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Print friendly pdf of Form 10-K Part II |
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Item 8 Notes to Consolidated Financial Statements
20. Stock Compensation Plans
As of December 31, 2003, Schlumberger had two types of stock-based compensation plans, which are described below. Effective January 1, 2003, Schlumberger adopted the fair value recognition provisions of SFAS Nos. 123 and 148. Schlumberger recorded stock option and discounted stock purchase plan (DSPP) expenses in the Consolidated Statement of Income starting in the third quarter of 2003 on a prospective basis for grants after January 1, 2003. The effect of this adoption on 2003 net income was $13 million ($0.02 per share). Schlumberger applies the intrinsic value method of APB 25 for grants prior to January 1, 2003. Had compensation cost for the stock-based Schlumberger plans been determined based on the fair value at the grant dates for awards under those plans, consistent with the method of SFAS 123, Schlumberger net income and earnings per share would have been the pro forma amounts indicated below:
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2003 |
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2002 |
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2001 |
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Net income (loss) |
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| As reported |
$ |
383 |
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$ |
(2,320 |
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$ |
522 |
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| Pro forma adjustments: |
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| Cost of DSPP |
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(18 |
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(42 |
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(29 |
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| Cost of Stock Options |
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(81 |
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(120 |
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(115 |
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| Tax benefit |
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8 |
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6 |
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8 |
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| Pro forma |
$ |
292 |
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$ |
(2,476 |
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$ |
386 |
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| Basic earnings (loss) per share |
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| As reported |
$ |
0.66 |
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$ |
(4.01 |
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$ |
0.91 |
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| Pro forma adjustments: |
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| Cost of DSPP |
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(0.03 |
) |
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(0.07 |
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(0.05 |
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| Cost of Stock Options |
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(0.14 |
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(0.21 |
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(0.20 |
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| Tax benefit |
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0.01 |
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0.01 |
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0.01 |
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| Pro forma |
$ |
0.50 |
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$ |
(4.28 |
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$ |
0.67 |
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| Diluted earnings (loss) per share |
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| As reported |
$ |
0.66 |
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$ |
(4.01 |
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$ |
0.91 |
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| Pro forma adjustments: |
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| Cost of DSPP |
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(0.03 |
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(0.07 |
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(0.05 |
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| Cost of Stock Options |
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(0.14 |
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(0.21 |
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(0.20 |
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| Tax benefit |
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0.01 |
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0.01 |
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0.01 |
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| Pro forma |
$ |
0.50 |
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$ |
(4.28 |
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$ |
0.67 |
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Stock Option Plans
During 2003, 2002, 2001 and in prior years, officers and key employees were granted stock options under Schlumberger stock option plans. For all of the stock options granted, the exercise price of each option equals the market price of Schlumberger stock on the date of grant; an option's maximum term is generally ten years, and options generally vest in increments over four or five years, and with respect to the July 2003 grant awards were capped at 125% of exercise price.
As required by SFAS 123, the fair value of each grant is estimated on the date of grant using the multiple option Black-Scholes option-pricing model with the following weighted-average assumptions used for 2003, 2002 and 2001: dividend of $0.75; expected volatility of 34%-37% for 2003 grants, 32%-36% for 2002 grants and 32-35% for 2001 grants; risk-free interest rates for the 2003 grants of 2.83%-3.51% for officers and all other employees; risk-free interest rates for the 2002 grants of 4.34%-5.25% for officers and 3.04%-4.73% for the 2002 grants to all other employees; risk-free interest rates for the 2001 grants of 4.91% for officers and 3.87%-5.01% for the 2001 grants to all other employees; and expected option lives of 4.71 years for officers and other employees for 2003 grants, expected option lives of 6.6 years for officers and 5.07 years for other employees for 2002 grants, expected option lives of 5.51 years for officers and 5.02 years for other employees for 2001 grants.
A summary of the status of the Schlumberger stock option plans as of December 31, 2003, 2002 and 2001, and changes during the years ending on those dates is presented below:
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2003 |
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2002 |
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2001 |
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| Fixed Options |
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Shares |
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Weighted-
average
exercise
price |
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Shares |
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Weighted-
average
exercise
price |
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Shares |
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Weighted-
average
exercise
price |
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| Outstanding at beginning of year |
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36,869,684 |
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$ |
57.03 |
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32,836,340 |
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$ |
55.80 |
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31,208,321 |
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$ |
54.43 |
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| Granted |
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3,460,150 |
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$ |
45.04 |
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7,314,617 |
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$ |
55.14 |
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4,110,468 |
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$ |
61.55 |
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| Exercised |
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(1,319,174 |
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$ |
30.68 |
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(2,296,593 |
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$ |
30.02 |
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(1,444,588 |
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$ |
31.88 |
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| Forfeited |
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(1,454,113 |
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$ |
66.92 |
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(984,680 |
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$ |
66.69 |
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(1,037,861 |
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$ |
71.27 |
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| Outstanding at year-end |
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37,556,547 |
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$ |
56.50 |
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36,869,684 |
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$ |
57.03 |
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32,836,340 |
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$ |
55.80 |
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| Options exercisable at year-end |
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23,460,758 |
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21,142,473 |
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19,724,680 |
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| Weighted-average fair value of options |
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| granted during the year |
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$ |
10.30 |
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$ |
20.22 |
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$ |
21.51 |
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The following table summarizes information concerning currently outstanding and exercisable options by five ranges of exercise prices on December 31, 2003:
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Option Outstanding |
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Option Exercisable |
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Range of
exercise prices |
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Number
outstanding
as of
12/31/03 |
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Weighted-
average
remaining
contractual
life |
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Weighted-
average
exercise
price |
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Number
exercisable
as of 12/31/03 |
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Weighted-
average
exercise
price |
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| $ 3.831 - $22.073 |
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86,503 |
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1.83 |
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$ |
19.655 |
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86,503 |
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$ |
19.655 |
| $24.142 - $30.710 |
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4,426,622 |
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1.39 |
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$ |
27.624 |
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4,426,622 |
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$ |
27.624 |
| $30.795 - $44.843 |
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4,637,754 |
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3.94 |
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$ |
39.519 |
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3,671,853 |
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$ |
39.197 |
| $46.020 - $65.330 |
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18,470,275 |
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7.39 |
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$ |
54.843 |
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7,326,837 |
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$ |
55.694 |
| $71.315 - $82.348 |
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9,935,393 |
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5.28 |
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$ |
80.636 |
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7,948,943 |
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$ |
80.659 |
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37,556,547 |
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5.68 |
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$ |
56.497 |
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23,460,758 |
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$ |
56.141 |
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Employee Stock Purchase Plan
Under the Schlumberger Discounted Stock Purchase Plan, Schlumberger is authorized to issue up to 22,012,245 shares of common stock to its employees. Under the terms of the Plan, employees can choose to have up to 10% of their annual earnings withheld to purchase Schlumberger common stock. Effective July 1, 2003 the purchase price of the stock was 92.5% of the lower of its beginning or end of the Plan year market price at six month intervals. Prior to July 1, 2003, the purchase price was 85% at one year intervals. Under the Plan, Schlumberger sold 2,464,088, 2,677,842 and 1,752,833 shares to employees in 2003, 2002 and 2001, respectively. Pro forma compensation cost has been computed for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions for 2003, 2002 and 2001: Dividend of $0.75; expected volatility of 28% for 2003, 34% for 2002 and 36% for 2001; and risk-free interest rates of 0.75% for 2003, 1.74% for 2002, 3.03% for 2001. The weighted-average fair value of those purchase rights granted in 2003, 2002 and 2001, was $7.910, $13.324 and $15.540, respectively. |
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Go to Part II, Item 8, Notes: 21. Income Tax Expense |
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