SLB

Business Context and Reporting Period

Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 1998
Business Overview: Global provider of oilfield services and measurement systems. The period includes the completed acquisition of Camco International Inc. (accounted for as a pooling of interests) and a significant management reorganization within the Oilfield Services segment.

Key Financial Metrics

Note: All figures in millions unless otherwise noted. Q3 1998 Net Income includes a significant after-tax charge of $380 million ($0.68 per share).

Material Changes vs. Prior Period

• Revenue: Q3 operating revenue declined 1% year-over-year. However, the first nine months showed an 8% increase driven by Oilfield Services growth.
• Profitability: Q3 reported a net loss due to a $380 million after-tax charge. Excluding this charge, Q3 net income was $351 million (9% lower than Q3 1997). For the nine-month period, net income decreased 25% year-over-year.
• Debt & Liquidity: Long-term debt increased significantly from $1.18 billion to $3.43 billion, primarily to finance the Camco acquisition. Cash and short-term investments more than doubled to $3.87 billion.
• Segment Performance:
  • Oilfield Services: Q3 revenue flat; North America revenue down 18% due to rig count declines and weather, offset by 7% growth outside North America.
  • Measurement & Systems: Q3 revenue down 3%. Test & Transactions revenue was flat, while Resource Management Services declined 6%.

Guidance, Outlook, Risks, and Unusual Items

Unusual Items

The Q3 1998 results include a $380 million after-tax charge ($0.68 per share) comprising:

• $268 million (Oilfield Services): Severance costs ($64M for 5,600 employees), facility closures ($40M), asset write-offs ($114M), and customer receivable reserves ($39M) due to business slowdown.
• $63 million: Merger-related costs for the Camco acquisition.
• $43 million (Measurement & Systems): Severance, facility rationalization, and environmental costs.

Outlook and Management Commentary

Management notes that results for the interim period are not necessarily indicative of full-year results. The company is executing a reorganization of Oilfield Services into Solutions and Products groups. Strategic alliances were formed with Russian oil companies Yukos and Sibneft. A joint venture for drilling fluids was announced with Smith International.

Risks and Contingencies

• Year 2000 (Y2K): The company estimates total program costs at $60 million. While the program is on schedule, management cannot guarantee that all issues will be resolved or that third-party failures will not disrupt operations.
• Euro Implementation: A "Euro Readiness Program" is underway. The company does not expect costs to be material, but full assessment of business impacts is incomplete.
• Environmental & Legal: Accruals exist for environmental remediation; management believes additional costs will not be material. Various legal proceedings are pending but are not expected to be material.

Investor Verification Checklist

• Charge Details: Verify the specific breakdown of the $380 million charge and the timeline for the 5,600 employee severances.
• Debt Structure: Review the terms of the new long-term debt issued to finance the Camco acquisition and its impact on future interest expenses.
• Y2K Progress: Monitor the status of the Year 2000 readiness program, specifically the completion of Stage II (Repairs, Testing, Deployment) by the March 1999 deadline.
• North America Rig Count: Track the recovery of the North American rig count, which fell 28% in Q3, as this significantly impacts Oilfield Services revenue.
• Camco Integration: Assess the realization of synergies between Camco and Schlumberger's existing operations in the coming quarters.