Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2003
Business Overview: Schlumberger operates four reportable segments: Oilfield Services, SchlumbergerSema, WesternGeco, and Other. The company provides technology and services to the energy industry and IT services to the public and private sectors.
Key Financial Metrics
| Metric (in millions, except per share) | Q1 2003 | Q1 2002 |
|---|---|---|
| Operating Revenue | $3,343 | $3,256 |
| Total Revenue | $3,373 | $3,290 |
| Net Income | $149 | $172 |
| Diluted EPS | $0.26 | $0.30 |
| Operating Cash Flow | $91 | $282 |
| Net Debt | $(5,318) | $(5,021) |
| Cash & Short-term Investments | $1,470 | $1,736 |
| Long-term Debt | $6,146 | $6,029 |
Note: Net Debt is defined by management as gross debt less cash, short-term investments, and fixed income investments held to maturity. A negative value indicates a net cash position.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 3% year-over-year to $3.34 billion, driven by growth in Oilfield Services (+4%) and SchlumbergerSema (+12%), partially offset by a 20% decline in WesternGeco.
- Profitability Decline: Net income decreased 13% to $149 million, and diluted EPS fell to $0.26 from $0.30. The effective tax rate increased to 32% from 28% in the prior year.
- Cash Flow Contraction: Net cash provided by operating activities dropped significantly to $91 million from $282 million in Q1 2002, primarily due to a $163 million increase in receivables and a $321 million decrease in accounts payable.
- Segment Performance:
- Oilfield Services: Pretax operating income rose 3% to $315 million, aided by restructuring savings and recovery in the Gulf of Mexico.
- WesternGeco: Pretax operating income broke even (down from $47 million in Q1 2002) due to a $7 million contract loss provision in Mexico and reduced multiclient sales.
- SchlumbergerSema: Pretax operating income improved to $15 million from $1 million, driven by cost reductions and currency strength, despite seasonal slowdowns.
Outlook, Risks, and Management Commentary
- Restructuring: The company completed a restructuring effort in WesternGeco, decommissioning crews and vessels with expected annualized cost savings of $200 million. Remaining severance costs from prior quarters are expected to be paid by September 30, 2003.
- Geopolitical Risks: Operations in Venezuela were impacted by political turmoil, causing a 43% sequential drop in rig count. The company is reviewing currency and business exposure in Venezuela, Nigeria, and the Persian Gulf. SARS-related travel restrictions also delayed projects in Asia.
- Market Conditions: The IT services sector (SchlumbergerSema) faces a weak environment, particularly in telecommunications, though the global energy segment within IT showed 15% growth. Oilfield Services benefited from deepwater drilling activity and premium technology demand.
- Divestiture: On April 4, 2003, Schlumberger sold its 9.7 million share investment in Grant Prideco Inc. for net proceeds of $106 million.
Investor Verification Checklist
- Working Capital Trends: Verify the sustainability of the $163 million increase in receivables and the $321 million decrease in payables, which significantly impacted operating cash flow.
- WesternGeco Recovery: Monitor the backlog ($325 million) and the realization of the $200 million in annualized cost savings from the restructuring.
- Venezuela Exposure: Assess the potential for further revenue or asset impairment given the ongoing political instability and 56% year-over-year rig count decline in the region.
- IT Sector Outlook: Evaluate the impact of the weak telecommunications environment on SchlumbergerSema's future revenue and margin targets.
- Debt and Liquidity: Confirm the company's ability to maintain its net cash position ($5.3 billion) while funding capital expenditures ($274 million in Q1) and dividends ($109 million in Q1).