Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Second Quarter and Six Months ended June 30, 2000
Business Overview: A global provider of technology for the energy industry, operating through three primary segments: Oilfield Services (OFS), Resource Management Services (RMS), and Test & Transactions (T&T).
Key Financial Metrics
| Metric (in millions) | Q2 2000 | Q2 1999 | 6 Mo 2000 | 6 Mo 1999 |
|---|---|---|---|---|
| Operating Revenue | $2,338.3 | $2,011.8 | $4,475.7 | $4,129.1 |
| Total Revenue | $2,421.8 | $2,065.6 | $4,635.4 | $4,347.0 |
| Net Income | $155.9 | $127.3 | $292.1 | $216.5 |
| Diluted EPS (Continuing Ops) | $0.27 | $0.16 | $0.51 | $0.28 |
| Gross Margin | 23% | 21% | 23% | 19% (incl. charges) |
| Cash & Short-term Investments | $3,695.7 | $4,389.8 | $3,695.7 | $4,389.8 |
| Total Debt (Current + Long-term) | $4,068.3 | $3,884.9 | $4,068.3 | $3,884.9 |
| Operating Cash Flow (6 Mo) | $604.0 | $673.4 | $604.0 | $673.4 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 16% year-over-year in Q2 2000, driven primarily by a 20% increase in Oilfield Services revenue. The worldwide M-I rig count grew 40% compared to the prior year.
- Profitability Surge: Income from continuing operations rose 71% in Q2 2000 ($156M vs. $91M). This improvement is partly due to the absence of a $147 million pretax restructuring charge recorded in Q2 1999.
- Segment Performance:
- Oilfield Services: Pretax operating income increased 86% year-over-year, led by North America (up 419%) and Latin America (up 87%).
- Resource Management Services (RMS): Revenue declined 6% year-over-year, though it rose 1% in national currencies. Orders increased 1%.
- Test & Transactions: Revenue increased 37% year-over-year, driven by strong demand for SIM cards and Network Solutions.
- Cost Structure: Interest expense increased $22 million in Q2 due to higher borrowing rates (6.7% vs. 5.4%) and slightly higher debt balances. The effective tax rate rose to 25% due to higher U.S. pretax income.
Guidance, Outlook, and Risks
- Strategic Moves: Schlumberger signed a memorandum of understanding with Baker Hughes to form "Western GECO," a joint venture combining surface seismic businesses. Schlumberger will own 70% and pay $500 million in cash.
- Acquisitions: Acquired Operational Services, Inc. ($13M) for production management and CellNet Data Systems ($209M) for automatic meter reading technology.
- Market Outlook: Management cites increasing oil and gas demand, firmer prices, and low excess production capacity as drivers for continued growth in exploration and production spending.
- Risks and Contingencies:
- Forward-Looking Statements: Results depend on customer commitment to key projects, E&P spending by major oil companies, and the completion of the Western GECO transaction.
- Legal/Environmental: Accruals exist for environmental remediation; management believes potential additional costs are not material. Various legal proceedings are ongoing but not expected to be material.
- Accounting Changes: Implementation of SFAS 133 (Derivatives) in 2001 is not expected to have a material effect.
Investor Verification Checklist
- Western GECO Transaction: Verify the status of regulatory approvals and the definitive agreement for the $500 million joint venture with Baker Hughes.
- CellNet Integration: Assess the financial impact and integration progress of the $209 million CellNet acquisition, particularly regarding revenue recognition from existing networks.
- Rig Count Correlation: Monitor the correlation between the reported 40% increase in M-I rig count and future revenue sustainability in the Oilfield Services segment.
- Debt Servicing: Review the impact of rising interest rates (average borrowing rate up to 6.7%) on future interest expense and net income.
- Discontinued Operations: Confirm that the Sedco Forex spin-off results are fully excluded from current period comparisons to avoid distortion.