Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2002
Business Overview: Schlumberger operates primarily through two reportable segments: Oilfield Services (OFS) and SchlumbergerSema (SLSEMA). The company provides technology and services to the energy industry and IT services to various sectors.
Key Financial Metrics
| Metric | Q2 2002 | Q2 2001 | 6 Months 2002 | 6 Months 2001 |
|---|---|---|---|---|
| Operating Revenue | $3,388.6M | $3,771.4M | $6,697.9M | $6,785.1M |
| Net Income (Loss) | $196.0M | ($93.3M) | $368.5M | $142.6M |
| Diluted EPS | $0.34 | ($0.16) | $0.64 | $0.25 |
| Operating Cash Flow (6 Mo) | $587.5M (vs. $234.6M in 2001) | |||
| Total Debt (Long-term + Current) | $7.29B (vs. $6.25B at Dec 31, 2001) | |||
| Liquidity (Cash + Investments - Debt) | ($5.82B) at June 30, 2002 |
Note: All figures in millions unless otherwise noted. Net Income for Q2 2001 reflects a $280M impairment charge.
Material Changes vs. Prior Period
- Revenue Decline: Q2 2002 operating revenue decreased 10% year-over-year to $3.39 billion. This was driven by a 5% decline in Oilfield Services (OFS) and a 3% decline in SchlumbergerSema (SLSEMA).
- Profitability Improvement: Despite lower revenue, the company reported a net income of $196 million in Q2 2002, a significant turnaround from a net loss of $93 million in Q2 2001. The prior year loss was heavily impacted by a $280 million impairment charge related to divested businesses.
- Segment Performance:
- OFS: Revenue fell 5% year-over-year, outperforming the 23% decline in the worldwide M-I rig count. Growth in Middle East/Asia and Europe/CIS/West Africa offset declines in North America and Latin America.
- SLSEMA: Revenue fell 3% year-over-year due to a downturn in the IT services industry, though it increased 2% sequentially.
- Non-Cash Charges: Q1 2002 included a $29 million charge related to the economic crisis in Argentina (currency devaluation and downsizing). Q1 2001 included a $25 million charge for in-process R&D.
Guidance, Outlook, and Risks
- Outlook: Management expects activity to increase in the second half of 2002 and into 2003, citing signs of resurgence in Asia and robust activity in Europe/CIS/West Africa. However, concerns remain regarding the sustainability of gas production and the US economic recovery.
- Strategic Plans: SchlumbergerSema is preparing a strategic business plan to be reviewed by the Board in Q4 2002. Further cost savings and headcount reductions are being analyzed, which may result in a charge in Q3 2002.
- Liquidity: Liquidity decreased by $435 million in Q2, primarily due to a $392 million adverse currency translation effect from strengthening European currencies. The company maintains $1.5 billion in Euro commercial paper and $1.5 billion in US commercial paper, supported by revolving credit facilities.
- Risks:
- Global economic recovery timing and exploration/production spending by major oil companies.
- Currency exposure in Argentina, Brazil, and Venezuela.
- Weak IT environment and telecommunications industry recovery.
- Regulatory changes and uncertainties in the utility industry.
Investor Verification Checklist
- Argentina Exposure: Verify the ongoing impact of the $29 million Q1 2002 charge and potential future currency risks in the region.
- SLSEMA Restructuring: Monitor for potential Q3 2002 charges related to further headcount reductions and the outcome of the new strategic business plan.
- Rig Count Correlation: Assess the sustainability of OFS revenue growth despite the 23% year-over-year decline in the M-I rig count.
- Currency Translation: Review the impact of foreign exchange rates on liquidity and reported earnings, given the $392 million translation loss in Q2.
- Debt Levels: Confirm the company's ability to service increased debt levels ($7.29B total) amidst fluctuating interest rates and cash flow.