Schlumberger Limited (NYSE: SLB) — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports fourth-quarter results. Schlumberger provides oilfield technology, products and services globally. It acquired Cameron International on April 1, 2016, adding the Cameron Group for nine months of 2016.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $27.810 billion | $35.475 billion |
| Net income (loss) attributable to Schlumberger | $(1.687) billion | $2.072 billion |
| Diluted EPS | $(1.24) | $1.63 |
| Cash flow from operations | $6.261 billion | $8.805 billion |
| Free cash flow | $2.545 billion | $4.956 billion |
| Capital expenditures | $2.055 billion | $2.410 billion |
| Total debt | $19.616 billion | $18.999 billion |
| Net debt | $10.121 billion | $5.547 billion |
| Working capital | $8.868 billion | $12.791 billion |
Revenue fell 22% year over year; excluding Cameron, it fell 34%. Pretax operating margin was approximately 12%, down from 18% in 2015. The company recorded $3.820 billion of pretax charges and credits, including $3.172 billion of impairments and other charges and $648 million of merger and integration costs. Cash, short-term investments and held-to-maturity fixed-income investments totaled $9.5 billion at year-end. The company reported $4.0 billion of unused committed credit facilities.
Fourth-quarter revenue was $7.107 billion, up 1% sequentially and down from $7.744 billion in fourth-quarter 2015. Pretax operating margin was 11.4%, essentially flat sequentially. Fourth-quarter net loss attributable to Schlumberger was $204 million, including $583 million of after-tax charges.
Material changes and business drivers
- The industry downturn and reduced customer exploration and production spending drove lower activity and service pricing. Excluding Cameron, North America revenue declined 48% and international revenue declined 28% year over year.
- Full-year segment revenue declined 31% in Reservoir Characterization, 37% in Drilling and 29% in Production. Cameron contributed $4.2 billion in revenue and reported a 16% pretax operating margin for its nine months in the results.
- The April Cameron acquisition had total consideration of approximately $12.8 billion, including about $9.9 billion in Schlumberger shares and $2.8 billion in cash. Schlumberger also assumed approximately $3.0 billion of Cameron debt. Goodwill recorded was $9.0 billion.
- Annual cash dividends declared remained $2.00 per share. Dividends paid totaled $2.647 billion; share repurchases totaled $778 million.
Outlook, risks and unusual items
- Management said activity stabilized in the third quarter and rose slightly in the fourth quarter, and believed the cycle bottom had been reached. It expected North American E&P investment to rise approximately 30% in 2017, with international recovery slower. Capital expenditures were expected to be approximately $2.2 billion in 2017. These are management expectations, not guarantees.
- Major 2016 charges included workforce reductions ($880 million), fixed-asset impairments ($684 million), inventory write-downs ($616 million), and Cameron purchase-accounting and integration costs. Management warned further impairments could arise if industry conditions worsen.
- Venezuela operations were scaled back to align activity with collections. The year-end net receivable there was approximately $1.2 billion; payment delays persisted. Ecuador represented approximately 12% of accounts receivable, and the United States also represented approximately 11%. The filing describes customer payment delays more broadly.
- Other material risks include volatile oil and gas prices and customer spending, pricing pressure, geopolitical and foreign-exchange exposure, environmental and regulatory requirements, operational and cybersecurity risks, and realizing expected Cameron synergies. Approximately 80% of 2016 revenue came from outside the United States.
- Uncertain tax-position liabilities were approximately $1.4 billion, excluding accrued interest and penalties; timing of related cash outflows could not be reliably estimated. Management considered the probability of a material loss in pending legal proceedings remote.
Key facts for investors to verify
- Whether the expected North American activity rebound and slower international recovery translated into realized revenue, pricing and margin improvement.
- Cash conversion and recurring free cash flow, including how much depends on working-capital movements and noncash charges.
- Debt and liquidity after the Cameron acquisition, scheduled maturities, and the capacity to sustain dividends and any future repurchases.
- Collection and impairment exposure in Venezuela, Ecuador and other customer balances, including adequacy of the doubtful-account allowance.
- The final Cameron purchase-price allocation, integration costs, and whether expected operating synergies materialized.