Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2004
Business Overview: Schlumberger operates primarily through two reportable segments: Oilfield Services and WesternGeco. The company provides technology and services for the exploration, development, and production of oil and gas resources. The reporting period reflects a strategic shift involving significant divestitures of non-core businesses (e.g., SchlumbergerSema, Axalto) and a continued focus on deleveraging.
Key Financial Metrics
All figures in millions unless otherwise noted.
| Metric | Q3 2004 | Q3 2003 | 9 Months 2004 | 9 Months 2003 |
|---|---|---|---|---|
| Operating Revenue | $2,931 | $2,545 | $8,482 | $7,475 |
| Net Income | $318 | $(55) | $894 | $206 |
| Diluted EPS (Net Income) | $0.53 | $(0.09) | $1.49 | $0.35 |
| Income from Continuing Ops | $297 | $(88) | $656 | $206 |
| Operating Cash Flow (9 Mo) | $980 | |||
| Net Debt (End of Period) | $(1,658) (Net Cash Position) | |||
| Long-Term Debt | $3,738 | $6,097 (Dec 31, 2003) | N/A | |
| Cash & Short-Term Investments | $2,540 | $3,109 (Dec 31, 2003) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 15% in Q3 2004 and 13% for the nine-month period compared to the prior year, driven by strong performance in Oilfield Services (up 16% in Q3) and WesternGeco (up 14% in Q3).
- Profitability Turnaround: The company reported a net income of $318 million in Q3 2004, a significant improvement from a net loss of $55 million in Q3 2003. This turnaround is largely due to the absence of massive impairment charges recorded in 2003 (specifically a $421 million multiclient library impairment) and strong operational performance.
- Debt Reduction: Long-term debt decreased significantly from $6.1 billion at year-end 2003 to $3.7 billion at September 30, 2004. The company achieved a net cash position of $1.66 billion (Net Debt) by September 2004, down from a net debt of $4.18 billion at the start of the year.
- Divestitures: Proceeds from the sale of discontinued operations (including SchlumbergerSema, Axalto, and Infodata) generated approximately $2.4 billion in cash flow from investing activities during the nine-month period.
Guidance, Outlook, and Management Commentary
- Segment Performance:
- Oilfield Services: Revenue growth was led by India, Russia, Mexico, and US Land markets. Sequential revenue growth was offset by weather-related issues in the Gulf of Mexico and contract renegotiation delays in Venezuela.
- WesternGeco: Revenue increased due to strong Multiclient sales driven by high oil prices and renewed interest in the library. Backlog increased to $602 million.
- Charges and Unusual Items:
- Q3 2004 included $14 million in pretax charges (Intellectual Property settlement and severance).
- The nine-month period included $243 million in pretax charges, primarily related to debt extinguishment ($115 million), US Interest Rate Swap settlements ($73 million), and restructuring ($20 million).
- Management excludes these charges when analyzing operating trends, citing a non-GAAP diluted EPS of $0.52 for Q3 2004 and $1.43 for the nine months.
- Outlook Risks: Forward-looking statements highlight risks related to the global economy, customer capital expenditures, oil and gas price volatility, and political instability in key operating regions (e.g., Venezuela, Nigeria).
- Capital Allocation: The company continues a share repurchase program (approved July 2004 for up to 15 million shares) and paid dividends of $331 million in the first nine months of 2004.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the extent to which Q3 2004 net income ($318M) is driven by gains on discontinued operations ($21M) versus continuing operations ($297M).
- Non-GAAP Reconciliations: Review the reconciliation of GAAP net income to "Income from continuing operations before charges" to understand the magnitude of one-time items (debt extinguishment, impairments) affecting comparability.
- Working Capital Trends: Monitor the increase in receivables ($623M increase in 9 months) and inventories ($164M increase) which reduced operating cash flow despite strong net income.
- Debt Maturity Profile: Assess the remaining long-term debt schedule and the impact of recent debt buybacks on future interest expense.
- Geographic Concentration: Evaluate exposure to specific regions mentioned as having operational risks, particularly Venezuela (contractual issues) and the Gulf of Mexico (weather impacts).