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SCHLUMBERGER LIMITED 10-Q 2006

Documents found in this filing:

  1. 10-Q
  2. Ex-3.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
Form 10-Q
Table of Contents

 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter ended: March 31, 2006

 


 

Commission file No.: 1-4601

 

Schlumberger N.V. (Schlumberger Limited)

(Exact name of registrant as specified in its charter)

 

Netherlands Antilles   52-0684746

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification No.)

153 East 53 Street, 57th Floor

New York, New York, U.S.A.

  10022

42, rue Saint-Dominique

Paris, France

  75007

Parkstraat 83, The Hague,

The Netherlands

  2514 JG
(Addresses of principal executive offices)   (Zip Codes)

 

Registrant’s telephone number

(212) 350-9400

 

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 and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer x    Accelerated filer ¨    Non-accelerated filer ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨  NO x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class


    

Outstanding at March 31, 2006 (on a post-split basis)


Common Stock, $0.01 par value     

1,179,870,722

 



Table of Contents

 

 


 

SCHLUMBERGER LIMITED

 

Table of Contents

 

First Quarter 2006 Form 10-Q

 

          Page

PART 1

   Financial Information     

Item 1.

   Financial Statements    3

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    16

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk    22

Item 4.

   Controls and Procedures    22

PART II

   Other Information     

Item 1.

   Legal Proceedings    23

Item 1A.

   Risk Factors    23

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    23

Item 3.

   Defaults Upon Senior Securities    23

Item 4.

   Submission of Matters to a Vote of Security Holders    24

Item 5.

   Other Information    25

Item 6.

   Exhibits    25
     Signature    26


Table of Contents

Part I, Item 1 

 

PART I.   F INANCIAL INFORMATION

 

Item 1: Fina ncial Statements

 

SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS ANTILLES) AND SUBSIDIARY COMPANIES

 

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(Stated in thousands except per share amounts)       
Three Months Ended March 31,    2006      2005  

Operating revenue

   $ 4,239,017      $ 3,159,111  

Interest & other income

     65,492        188,553  

Expenses

                 

Cost of goods sold & services

     2,994,794        2,405,132  

Research & engineering

     129,406        121,220  

Marketing

     13,166        10,062  

General & administrative

     97,224        85,422  

Interest

     47,844        46,562  


  


Income from Continuing Operations before taxes and minority interest

     1,022,075        679,266  

Taxes on income

     256,651        137,696  


  


Income from Continuing Operations before minority interest

     765,424        541,570  

Minority interest

     (42,913 )      (17,133 )


  


Income from Continuing Operations

     722,511        524,437  

Loss from Discontinued Operations

            (1,028 )


  


Net Income

   $ 722,511      $ 523,409  
    


  


Basic earnings per share:

                 

Income from Continuing Operations

   $ 0.61      $ 0.44  

Loss from Discontinued Operations

             


  


Net Income

   $ 0.61      $ 0.44  
    


  


Diluted earnings per share:

                 

Income from Continuing Operations

   $ 0.59      $ 0.43  

Loss from Discontinued Operations

             


  


Net Income

   $ 0.59      $ 0.43  
    


  


Average shares outstanding:

                 

Basic

     1,180,344        1,178,666  

Assuming dilution

     1,240,694        1,227,530  

 

See Notes to Consolidated Financial Statements

 

3


Table of Contents

Part I, Item 1

 

 

SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS ANTILLES) AND SUBSIDIARY COMPANIES

 

CONSOLIDATED BALANCE SHEET

 

(Stated in thousands)  
     Mar. 31, 2006
(Unaudited)
     Dec. 31, 2005  

ASSETS

                 

Current Assets:

                 

Cash

   $ 153,317      $ 190,954  

Short-term investments

     3,080,525        3,304,727  

Receivables less allowance for doubtful accounts

    (2006 – $105,242; 2005 – $102,879)

     3,760,505        3,383,803  

Inventories

     1,063,471        1,010,448  

Deferred taxes

     181,745        233,167  

Other current assets

     448,040        430,814  


  


       8,687,603        8,553,913  

Fixed Income Investments, held to maturity

     401,750        359,750  

Investments in Affiliated Companies

     1,031,413        988,781  

Fixed Assets

     4,410,817        4,200,638  

Multiclient Seismic Data

     206,609        222,106  

Goodwill

     2,983,147        2,922,465  

Intangible Assets

     306,862        319,929  

Deferred Taxes

     323,266        331,037  

Other Assets

     190,069        178,873  


  


     $ 18,541,536      $ 18,077,492  
    


  


LIABILITIES & STOCKHOLDERS’ EQUITY

                 

Current Liabilities:

                 

Accounts payable and accrued liabilities

   $ 3,301,342      $ 3,564,854  

Estimated liability for taxes on income

     1,085,610        1,028,571  

Dividend payable

     148,383        124,733  

Long-term debt – current portion

     227,150        269,158  

Bank & short-term loans

     575,046        527,420  


  


       5,337,531        5,514,736  

Long-term Debt

     3,635,156        3,591,338  

Postretirement Benefits

     722,889        707,040  

Other Liabilities

     165,772        167,611  


  


       9,861,348        9,980,725  


  


Minority Interest

     548,775        505,182  


  


Stockholders’ Equity:

                 

Common stock

     2,883,010        2,750,570  

Income retained for use in the business

     8,574,774        7,999,770  

Treasury stock at cost

     (2,277,087 )      (2,113,276 )

Accumulated other comprehensive loss

     (1,049,284 )      (1,045,479 )


  


       8,131,413        7,591,585  


  


     $ 18,541,536      $ 18,077,492  
    


  


 

See Notes to Consolidated Financial Statements

 

4


Table of Contents

Part I, Item 1 

 

 

SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS ANTILLES) AND SUBSIDIARY COMPANIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

(Stated in thousands)             
Three Months Ended Mar. 31,    2006

    2005

 

Cash flows from operating activities:

                

Net Income

   $ 722,511     $ 523,409  

Adjustments to reconcile income from continuing operations to cash provided by operating activities:

                

Depreciation and amortization(1)

     354,603       328,465  

Charges and credits, net of tax & minority interest(2)

           (134,381 )

Loss from discontinued operations

           1,028  

Earnings of companies carried at equity, less dividends received

     (30,672 )     (23,506 )

Deferred income taxes

     61,963       (9,218 )

Stock based compensation expense

     25,828       8,845  

Provision for losses on accounts receivable

     5,692       5,807  

Change in operating assets and liabilities(3)

                

Increase in receivables

     (379,142 )     (331,263 )

Increase in inventories

     (49,715 )     (55,737 )

Increase in other current assets

     (17,186 )     (41,526 )

Decrease in accounts payable and accrued liabilities

     (237,009 )     (18,820 )

Increase in estimated liability for taxes on income

     56,058       74,527  

Increase in postretirement benefits

     15,849       20,883  

Other – net

     36,444       5,501  


 


NET CASH PROVIDED BY OPERATING ACTIVITIES

     565,224       354,014  


 


Cash flows from investing activities:

                

Purchase of fixed assets

     (466,945 )     (315,381 )

Multiclient seismic data capitalized

     (32,494 )     (16,071 )

Capitalization of intangible assets

     (7,126 )     (9,027 )

Proceeds from business divestitures

           21,871  

Business acquisitions and related payments

     (66,338 )      

Sale of Montrouge facility

           229,801  

Sale (purchase) of investments, net

     184,470       (72,133 )

Other

     (39,807 )     (762 )


 


NET CASH USED BY INVESTING ACTIVITIES

     (428,240 )     (161,702 )


 


Cash flows from financing activities:

                

Dividends paid

     (123,857 )     (110,339 )

Proceeds from employee stock purchase plan

     7,355       5,837  

Proceeds from exercise of stock options

     156,352       45,775  

Stock repurchase program

     (254,296 )     (73,007 )

Decrease in commercial paper and long-term debt

     (9,095 )     (72,284 )

Net increase in short-term debt

     48,964       11,571  


 


NET CASH USED BY FINANCING ACTIVITIES

     (174,577 )     (192,447 )


 


Discontinued operations – operating activities            (1,028 )


 


Net decrease in cash before translation effect

     (37,593 )     (1,163 )

Translation effect on cash

     (44 )     (99 )

Cash, beginning of period

     190,954       223,503  


 


CASH, END OF PERIOD

   $ 153,317     $ 222,241  
    


 


 

(1)   Includes multiclient seismic data costs.
(2)   See Note 2 – Charges and Credits.
(3)   Net of the effect of business acquisitions and divestitures.

 

See Notes to Consolidated Financial Statements

 

5


Table of Contents

Part I, Item 1

 

SCHLUMBERGER LIMITED (SCHLUMBERGER N.V., INCORPORATED IN THE NETHERLANDS ANTILLES) AND SUBSIDIARY COMPANIES

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

 

(Stated in thousands)  
    Common Stock

          Accumulated Other Comprehensive
Income (Loss)


       
    Issued   In
Treasury
    Retained
Income
    Marked to
Market
    Pension
Liability
    Translation
Adjustment
    Comprehensive
Income (Loss)
 

Balance, January 1, 2006

  $ 2,750,570   $ (2,113,276 )   $ 7,999,770     $ (17,042 )   $ (291,486 )   $ (736,951 )   $ 2,102,481  
                                                 


Net income

                  722,511                               722,511  

Derivatives marked to market, net of tax

                          7,330                       7,330  

Translation adjustment

                                          (4,056 )     (4,056 )

Minimum pension liability

                                  (7,381 )             (7,381 )

Tax benefit on minimum pension liability

                                  302               302  

Dividends declared

                  (147,507 )                                

Stock repurchase plan

          (254,296 )                                        

Proceeds from employee stock purchase plan

    25,149     15,596                                          

Proceeds from shares sold to optionees less shares exchanged

    81,463     74,889                                          

Stock based compensation cost

    25,828                                                

 


 


 


 


 


 


Balance, March 31, 2006

  $ 2,883,010   $ (2,277,087 )   $ 8,574,774     $ (9,712 )   $ (298,565 )   $ (741,007 )   $ 718,706  
   

 


 


 


 


 


 


 

SHARES OF COMMON STOCK (Unaudited)

 

     Issued    In Treasury      Shares
Outstanding
 

Balance, January 1, 2006

   1,334,212,164    (156,607,946 )    1,177,604,218  

Employee stock plan

      1,155,466      1,155,466  

Stock repurchase plan

      (4,428,800 )    (4,428,800 )

Shares sold to optionees less shares exchanged

      5,539,838      5,539,838  

  

  

Balance, March 31, 2006

   1,334,212,164    (154,341,442 )    1,179,870,722  
    
  

  

 

See Notes to Consolidated Financial Statements

 

6


Table of Contents

Part I, Item 1

 

Notes to Consolidated Financial Statements

(Unaudited)

 

1.    Basis of Presentation

 

The accompanying unaudited consolidated financial statements, which include the accounts of Schlumberger Limited (“Schlumberger”) and its subsidiaries, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying unaudited financial statements. All intercompany transactions and balances have been eliminated in consolidation. Operating results for the three-month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2006. The December 31, 2005 balance sheet information has been derived from the audited 2005 financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto, included in Schlumberger’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission on February 24, 2006.

On January 19, 2006, the Board of Directors of Schlumberger approved a two-for-one split of the Company’s common stock. Stockholders of record as of March 1, 2006 were entitled to one additional share for every share outstanding, which was distributed on April 7, 2006. The total number of authorized common stock shares and associated par value were unchanged by this action. All share, per share and stock option amounts included in the accompanying Consolidated Financial Statements and related notes have been restated to reflect the effect of the stock split.

 

2.    Charges and Credits

 

2005

 

In March 2005, Schlumberger sold its facility in Montrouge, France for $230 million resulting in a pretax and after-tax gain of approximately $146 million, which is classified in Interest & other income in the Consolidated Statement of Income. This transaction allowed for the utilization of a deferred tax asset that was previously offset by a valuation allowance of approximately $51 million. Schlumberger also recorded other real estate related pretax charges of approximately $12 million ($11 million after-tax), which are classified in Cost of goods sold & services in the Consolidated Statement of Income.

The following is a summary of 2005 Charges and Credits:

 

(Stated in millions)

                        
     Pretax      Tax    Net  

Charges and Credits

                        

- Gain on sale of Montrouge facility

   $ (146 )    $    $ (146 )

- Other real estate related charges

     12        1      11  


  

  


Net Credits

   $ (134 )    $ 1    $ (135 )
    


  

  


 

3.    Business Divestitures—Discontinued Operations

 

During the first quarter of 2005, Schlumberger completed the sales of its Global Tel*Link, Public Phones and Essentis businesses for $18 million in cash. Schlumberger recognized $8 million revenue in 2005 relating to these divested businesses.

 

7


Table of Contents

Part I, Item 1 

 

 

4.    Earnings Per Share

 

The following is a reconciliation from basic earnings per share to diluted earnings per share from continuing operations:

 

(Stated in thousands except per share amounts)                         
     2006    2005

Three Months


   Income from
Continuing
Operations


   Average
Shares
Outstanding


   Earnings Per
Share from
Continuing
Operations


   Income from
Continuing
Operations


   Average
Shares
Outstanding


   Earnings Per
Share from
Continuing
Operations


Basic

   $ 722,511    1,180,344    $ 0.61    $ 524,437    1,178,666    $ 0.44
                

              

Assumed conversion of debentures

     7,197    38,210             7,197    38,210       

Assumed exercise of stock options

        22,140                10,654       
    

  
         

  
      

Diluted

   $ 729,708    1,240,694    $ 0.59    $ 531,634    1,227,530    $ 0.43
    

  
  

  

  
  

 

At March 31, 2005, approximately 16.2 million of outstanding options to purchase shares of common stock were not included in the computation of diluted earnings per share because to do so would have had an antidilutive effect.

 

5.    Acquisitions

 

During the first quarter of 2006, Schlumberger acquired a business for $10 million in cash and made a payment of $56 million in respect of a transaction that was consummated in prior years.

 

6.    Investments in Affiliated Companies

 

Schlumberger and Smith International Inc. operate a drilling fluids joint venture of which Schlumberger owns a 40% interest and records income using the equity method of accounting. Schlumberger’s investment on March 31, 2006 was $842 million and on December 31, 2005 was $802 million. Schlumberger’s equity income from this joint venture was $28 million in 2006 and $19 million in 2005.

 

7.    Securitization

 

A wholly owned subsidiary of Schlumberger had an agreement to borrow up to $250 million and sell, on an ongoing basis, an undivided interest in its accounts receivable. The amount of receivables sold under this agreement totaled $470 million at December 31, 2005 (of which $34 million was drawn). Schlumberger terminated this agreement in the first quarter of 2006.

 

8.    Inventory

 

A summary of inventory follows:

 

(Stated in millions)          
     Mar. 31
2006


   Dec. 31
2005


Raw Materials & Field Materials

   $ 1,022    $ 976

Work in Process

     86      96

Finished Goods

     90      65

  

       1,198      1,137

Less reserves for obsolescence

     135      127

  

     $ 1,063    $ 1,010
    

  

 

8


Table of Contents

Part I, Item 1

 

9.    Fixed Assets

 

A summary of fixed assets follows:

 

(Stated in millions)

             
     Mar. 31
2006
   Dec. 31
2005

Property plant & equipment

   $ 12,225    $ 11,805

Less: Accumulated depreciation

     7,814      7,604

  

  

     $ 4,411    $ 4,201
    

  

 

Depreciation and amortization expense relating to fixed assets was $285 million during the first quarter of 2006 and $256 million during the first quarter of 2005.

 

10.    Multiclient Seismic Data

 

The change in the carrying amount of multiclient seismic data is as follows:

 

(Stated in millions)

        

Balance at December 31, 2005

   $ 222  

Capitalized in period

     32  

Charged to cost of goods sold & services

     (47 )

  


Balance at March 31, 2006

   $ 207  
    


 

11.    Goodwill

 

The changes in the carrying amount of goodwill by business segment for the three months ended March 31, 2006 are as follows:

 

(Stated in millions)

                    
     Oilfield
Services
   Western
Geco
   Total

Balance at December 31, 2005

   $ 2,676    $ 246    $ 2,922

Additions

     60           60

Impact of change in exchange rates

     1           1

  

  

  

Balance at March 31, 2006

   $ 2,737    $ 246    $ 2,983
    

  

  

 

12.    Intangible Assets

 

A summary of intangible assets follows:

 

(Stated in millions)

             
     Mar. 31
2006
   Dec. 31
2005

Gross book value

   $ 639    $ 630

Less: Accumulated amortization

     332      310

  

  

     $ 307    $ 320
    

  

 

The amortization charged to income was $21 million during the first quarter of 2006 and $20 million during the first quarter of 2005.

 

9


Table of Contents

Part I, Item 1

 

At March 31, 2006, the gross book value, accumulated amortization and amortization periods of intangible assets were as follows:

 

(Stated in millions)

                  
     Gross
Book Value
   Accumulated
Amortization
   Amortization
Periods

Software

   $ 427    $ 200    5 – 10 years

Technology

     152      103    5 – 10 years

Patents

     12      9    5 – 10 years

Other

     48      20    1 – 15 years

  

  

    
     $ 639    $ 332     
    

  

    

 

The weighted average remaining amortization period for all intangible assets based on the net book value at March 31, 2006 is approximately 4 years.

 

13.    Stock-Based Compensation

 

As of March 31, 2006, Schlumberger had two types of stock-based compensation plans (see Note 18), which are described in the Schlumberger 2005 Annual Report on Form 10-K. Effective January 1, 2003, Schlumberger adopted the fair value recognition provisions of SFAS Nos. 123 and 148. Schlumberger began recording stock option and discounted stock purchase plan (DSPP) expense in the Consolidated Statement of Income in the third quarter of 2003 on a prospective basis for grants after January 1, 2003.

In December 2004, the Financial Accounting Standards Board issued SFAS 123R (Share-Based Payment). The standard amends SFAS 123 (Accounting for Stock Based Compensation) and concludes that services received from employees in exchange for stock-based compensation results in a cost to the employer that must be recognized in the financial statements. The cost of such awards should be measured at fair value at the date of grant.

Schlumberger adopted SFAS 123R effective January 1, 2006, and is applying the modified prospective method, whereby compensation cost will be recognized for the unvested portion of awards granted during the period of January 1, 1995 to December 31, 2002. Such costs will be recognized in the financial statements of Schlumberger over the remaining vesting periods. Under this method, prior periods are not revised for comparative purposes. The adoption of this standard resulted in Schlumberger recording $6 million of additional stock-based compensation charges in the first quarter of 2006 and it will result in an additional $5 million being recognized per quarter throughout the remainder of 2006.

Schlumberger recorded stock-based compensation expense relating to stock options of $22.5 million during the first quarter of 2006 (inclusive of the adoption of SFAS 123R) and $5.9 million during the first quarter of 2005. Schlumberger also recorded stock-based compensation expense relating to the DSPP of $3.3 million during the first quarter of 2005 and $3.0 million during the first quarter of 2005.

As of March 31, 2006, there was $221 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, including the DSPP. Approximately $65 million is expected to be recognized over the remainder of 2006, $67 million is expected to be recognized in 2007, $52 million in 2008 and $37 million in 2009.

 

10


Table of Contents

Part I, Item 1

 

Schlumberger applied the intrinsic value method of APB Opinion 25 for grants prior to January 1, 2003. Had compensation cost for stock-based awards granted prior to January 1, 2003 been determined based on the fair value at the grant dates, consistent with the method of SFAS 123, Schlumberger’s net income and earnings per share would have been the pro forma amounts indicated below:

 

(Stated in millions except per share amounts)

               
     Period Ended
March 31,


 
     2006    2005  

Net income

               

As reported

   $ 723    $ 523  

Proforma adjustments:

               

Cost of Stock Options

          (11 )

  

  


Proforma

   $ 723    $ 512  
    

  


Basic earnings per share

               

As reported

   $ 0.61    $ 0.44  

Proforma adjustments:

               

Cost of Stock Options

          (0.01 )

  

  


Pro forma

   $ 0.61    $ 0.43  
    

  


Diluted earnings per share

               

As reported

   $ 0.59    $ 0.43  

Proforma adjustments:

               

Cost of Stock Options

          (0.01 )

  

  


Pro forma

   $ 0.59    $ 0.42  
    

  


 

The fair value of each stock option grant in 2006 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

Dividend yield

     0.80 %

Expected volatility

     32.50 %

Risk free interest rate

     4.20 %

Expected option life

     6.0 years  

Weighted average fair value per share

   $ 37.50  

 

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:

 

Dividend yield

     1.22 %

Expected volatility

     24.20 %

Risk free interest rate

     3.38 %

Weighted average fair value per share

   $ 11.21  

 

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The following table summarizes stock option activity as of March 31, 2006:

 

     Options
(thousands)
     Weighted-
average
exercise
price
   Weighted-
average
remaining
contractual
life in
years
   Aggregate
intrinsic
value
($ millions)

Outstanding at December 31, 2005

   52,978      $ 31.37            

Granted

   7,593      $ 54.24            

Exercised

   (5,597 )    $ 28.63            

Forfeited

   (765 )    $ 24.87            


  

           

Outstanding at March 31, 2006

   54,209      $ 34.87    6.11    $ 1,540
    

  

  
  

Exercisable at March 31, 2006

   29,887      $ 32.74    4.24    $ 912
    

  

  
  

 

The total intrinsic value of options exercised during the quarter ended March 31, 2006 was $166 million.

 

14.    Income Tax

 

Pretax book income from continuing operations subject to US and non-US income taxes was as follows:

 

(Stated in millions)     
First Quarter    2006    2005

United States

   $ 321    $ 182

Outside United States

     701      497

  

Pretax income

   $ 1,022    $ 679
    

  

 

Schlumberger reported no charges or credits in the first quarter of 2006. Schlumberger reported charges and credits in continuing operations during the first quarter of 2005. These are more fully described in Note 2—Charges and Credits. US pretax results in the first quarter of 2005 included charges of $2 million. Outside the US, the pretax results in the first quarter of 2005 included a net credit of approximately $136 million, primarily relating to the sale of a facility.

The components of net deferred tax assets were as follows:

 

(Stated in millions)


     Mar. 31 2006    Dec. 31 2005

Postretirement and other long-term benefits

   $ 260    $ 262

Current employee benefits

     56      118

Fixed assets, inventory and other

     183      173

Net operating losses

     6      11

  

     $ 505    $ 564
    

  

 

The deferred tax assets relating to net operating losses at March 31, 2006 and December 31, 2005 are net of valuation allowances in certain countries of $214 million and $213 million, respectively.

 

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The components of consolidated income tax expense from continuing operations were as follows:

 

(Stated in millions)


 
First Quarter    2006      2005  

Current:

                 

United States – Federal

   $ 47      $ 54  

United States – State

     4        9  

Outside United States

     144        84  


  


     $ 195      $ 147  


  


Deferred:

                 

United States – Federal

   $ 53      $ (6 )

United States – State

     4        (1 )

Outside United States

     8        47  

Valuation allowance

     (3 )      (49 )


  


     $ 62      $ (9 )


  


Consolidated taxes on income

   $ 257      $ 138  
    


  


 

A reconciliation of the US statutory federal tax rate (35%) to the consolidated effective tax rate follows:

 

First Quarter    2006      2005  

US federal statutory rate

   35      35  

US state income taxes

   1      1  

Non US income taxed at different rates

   (8 )    (9 )

Effect of equity method investment

   (1 )    (1 )

Minority partner’s share of LLC earnings

   (1 )    (1 )

Valuation allowance (excluding impact of charges and credits)

        1  

Charges and credits

        (5 )

Other

   (1 )    (1 )


  

Effective income tax rate

   25      20  
    

  

 

Schlumberger reported no charges or credits in the first quarter of 2006. In the first quarter of 2005, the charges and credits described in Note 2 Charges and Credits, including the associated effect of changes in valuation allowance, decreased Schlumberger’s effective tax rate by five percentage points.

 

15.    Contingencies

 

The Consolidated Balance Sheet includes accruals for the estimated future costs associated with certain environmental remediation activities related to the past use or disposal of hazardous materials where it is probable that Schlumberger has incurred a liability and such amount can be reasonably estimated. Substantially all such costs relate to divested operations and to facilities or locations that are no longer in operation. Due to a number of uncertainties, including uncertainty of timing, the scope of remediation, future technology, regulatory changes, natural resource or property damage claims and other factors, it is possible that the ultimate remediation costs may exceed the amounts estimated. However, in the opinion of management, any such additional costs are not expected to be material relative to consolidated liquidity, financial position or future results of operations.

The Consolidated Balance Sheet included accruals for estimated future expenditures, relating to potential contractual obligations, associated with business divestitures that have been completed. It is possible that the ultimate expenditures may differ from the amounts recorded. In the opinion of management, such differences are not expected to be material relative to consolidated liquidity, financial position or future results of operations.

In December 2004 WesternGeco and Schlumberger received grand jury subpoenas from the United States Attorney’s office in the Southern District of Texas seeking documents relating to possible fraud in obtaining

 

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visas for non-United States citizens working as crewmembers on vessels operating in the Gulf of Mexico. WesternGeco and Schlumberger are currently in discussions with the United States Attorney’s office regarding a possible resolution of this matter.

In addition, Schlumberger and its subsidiaries are party to various other legal proceedings. A liability is accrued when a loss is both probable and can be reasonably estimable. At this time the ultimate disposition of these proceedings is not presently determinable and therefore, it is not possible to estimate the amount of loss or range of possible losses that might result from an adverse judgment or settlement in these matters. However, in the opinion of Schlumberger any liability that might ensue would not be material in relation to the consolidated liquidity, financial position or future results of operations.

Schlumberger’s joint venture agreement with Smith International, Inc., with respect to the drilling fluids joint venture, contains a provision under which either party to the joint venture may offer to sell their entire interest in the venture to the other party at a cash purchase price per percentage interest specified in an offer notice. If the offer to sell is not accepted, the offering party will be obligated to purchase the entire interest of the other party at the same price per percentage interest as the prices specified in the offer notice.

 

16.    Segment Information

 

Schlumberger operates two business segments: Oilfield Services and WesternGeco.

 

(Stated in millions)                                                     
     FIRST QUARTER 2006

    FIRST QUARTER 2005

 
     Revenue     Income
after
tax &
MI
    Minority
Interest
   Tax
Expense
    Income
before
tax &
MI
    Revenue    Income
after
tax &
MI
    Minority
Interest
   Tax
Expense
    Income
before
tax &
MI
 

OILFIELD SERVICES

                                                                             

North America

   $ 1,226     $ 245     $    $ 130     $ 375     $ 868    $ 134     $    $ 69     $ 203  

Latin America

     594       78            18       96       469      51            13       64  

Europe/CIS/W. Africa

     1,000       169       1      40       210       751      99            25       124  

Middle East & Asia

     863       238            33       271       668      153            21       174  

Elims/Other

     28       (6 )          3       (3 )     23      (9 )          3       (6 )


 


 

  


 


 

  


 

  


 


       3,711       724       1      224       949       2,779      428            131       559  


 


 

  


 


 

  


 

  


 


WESTERNGECO

     530       80       34      44       158       378      25       11      28       64  


 


 

  


 


 

  


 

  


 


Elims & Other

     (2 )     (71 )     8      (11 )     (74 )     2      (38 )     6      (21 )     (53 )


 


 

  


         

  


 

  


       
     $ 4,239     $ 733     $ 43    $ 257             $ 3,159    $ 415     $ 17    $ 138          
    


 


 

  


         

  


 

  


       

Interest Income

                                    35                                     19  

Interest Expense (1)

                                    (46 )                                   (44 )

Charges and Credits (2)

                                                                        134  
                                   


                               


                                    $ 1,022                                   $ 679  
                                   


                               


 

1.   Excludes interest expense included in the Segment results ($2 million in 2006; $2 million in 2005).
2.   See Note 2 Charges and Credits.

 

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17.    Pension and Other Postretirement Benefits

 

Net pension cost in the US for the first quarter of 2006 and 2005 included the following components:

 

(Stated in millions)              
     First Quarter

 
     2006      2005  

Service cost – benefits earned during period

   $ 15      $ 13  

Interest cost on projected benefit obligation

     28        26  

Expected return on plan assets

     (30 )      (25 )

Amortization of prior service cost/other

     2        1  

Amortization of unrecognized net loss

     7        6  


  


Net pension cost

   $ 22      $ 21  
    


  


 

During the first quarter of 2006 Schlumberger made a $200 million contribution to its US pension plans.

 

Net pension cost in the UK plan for the first quarter of 2006 and 2005 included the following components:

 

(Stated in millions)       
     First Quarter

 
     2006      2005  

Service cost – benefits earned during period

   $ 6      $ 6  

Interest cost on projected benefit obligation

     10        10  

Expected return on plan assets

     (12 )      (12 )

Amortization of unrecognized loss

     3        4  


  


Net pension cost

   $ 7      $ 8  
    


  


Net postretirement benefit cost in the US for the first quarter of 2006 and 2005 included the following components:

 

(Stated in millions)  
     First Quarter

 
     2006      2005  

Service cost – benefits earned during period

   $ 8      $ 9  

Interest cost on accumulated postretirement benefit obligation

     11        13  

Amortization of unrecognized net loss

     4        4  

Amortization of unrecognized prior service cost

     (7 )      (4 )

  


  


Net postretirement benefit cost

   $ 16      $ 22  
    


  


 

18.    Subsequent Events

 

On April 20, 2006, Schlumberger and Baker Hughes signed an agreement pursuant to which Schlumberger will acquire Baker Hughes’ 30% minority interest in WesternGeco for $2.4 billion in cash. Approximately 50% of the purchase price will be funded from Schlumberger’s cash and short-term investments. The remaining 50% will be financed through existing Schlumberger credit facilities.

On April 20, 2006, the Board of Directors of Schlumberger approved a share buy-back program of up to 40 million shares to be acquired in the open market before April 2010, subject to market conditions.

On April 12, 2006, the stockholders of Schlumberger approved an amendment to the Schlumberger Articles of Incorporation to increase the authorized common share capital of Schlumberger (as defined in the Schlumberger Articles of Incorporation) from 1,500,000,000 shares to 3,000,000,000 shares.

On April 12, 2006, the stockholders of Schlumberger approved amendments to Schlumberger’s 2005 Stock Option Plan. These amendments include (1) providing for the grant of restricted stock and restricted stock units with respect to up to 3,000,000 shares of common stock; (2) providing for certain limits on the vesting or

 

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holding period for restricted stock and restricted stock units; and (3) providing that restricted stock or restricted stock units may not be granted to executive officers of Schlumberger unless the grants are subject to performance-based vesting.

 

Item 2:    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

BUSINESS REVIEW

 

     First Quarter

 
     2006    2005    % chg  

Oilfield Services

                    

Operating Revenue

   $ 3,711    $ 2,779    34 %

Pretax Segment Income

   $ 949    $ 559    70 %

WesternGeco

                    

Operating Revenue

   $ 530    $ 378    40 %

Pretax Segment Income

   $ 158    $ 64    149 %

 

Pretax segment income represents the business segment’s income before taxes and minority interest. Pretax segment income excludes corporate expenses, interest income, interest expense, amortization of certain intangibles, interest on post-retirement benefits, stock-based compensation costs and the Charges and Credits described in detail in Note 2 to the Consolidated Financial Statements, as these items are not allocated to the segments.

 

First Quarter 2006 Compared to First Quarter 2005

 

Operating revenue for the first quarter of 2006 was $4.24 billion versus $3.16 billion for the same period last year. Income from continuing operations before income taxes and minority interest was $1.02 billion in 2006 compared to $679 million in 2005. There were no Charges and Credits in the first quarter of 2006 while the 2005 results include net pretax credits of $134 million. These Charges and Credits are described in detail in Note 2 to the Consolidated Financial Statements.

Net income for the first quarter of 2006, was $723 million compared to $523 million in the first quarter of last year. Net income in 2005 included a loss from discontinued operations of $1 million.

 

OILFIELD SERVICES

 

First-quarter revenue of $3.71 billion was 4% higher sequentially and 34% higher year-on-year.

The sequential revenue increase was driven primarily by North America, led by Drilling & Measurements, Well Services and Wireline Technologies, each of which recorded strong double-digit increases.

Pretax operating income of $949 million increased 11% sequentially and 70% year-on-year driven by pricing and operating efficiency improvements that resulted in sequential growth of 170 bps in pretax operating margins to reach 25.6%.

 

North America

 

Revenue of $1.23 billion increased 18% sequentially and 41% year-on-year. Pretax operating income of $375 million increased 35% sequentially and 85% year-on-year.

Robust revenue growth in the Area was driven primarily by stronger rig count levels in the Canada and US Land GeoMarkets, coupled with continuing price increases, accelerated adoption of new technologies and improved operating efficiency.

 

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Sequential pretax operating income growth was led by Canada with increased margins achieved on winter projects in the West. US Land continued to increase as a result of strong pricing gains led by Wireline, Drilling & Measurements and Well Services activities, and greater efficiency levels due to increased deployment of 24-hour operations on certain stimulation projects. North America pretax operating margins surpassed 30%. Pricing increases across the region, and strong growth in Well Services and Wireline activity drove pretax operating income growth year-on-year.

 

Latin America

 

Revenue of $594 million declined 4% sequentially but grew 27% year-on-year. Pretax operating income of $96 million increased 6% sequentially and 49% year-on-year.

Rising rig count coupled with pricing increases and ramp up of offshore activity drove sequential revenue growth in the Venezuela/Trinidad/Tobago GeoMarket. The slight sequential decline in revenue in the Area was principally attributable to lower levels of third-party managed services on integrated projects in Mexico.

During the quarter, the Area experienced a more favorable activity mix, pricing gains and increased demand for Well Testing services and Drilling & Measurements Scope* technologies—all of which contributed to the sequential gains in pretax operating income that resulted in growth of 160 bps in pretax operating margins. Continued rising profitability in Integrated Projects coupled with strong Drilling & Measurements results across the region accounted for the year-on-year gains.

 

Europe/CIS/West Africa

 

Revenue of $1.0 billion declined 1% sequentially but increased 33% year-on-year. Pretax operating income of $210 million declined 7% sequentially but increased 70% year-on-year.

Sequential revenue performance was impacted by extreme winter weather conditions across Russia and the Caspian, negatively affecting activity for a three-week period. Activity resumed normal levels by the end of the quarter. The effect of the slowdown was partially offset by increased activity in the North Sea GeoMarket due to operating efficiencies, favorable seasonal weather conditions and accelerating demand for Wireline and Drilling & Measurements new technologies. Double-digit growth was also recorded in the North Africa, Continental Europe and Nigeria GeoMarkets. The year-on-year revenue increase reflected activity growth throughout the Area and also reflects the impact of the consolidation of PetroAlliance which commenced in the second quarter of 2005 when a controlling interest was acquired.

The robust gains achieved in the North Sea GeoMarket were not sufficient to offset the decline in sequential pretax operating income, due primarily to the weather-induced lower activity levels in Russia and the Caspian. Year-on-year pretax operating income increases resulted from strong pricing and higher utilization levels, coupled with growing Wireline, Drilling & Measurements and Well Testing margins.

 

Middle East & Asia

 

Revenue of $863 million was flat sequentially but 29% higher year-on-year. Pretax operating income of $271 million increased 2% sequentially and 55% year-on-year.

Higher activity, together with acceptance of new Schlumberger technologies such as the Drilling & Measurements Scope family of drilling services in Saudi Arabia, resulted in double-digit growth in sequential revenue for the Arabian GeoMarket. This GeoMarket is the fastest growing in Schlumberger worldwide.

These results, combined with sustained demand for Well Services technologies in the India GeoMarket and Wireline and Well Testing technologies in the Thailand/Vietnam GeoMarket, were offset by seasonal project transitions in the Area—all of which were completed by the end of the quarter—and by declines in Well Testing activity, resulting in flat sequential revenues for the quarter.

Area pretax operating margins showed continued improvement in the quarter—growing 60 bps sequentially—primarily due to increased activity in Drilling & Measurements, Wireline and Well Services

 

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Technologies. The year-on-year revenue and pretax operating income increases resulted from the activity growth and the increased take up of new technologies with improved margins.

 

WESTERNGECO

 

First-quarter revenue of $530 million was 14% higher sequentially and 40% higher compared to the same period last year. Pretax operating income of $158 million improved 44% sequentially and $95 million year-on-year.

Marine revenue reached record levels in the quarter with vessel utilization attaining 97%, while pricing improved 58% versus the same period last year. This increased level of activity is attributable to continued strength in exploration seismic activity. Reflecting confidence in the exploration market, a seventh Q* vessel will be commissioned in the second quarter of 2007.

Land acquisition revenue increased sequentially due to new crews being added in Russia and Chile, as well as higher Q-Land* activity in Kuwait.

Data Processing sequential revenue declined slightly and Multiclient revenue remained at levels similar to the previous quarter.

Marine led year-on-year revenue growth with higher Q-vessel utilization augmented by improved pricing and contractual terms. Growth in Land, Multiclient and Data Processing revenues also contributed to the increase.

Multiclient sales in the first quarter of 2006 were $164 million compared to $141 million in the prior year. Approximately 65% of the multiclient surveys sold in 2006 has no net book value due to prior amortization of capitalized costs, compared to 70% in 2005.

Sequential improvement in pretax operating income was mainly in Marine due to higher utilization and improved pricing. Land acquisition also improved due to the higher active crew count. Overall pretax operating margins reached a record level of 29.9%.

 

Interest and Other Income

 

Interest and other income consisted of the following for the first quarter of 2006 and 2005:

 

(Stated in millions)          
     First Quarter

     2006    2005

Interest income

   $ 35    $ 19

Equity in net earnings of affiliated companies

     30      24

Gain on sale of facility in Montrouge, France 1

          146

  

  

     $ 65    $ 189
    

  

 

1.   See discussion of Charges and Credits on the following page.

 

Interest Income

 

The average return on investment increased from 2.8% in the first quarter of 2005 to 4.0% in the first quarter of 2006 and the average investment balance of $3.6 billion in 2006 increased $776 million compared to 2005.

 

Interest Expense

 

Interest expense of $47.8 million in the first quarter of 2006 increased by $1.3 million compared to the same period last year. The weighted average borrowing rates of 4.4% increased in the first quarter of 2006 from 4.1% in the same period last year. Average debt balance of $4.4 billion in the first quarter of 2006 decreased by $200 million compared to the same period last year.

 

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Other

 

Gross margin was 29.4% and 23.9% in 2006 and 2005, respectively. The increase in gross margin is due to a combination of record activity levels in Oilfield Services, with operations at capacity in a number of regions, and continued pricing improvements in both Oilfield Services and WesternGeco.

As a percentage of revenue, research & engineering, marketing and general & administrative expenses for the first quarter of 2006 and 2005 are as follows:

 

     First Quarter

 
     2006     2005  

Research and engineering

   3.1 %   3.8 %

Marketing

   0.3 %   0.3 %

General and administrative

   2.3 %   2.7 %

 

Research and engineering expenditures, by segment for the first quarter of 2006 and 2005, were as follows:

 

(Stated in millions)

             
     First Quarter

     2006    2005

Oilfield Services

   $ 115    $ 107

WesternGeco

     12      13

Other

     2      1

  

  

     $ 129    $ 121
    

  

 

The effective tax rate for the first quarter of 2006 was 25.1% compared to 20.3% in the prior year. The rate in 2005 reflects the impact of the $146 million gain on the sale of the Montrouge facility. This transaction allowed for the utilization of a deferred tax asset that was previously offset by a valuation allowance and had the effect of lowering the effective tax rate during the first quarter of 2005 by 5.5%.

 

Charges and Credits

 

2005

 

In March 2005, Schlumberger sold its facility in Montrouge, France to a third party for $230 million resulting in a pretax and after-tax gain, of approximately $146 million, which is classified in Interest & other income in the Consolidated Statement of Income. This transaction allowed for the utilization of a deferred tax asset that was previously offset by a valuation allowance. Schlumberger also recorded other real estate related pretax charges of approximately $12 million ($11 million after-tax), which are classified in Cost of goods sold & services in the Consolidated Statement of Income.

The following is a summary of the first quarter 2005 Charges & Credits:

 

(Stated in millions)

                        
     Pretax      Tax    Net  

Charges & Credits

                        

- Gain on sale of Montrouge facility

   $ (146 )    $    $ (146 )

- Other real estate related charges

     12        1      11  

  


  

  


Net Credits

   $ (134 )    $ 1    $ (135 )
    


  

  


 

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Stock-Based Compensation and Other

 

As discussed in further detail in Note 13 to the Consolidated Financial Statements for the quarter ended March 31, 2006, Schlumberger adopted the provisions of SFAS 123R (Share-Based Payment) effective January 1, 2006. The adoption of this standard resulted in Schlumberger recording $6 million of additional stock-based compensation charges in the first quarter of 2006 and it will result in an additional $5 million being recognized per quarter throughout the remainder of 2006.

Stock-based compensation expense was $25.8 million in the first quarter of 2006 compared to $8.8 million in the first quarter of the prior year. Total stock-based compensation expense for all of fiscal 2005 was $40 million and it is currently estimated to be $112 million in 2006.

This increase in stock-based compensation expense primarily reflects the full impact of the adoption of both SFAS 123 (adopted by Schlumberger effective January 1, 2003 on a prospective basis for grants after January 1, 2003- see Note 13) and SFAS 123R, as well as an increase in the fair value of stock-based awards due to the increase in Schlumberger stock price.

As previously disclosed, during 2006 Schlumberger will relocate its United States corporate offices from New York to Texas. Schlumberger will also relocate its United States research center from Ridgefield to Boston in 2006. Schlumberger currently estimates that it will incur approximately $25 million to $30 million in incremental expenses in connection with these moves in 2006. To date, Schlumberger has incurred approximately $5 million in such costs.

 

CASH FLOW

 

On April 20, 2006, Schlumberger and Baker Hughes signed an agreement pursuant to which Schlumberger will acquire Baker Hughes’ 30% minority interest in WesternGeco for $2.4 billion in cash. Approximately 50% of the purchase price will be funded from Schlumberger’s cash and short-term investments. The remaining 50% will be financed through existing Schlumberger credit facilities.

During the first quarter of 2006, Schlumberger completed the 15 million-share (30 million split-adjusted) buy-back program initiated in July 2004 for a total amount of $1.2 billion, at an average share price of $79 ($39.50 split-adjusted). On April 20, 2006, the Board of Directors of Schlumberger approved a new share buy-back program of up to 40 million shares, on a split adjusted basis, to be acquired in the open market before April 2010, subject to market conditions.

During the first three months of 2006, cash provided by operations was $565 million as net income, depreciation/amortization and deferred income taxes were only partially offset by increases in customer receivables and a decrease in accounts payable and accrued liabilities, which included a US pension funding contribution of $200 million. Cash used by investing activities was $428 million was due mainly to investments in fixed assets ($467 million). Cash used by financing activities was $175 million as the payment of dividends to shareholders ($124 million) and stock repurchase plan ($254 million) were only partially offset by the proceeds from employee stock plans ($156 million).

 

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Net Debt is 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, and that the level of net debt provides useful information as to the results of Schlumberger deleveraging efforts. Details of the Net Debt follows:

 

(Stated in millions)       
     Mar. 31
2006
     Mar. 31
2005
 

Net Debt, beginning of period

   $ (532 )    $ (1,459 )

Income from continuing operations

     723        524  

Excess of equity income over dividends received

     (31 )      (24 )

Charges and credits, net of tax

            (134 )

Depreciation and amortization 1

     355        328  

Increase in working capital

     (421 )      (370 )

US pension plan contributions

     (200 )       

Capital expenditures 1

     (499 )      (331 )

Proceeds from employee stock plans

     164        52  

Stock repurchase program

     (254 )      (73 )

Dividends paid

     (124 )      (110 )

Proceeds from business divestitures

            25  

Proceeds from the sale of the Montrouge facility

            230  

Business acquisitions and related payments

     (66 )       

Translation effect on net debt

     (7 )      28  

Other

     90        14  


  


Net Debt, end of period

   $ (802 )    $ (1,300 )
    


  


 

1.   Includes Multiclient seismic data costs.

 

(Stated in millions)                     
     Mar. 31      Mar. 31      Dec. 31  
Components of Net Debt    2006      2005      2005  

Cash and short term investments

   $ 3,234      $ 3,040      $ 3,496  

Fixed income investments, held to maturity

     401        228        360  

Bank loans and current portion of long-term debt

     (802 )      (622 )      (797 )

Long-term debt

     (3,635 )      (3,946 )      (3,591 )


  


  


     $ (802 )    $ (1,300 )    $ (532 )
    


  


  


 

FORWARD-LOOKING STATEMENTS

 

This report and other statements we make contain forward looking statements, which include any statements that are not historical facts, such as our expectations regarding business outlook; growth for Schlumberger as a whole and for each of Oilfield Services and WesternGeco; oil and natural gas demand and production growth; operating and capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger and its customers; the adoption of SFAS 123R and stock-based compensation expense; the funding of the WesternGeco transaction; the stock buy-back program; and future results of operations. These statements involve risks and uncertainties, including, but not limited to, the global economy; 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; political and economic uncertainty and socio-political unrest; and other factors detailed in our most recent Form 10-K, this Form 10-Q and other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize (or the consequences of such a development changes), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

 

21


Table of Contents

Part 1, Item 3, 4 

 

 

Item 3:    Quantitative and Qualitative Disclosures about Market Risk

 

For quantitative and qualitative disclosures about market risk affecting Schlumberger, see Item 7A, “Quantitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2005. Schlumberger exposure to market risk has not changed materially since December 31, 2005.

 

Item 4:    Controls and Procedures

 

As of the end of the period covered by this Report, an evaluation was carried out under the supervision and with the participation of Schlumberger management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of Schlumberger’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the CEO and CFO have concluded that Schlumberger disclosure controls and procedures were effective as of March 31, 2006 to ensure that information required to be disclosed by Schlumberger in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that information required to be disclosed is accumulated and communicated to management, including the CEO and CFO, to allow timely decisions regarding required disclosure. There has been no change in Schlumberger’s internal controls over financial reporting that occurred during the quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, Schlumberger’s internal controls over financial reporting.

 

*Mark of Schlumberger

 

22


Table of Contents

Part II, Item 1, 1A, 2, 3 

 

 

PART II. OTHER INFORMATION

 

Item 1:    Legal Proceedings

 

The information with respect to Item 1 is set forth under the heading Contingencies on page 13 of this Report, within the Notes to Consolidated Financial Statements.

 

Item 1A:    Risk Factors

 

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

 

Item 2:    Unregistered Sales of Equity Securities and Use of Proceeds

 

Unregistered Sales of Equity Securities

 

None

 

Share Repurchases

 

On July 22, 2004, the Board of Directors of Schlumberger approved a share buyback program of up to 15 million (30 million split-adjusted) shares to be acquired in the open market before December 2006, subject to market conditions. This program was completed during the first quarter of 2006.

The following table sets forth information on Schlumberger’s common stock repurchase program activity for the quarter ended March 31, 2006. As the transactions presented below were all consummated before Schlumberger’s April 7, 2006 stock-split was effective, all amounts below are presented on a pre-split basis.

 

(Stated in thousands except per share amounts)                    
     Total number
of shares
purchased
   Average Price
paid per
share
   Total
number of
shares
purchased
as part of
publicly
announced
program
   Maximum
number of
shares
that may
yet be
purchased
under the
program

January 1 through January 31, 2006

   300.0    $ 97.95    300.0    1,914.4

February 1 through February 28, 2006

   1,302.8    $ 117.34    1,302.8    611.6

March 1 through March 31, 2006

   611.6    $ 117.79    611.6    —  

  

  
    
     2,214.4    $ 114.84    2,214.4     
    
  

  
    

 

On April 20, 2006, the Board of Directors of Schlumberger approved a share buy-back program of up to 40 million shares (split-adjusted) to be acquired in the open market before April 2010, subject to market conditions.

In connection with the exercise of stock options under Schlumberger 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 implicating the disclosure required under this Item. The number of shares of Schlumberger common stock received from optionholders is immaterial.

 

Item 3:    Defaults Upon Senior Securities

 

None.

 

23


Table of Contents

Part II, Item 4 

 

 

Item 4:    Submission of Matters to a Vote of Security Holders

 

a)   The 2006 Annual General Meeting of Stockholders of Schlumberger (the “Meeting”) was held on April 12, 2006.

 

b)   At the Meeting, the number of Directors was fixed at 12 and the following 12 individuals were elected to comprise the entire Board of Directors of the Schlumberger, each to hold office until the next Annual General Meeting of Stockholders and until a director’s successor is elected and qualified or until a director’s death, resignation or removal. All of the nominees were directors who were previously elected by the stockholders.

 

John Deutch

Jamie S. Gorelick

Andrew Gould

Tony Isaac

Adrian Lajous

André Lévy-Lang

Michael E. Marks

Didier Primat

Tore I. Sandvold

Nicolas Seydoux

Linda Gillespie Stuntz

Rana Talwar

 

c)   At the Meeting, the stockholders of Schlumberger also voted (i) to adopt and approve Schlumberger’s Consolidated Balance Sheet as at December 31, 2005, its Consolidated Statement of Income for the year ended December 31, 2005, and the declaration of dividends reflected in Schlumberger’s 2005 Annual Report to Stockholders; (ii) to approve an amendment to Schlumberger’s Articles of Incorporation to increase authorized common share capital; (iii) to approve the amendment and restatement of the Schlumberger 2005 Stock Option Plan to authorize limited grants of restricted stock and restricted stock units; and (iv) to approve the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the accounts of Schlumberger for the year 2006.

 

The votes cast (on a pre-split basis) were as follows:

 

Directors

 

     For    Withheld

John Deutch

   502,578,156    5,667,210

Jamie S. Gorelick

   503,898,978    4,346,388

Andrew Gould

   500,180,741    8,064,625

Tony Isaac

   504,026,825    4,218,541

Adrian Lajous

   504,021,162    4,224,204

André Lévy-Lang

Michael E. Marks

Didier Primat

   502,675,604
502,660,910
503,853,189
   5,569,762
5,584,456
4,392,177

Tore I. Sandvold

   502,871,604    5,373,762

Nicolas Seydoux

   502,201,932    6,043,434

Linda G. Stuntz

   503,875,557    4,369,809

Rana Talwar

   502,842,120    5,403,246

 

24


Table of Contents

Part II, Item 4, 5, 6 

 

 

Financials:

              
     For    Against    Abstain
     492,573,449    1,420,039    14,251,878

 

Amendment to the Articles of Incorporation:

     For    Against    Abstain
     499,969,442    4,662,122    3,613,802

Amendment to the Schlumberger 2005 Stock Option Plan:

              
     For    Against    Abstain
     428,959,547    13,034,148    3,681,489

Appointment of PricewaterhouseCoopers LLP:

              
     For    Against    Abstain
     503,079,430    2,041,039    3,124,897

 

Item 5:    Other Information

 

None.

 

Item 6:    Exhibits

 

Exhibit 3.1 Articles of Incorporation of Schlumberger Limited (Schlumberger N.V.) as last amended on April 12, 2006
Exhibit 3.2 Amended and Restated Bylaws of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3.1 to Schlumberger’s Current Report on Form 8-K filed on April 22, 2005).
Exhibit 10.1 Schlumberger 2005 Stock Incentive Plan (incorporated by reference to Appendix 1 to Schlumberger’s definitive proxy statement for the 2006 Annual General Meeting of Stockholders held on April 12, 2006).
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Form of Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Form of Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

25


Table of Contents

 

SIGNATURE

 

Pursuant to the requirements 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 and in his capacity as Chief Accounting Officer.

 

Date: April 26, 2006

     

SCHLUMBERGER LIMITED

(REGISTRANT)

               

/s/    HOWARD GUILD      


               

Howard Guild

Chief Accounting Officer and

Duly Authorized Signatory

 

26

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