Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1999
Business Overview: A global provider of technology for the exploration, development, and production of oil and gas (Oilfield Services), as well as resource management and test & transaction services.
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Operating Revenue | $2,306.5 million | $3,023.7 million |
| Total Revenue | $2,473.5 million | $3,058.9 million |
| Net Income | $89.2 million | $378.3 million |
| Diluted EPS | $0.16 | $0.67 |
| Operating Cash Flow | $363.9 million | $349.9 million |
| Cash & Short-term Investments | $3,902.8 million | $3,956.7 million (Dec 31, 1998) |
| Total Debt (Current + Long-term) | $3,840.1 million | $4,081.1 million (Dec 31, 1998) |
Note: Debt figures include bank loans, long-term debt due within one year, and long-term debt.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenue decreased 24% year-over-year, driven primarily by a 26% drop in Oilfield Services revenue due to a 35% decline in the global rig count.
- Profitability Impact: Net income fell 76% to $89.2 million. Excluding a one-time charge, adjusted net income was $179 million, still down 53% from the prior year.
- One-Time Charge: The company recorded an after-tax charge of $90 million ($0.16 per share). This included:
- $150 million pretax charge for Oilfield Services (severance for 4,400 employees, vessel lay-up costs, and legal provisions).
- $20 million pretax charge for Resource Management Services.
- Offset by an $80 million after-tax credit from the gain on sale of financial instruments.
- Segment Performance:
- Oilfield Services: Revenue down 26%; Pretax operating income down 55% (before charge).
- Resource Management Services: Revenue down 4% due to South American market conditions.
- Test & Transactions: Revenue down 13%; Automated Test Equipment revenue fell 49% due to semiconductor industry caution.
Outlook, Risks, and Management Commentary
- Restructuring: Management expects the Q1 charge to result in $300 million in annual pretax savings. Headcount reductions in Oilfield Services are ongoing, with an additional 2,500 reductions scheduled by June 1999.
- Market Conditions: The company cites low oil prices and reduced capital spending by clients as primary drivers for the downturn. Rig utilization rates dropped significantly (e.g., offshore rigs from 98.4% to 80.8%).
- Year 2000 (Y2K) Readiness: The company estimates total program costs at $60 million. Key products and services are over 90% ready, with field units expected to be ready by September 1999. Management warns of potential disruptions from third-party failures.
- Euro Implementation: A Euro Readiness Program is active. The company does not expect the cost to be material to financial condition.
- Contingencies: The company faces environmental remediation costs and various legal proceedings, though management does not expect these to be material to financial position.
Investor Verification Checklist
- Restructuring Savings: Verify if the projected $300 million in annual pretax savings from workforce reductions and operational changes are being realized in subsequent quarters.
- Rig Count Recovery: Monitor global rig count trends and utilization rates to gauge the recovery timeline for the Oilfield Services segment.
- Y2K Execution: Confirm the completion of Y2K readiness for field operating units by the September 1999 deadline and assess any operational disruptions.
- Debt Management: Review the company's ability to service its debt load ($3.84 billion) amidst reduced operating cash flows from the Oilfield Services downturn.
- Legal and Environmental Accruals: Track any changes in the estimated costs for environmental remediation and legal proceedings mentioned in the contingencies section.