Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2001
Business Overview: A global provider of technology for the energy industry, operating primarily through Oilfield Services, Resource Management Services, and Test & Transactions segments.
Key Financial Metrics
| Metric | Q1 2001 | Q1 2000 |
|---|---|---|
| Operating Revenue | $2,909.4 million | $2,137.4 million |
| Total Revenue | $2,999.5 million | $2,213.6 million |
| Net Income | $235.9 million | $136.2 million |
| Diluted EPS | $0.41 | $0.24 |
| Operating Cash Flow | $213.8 million | $222.3 million |
| Cash & Short-term Investments | $2,526.8 million | $3,040.2 million (Dec 31, 2000) |
| Total Debt (Short + Long Term) | $4,719.6 million | $4,165.3 million (Dec 31, 2000) |
| Gross Margin | 25% | 22% |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 36% year-over-year, driven primarily by a 49% surge in Oilfield Services revenue due to a 30% increase in the worldwide M-I rig count.
- Profitability: Net income rose 73% to $235.9 million. Pretax operating income for Oilfield Services grew 134%.
- Segment Performance:
- Oilfield Services: Revenue up 49%; all four geographic areas reported double-digit growth.
- Resource Management Services: Revenue down 5% due to prior-year divestitures of Gas Service businesses in Europe.
- Test & Transactions: Revenue up 14%, led by growth in Cards (20%) and Network Solutions (43%), offset by a 31% decline in Semiconductor Solutions.
- Acquisition Activity: Recorded a $25 million in-process R&D charge related to the Bull CP8 acquisition. Acquired approximately 20% of Sema plc for $1 billion, recorded as an investment.
Outlook, Risks, and Management Commentary
- Strategic Acquisitions: Schlumberger is pursuing the acquisition of Sema plc (an IT services company) with an expected total consideration of approximately $5.2 billion. Financing includes existing cash and a new $3 billion credit facility borrowed in April 2001. Sema results will be consolidated starting April 1, 2001.
- Accounting Changes: Adopted SFAS 133 (Derivative Instruments) on January 1, 2001, resulting in a $37.1 million net charge to Stockholders' Equity due to fair value changes in interest rate swaps.
- Liquidity: Operating cash flow decreased slightly to $213.8 million due to increases in receivables and inventories. Net cash used in investing activities was $781.3 million, heavily influenced by the Sema investment and fixed asset purchases.
- Risks:
- Exposure to fluctuations in oil and gas exploration and production spending.
- Integration risks associated with the Sema and Bull CP8 acquisitions.
- Foreign currency exchange rate volatility affecting profitability.
- Environmental remediation costs for divested operations, though management does not expect these to be material.
Investor Verification Checklist
- Sema Acquisition Status: Verify the final closing terms and integration progress of the Sema plc acquisition, given the significant $5.2 billion exposure.
- Oilfield Rig Counts: Monitor worldwide M-I rig count trends to validate the sustainability of the 49% revenue growth in the Oilfield Services segment.
- Semiconductor Exposure: Assess the impact of the 31% revenue decline in Semiconductor Solutions on the Test & Transactions segment's future outlook.
- Debt Servicing: Review the impact of the new $3 billion credit facility on interest expense and leverage ratios in subsequent quarters.
- Working Capital: Analyze the $365 million increase in receivables and $206 million increase in inventories to ensure collection and inventory turnover remain healthy.