third
|
5,430 | 1,286 | 787 | 0.66 | 0.65 | |||||||||||||||
|
Fourth
|
5,744 | 1,346 | 795 | 0.66 | 0.65 | |||||||||||||||
| $ | 22,702 | $ | 5,457 | $ | 3,134 | $ | 2.62 | $ | 2.59 | |||||||||||
| 1. | Gross margin equals Revenue less Cost of revenue . | |
| 2. | Amounts may not add due to rounding. | |
| 3. | Net income in the first quarter of 2010 includes after-tax charges of $75 million. | |
| 4. | Net income in the third quarter of 2010 includes net after-tax credits of $859 million. | |
| 5. | Net income in the fourth quarter of 2010 includes after-tax charges of $121 million. | |
| 6. | Net income in the second quarter of 2009 includes after-tax charges of $207 million. | |
| * | Mark of Schlumberger |
| Item 9 . | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . |
None.
| Item 9A . | Controls and Procedures . |
Schlumberger has carried out an evaluation under the supervision
and with the participation of Schlumberger’s management,
including the Chief Executive Officer (“CEO”) and the
Chief Financial Officer (“CFO”), of the effectiveness
of the design and operation of Schlumberger’s disclosure
controls and procedures. Based upon Schlumberger’s
evaluation, the CEO and the CFO have concluded that, as of
December 31, 2010, the disclosure controls and procedures
were effective to provide reasonable assurance that information
required to be disclosed in the reports Schlumberger files and
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in SEC rules and forms.
There has been no change in Schlumberger’s internal control
over financial reporting that occurred during the quarter ended
December 31, 2010 that has materially affected, or is
reasonably likely to materially affect, Schlumberger’s
internal control over financial reporting.
See Management’s Report on Internal Control Over Financial
Reporting.
| Item 9B . | Other Information . |
None.
75
Table of Contents
| Item 10 . | Directors, Executive Officers and Corporate Governance of Schlumberger . |
See “Item 4. Submission of Matters to a Vote of
Security Holders – Executive Officers of
Schlumberger” of this Report for Item 10 information
regarding executive officers of Schlumberger. The information
under the captions “Election of Directors,”
“Section 16(a) Beneficial Ownership Reporting
Compliance,” “Corporate Governance –
Director Nominations” and “Corporate
Governance – Board Committees – Audit
Committee” in Schlumberger’s 2011 Proxy Statement is
incorporated herein by reference.
Schlumberger has adopted a Code of Ethics that applies to all of
its directors, officers and employees, including its principal
executive, financial and accounting officers, or persons
performing similar functions. Schlumberger’s Code of Ethics
is posted on its corporate governance website located at
www.slb.com/ir
. In addition, amendments to the Code of
Ethics and any grant of a waiver from a provision of the Code of
Ethics requiring disclosure under applicable SEC rules will be
disclosed on Schlumberger’s corporate governance website
located at
www.slb.com/ir
.
| Item 11 . | Executive Compensation . |
The information set forth under the captions “Compensation
Discussion and Analysis,” “Executive
Compensation,” “Compensation Committee Report”
and “Director Compensation” in Schlumberger’s
2011 Proxy Statement is incorporated herein by reference.
| Item 12 . | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . |
The information under the captions “Security Ownership by
Certain Beneficial Owners” and “Security Ownership by
Management” in Schlumberger’s 2011 Proxy Statement is
incorporated herein by reference.
Equity
Compensation Plan Information
The table below sets forth the following information as of
December 31, 2010 for (1) all compensation plans
previously approved by our stockholders and (2) all
compensation plans not previously approved by our stockholders.
|
(c) Number of securities
|
||||||||||||
|
(a) Number of securities
|
remaining available for
|
|||||||||||
|
to be issued upon exercise of
|
(b) Weighted-average exercise
|
future issuance
|
||||||||||
|
outstanding options,
|
price of such outstanding
|
under equity
|
||||||||||
|
Plan Category
|
warrants and rights | options, warrants and rights | compensation plans * | |||||||||
|
Equity compensation plans approved by security holders
|
39,721,715 | $ | 52.24 | 31,458,983 | ||||||||
|
Equity compensation plans not approved by security holders
|
N/A | N/A | N/A | |||||||||
| 39,721,715 | $ | 52.24 | 31,458,983 | |||||||||
| * | Excluding securities reflected in column (a) |
Equity compensation plans approved by Schlumberger stockholders
include the Schlumberger 1994 Stock Option Plan, as amended; the
Schlumberger 1998 Stock Option Plan, as amended; the
Schlumberger 2001 Stock Option Plan, as amended; the
Schlumberger 2005 Stock Incentive Plan, as amended; the
Schlumberger 2008 Stock Incentive Plan, as amended; the 2010
Schlumberger Omnibus Stock Incentive Plan; the Schlumberger
Discounted Stock Purchase Plan, as amended and the Schlumberger
2004 Stock and Deferral Plan for Non-Employee Directors.
76
Table of Contents
| Item 13 . | Certain Relationships and Related Transactions, and Director Independence . |
The information under the captions “Corporate
Governance – Director Independence” and
“Corporate Governance – Policies and Procedures
for Approval of Related Person Transactions” in
Schlumberger’s 2011 Proxy Statement is incorporated herein
by reference.
| Item 14 . | Principal Accounting Fees and Services . |
The information under the caption “Appointment of
Independent Registered Public Accounting Firm” in
Schlumberger’s 2011 Proxy Statement is incorporated herein
by reference.
77
Table of Contents
| Item 15 . | Exhibits and Financial Statement Schedules . |
(a) The following documents are filed as part of this
Report:
| Page(s) | ||||
|
(1) Financial Statements
|
||||
| 36 | ||||
| 37 | ||||
| 38 | ||||
| 39 and 40 | ||||
| 41 to 72 | ||||
| 74 | ||||
| 75 | ||||
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) | Exhibits: the exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-K. |
78
Table of Contents
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.
|
Date: February 4, 2011
|
Schlumberger Limited | |
|
By:
/s/
Howard
Guild
Howard
Guild
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.
| Name | Title | |||
|
*
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|||
|
/s/
Simon
Ayat
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||
|
/s/
Howard
Guild
|
Chief Accounting Officer
(Principal Accounting Officer) |
|||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
79
Table of Contents
| Name | Title | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
/s/
Alexander
C. Juden
|
February 4, 2011 | |||
80
Table of Contents
INDEX TO
EXHIBITS
| Exhibit | ||||
|
Articles of Incorporation of Schlumberger Limited (Schlumberger
N.V.), as last amended on April 12, 2006 (incorporated by
reference to Exhibit 3.1 to Schlumberger’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2006)
|
3 | .1 | ||
|
Amended and Restated By-Laws of Schlumberger Limited
(Schlumberger N.V.), as last amended on April 21, 2005
(incorporated by reference to Exhibit 3.1 to Schlumberger’s
Current Report on Form 8-K filed on April 22, 2005)
|
3 | .2 | ||
|
Indenture dated as of June 9, 2003, by and between Schlumberger
Limited and Citibank, N.A., as Trustee (incorporated by
reference to Exhibit 4.3 to Schlumberger’s Registration
Statement on Form S-3 filed on September 12, 2003)
|
4 | .1 | ||
|
First Supplemental Indenture dated as of June 9, 2003, by and
between Schlumberger Limited and Citibank, N.A., as Trustee
(incorporated by reference to Exhibit 4.4 to Schlumberger’s
Registration Statement on Form S-3 filed on September 12, 2003)
|
4 | .2 | ||
|
Schlumberger 1994 Stock Option Plan, as conformed to include
amendments through January 1, 2009 (incorporated by reference to
Exhibit 10.1 to Schlumberger’s Annual Report on Form 10-K
for year ended December 31, 2008) (+)
|
10 | .1 | ||
|
Schlumberger Limited Supplementary Benefit Plan, as conformed to
include amendments through January 1, 2009 (incorporated by
reference to Exhibit 10.2 to Schlumberger’s Annual Report
on Form 10-K for year ended December 31, 2008) (+)
|
10 | .2 | ||
|
Schlumberger Limited Restoration Savings Plan, as conformed to
include amendments through January 1, 2009 (incorporated by
reference to Exhibit 10.3 to Schlumberger’s Annual Report
on Form 10-K for year ended December 31, 2008) (+)
|
10 | .3 | ||
|
Schlumberger 1998 Stock Option Plan, as conformed to include
amendments through January 1, 2009 (incorporated by reference to
Exhibit 10.4 to Schlumberger’s Annual Report on Form 10-K
for year ended December 31, 2008) (+)
|
10 | .4 | ||
|
Schlumberger 2001 Stock Option Plan, as conformed to include
amendments through January 1, 2009 (incorporated by reference to
Exhibit 10.5 to Schlumberger’s Annual Report on Form 10-K
for year ended December 31, 2008) (+)
|
10 | .5 | ||
|
Schlumberger 2005 Stock Incentive Plan, as conformed to include
amendments through January 1, 2009 (incorporated by reference to
Exhibit 10.6 to Schlumberger’s Annual Report on Form 10-K
for year ended December 31, 2008) (+)
|
10 | .6 | ||
|
Schlumberger Limited 2004 Stock and Deferral Plan for
Non-Employee Directors, as conformed to include amendments
through January 1, 2009 (incorporated by reference to Exhibit
10.7 to Schlumberger’s Annual Report on Form 10-K for year
ended December 31, 2008) (+)
|
10 | .7 | ||
|
Schlumberger 2008 Stock Incentive Plan, as conformed to include
amendments through January 1, 2009 (incorporated by reference to
Exhibit 10.8 to Schlumberger’s Annual Report on Form 10-K
for year ended December 31, 2008) (+)
|
10 | .8 | ||
|
Form of Option Agreement, Capped Incentive Stock Option
(incorporated by reference to Exhibit 10.1 to
Schlumberger’s Current Report on Form 8-K filed on January
19, 2006) (+)
|
10 | .9 | ||
|
Form of Option Agreement, Capped Non-Qualified Stock Option
(incorporated by reference to Exhibit 10.2 to
Schlumberger’s Current Report on Form 8-K filed on January
19, 2006) (+)
|
10 | .10 | ||
|
Form of Option Agreement, Uncapped Incentive Stock Option (for
2001, 2005 and 2008 stock plans) (incorporated by reference to
Exhibit 10.11 to Schlumberger’s Annual Report on Form 10-K
for year ended December 31, 2009) (+)
|
10 | .11 | ||
81
Table of Contents
| Exhibit | ||||
|
Form of Option Agreement, Uncapped Non-Qualified Stock Option
(for 2001, 2005 and 2008 stock plans) (incorporated by reference
to Exhibit 10.12 to Schlumberger’s Annual Report on Form
10-K for year ended December 31, 2009) (+)
|
10 | .12 | ||
|
Form of Smith International, Inc. 2010 Form of Restricted Stock
Unit Agreement (incorporated by reference to Exhibit 10.3 to
Schlumberger’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2010) (+)
|
10 | .13 | ||
|
Employment Agreement dated March 9, 2010 and effective as of
February 9, 2010, between Schlumberger Limited and Chakib Sbiti
(incorporated by reference to Exhibit 10.3 to
Schlumberger’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010) (+)
|
10 | .14 | ||
|
Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.1 to Schlumberger’s Current Report on Form 8-K
filed on April 22, 2005)
|
10 | .15 | ||
|
Subsidiaries (*)
|
21 | |||
|
Consent of Independent Registered Public Accounting Firm (*)
|
23 | |||
|
Powers of Attorney (*)
|
||||||
|
Philippe Camus
|
dated: | |||||
|
Peter L.S. Currie
|
January 20, 2011 | |||||
|
Andrew Gould
|
||||||
|
Tony Isaac
|
||||||
|
K.V. Kamath
|
||||||
|
Nikolay Kudryavtsev
|
||||||
|
Adrian Lajous
|
||||||
|
Michael E. Marks
|
||||||
|
Elizabeth Moler
|
||||||
|
Leo Rafael Reif
|
||||||
|
Tore I. Sandvold
|
||||||
|
Henri Seydoux
|
24 |
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (*)
|
31.1 | |||
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (*)
|
31.2 | |||
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (*)
|
32.1 | |||
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (*)
|
32.2 | |||
|
The following materials from Schlumberger Limited’s Annual
Report on Form 10-K for the year ended December 31, 2010,
formatted in XBRL: (i) Consolidated Statement of Income, (ii)
Consolidated Balance Sheet, (iii) Consolidated Statement of Cash
Flows, (iv) Consolidated Statement of Equity and (v) Notes to
Consolidated Financial Statements, tagged as blocks of text. (*)
|
101 | |||
|
(*) Exhibits physically filed with this Form 10-K.
All other exhibits are incorporated by reference.
|
||||
|
(+) Management contracts or compensatory plans or
arrangements.
|
82
TABLE OF CONTENTS
Part I, Item 4Part Ii, Item 5Part IIItem 5. Market For Schlumberger S Common Stock, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesPart Ii, Item 5, 6Item 6. Selected Financial DataPart Ii, Item 7Item 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsPart Ii, Item 7AItem 7A. Quantitative and Qualitative Disclosures About Market RiskPart Ii, Item 8Item 8. Financial Statements and Supplementary DataPart Ii, Item 8, 9, 9a, 9BItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart Iii, Item 10, 11, 12Part IIIItem 10. Directors, Executive Officers and Corporate Governance Of SchlumbergerItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersPart Iii, Item 13, 14Item 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart Iv, Item 15Part IVItem 15. Exhibits and Financial Statement Schedules