Business Context and Reporting Period
Company: Schlumberger Limited (SLB)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2002
Business Overview: Schlumberger is a global technology services company operating in three segments: Oilfield Services (OFS), SchlumbergerSema (IT services), and Other (Cards, Terminals, Meters, NPTest). The company employs approximately 78,500 people across over 100 countries.
Key Financial Metrics
| Metric (in millions) | 2002 | 2001 |
|---|---|---|
| Total Operating Revenue | $13,474 | $14,058 |
| Net Income (Loss) | $(2,320) | $522 |
| Net Income from Continuing Ops | $(2,418) | $491 |
| Diluted EPS (Net) | $(4.01) | $0.91 |
| Operating Cash Flow | $2,185 | $1,570 |
| Long-Term Debt | $6,029 | $6,216 |
| Liquidity (Cash + Investments - Debt) | $(5,021) | $(5,037) |
| Working Capital | $735 | $1,487 |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenue decreased 4% to $13.47 billion, driven primarily by a 5% drop in Oilfield Services revenue due to reduced activity in North America (-24%) and Latin America (-7%).
- Significant Charges: The company recorded a net charge of $3.08 billion in continuing operations. This included a $2.64 billion goodwill impairment charge related to the SchlumbergerSema segment, reflecting depressed market values in the IT sector and a strategic reorganization.
- Segment Performance:
- Oilfield Services: Revenue fell 5% to $9.35 billion; Pretax income dropped 26% to $1.33 billion due to margin compression and seismic downturns.
- SchlumbergerSema: Revenue increased 32% to $2.99 billion (7% pro forma) due to the Sema plc acquisition, turning a loss of $33 million in 2001 into a profit of $34 million in 2002 before charges.
- Other: Revenue declined 33% to $1.44 billion following the divestiture of Resource Management Services businesses.
- Divestitures: Completed the sale of the Reed Hycalog drillbits business in December 2002, treated as a discontinued operation.
Guidance, Outlook, and Risks
- Liquidity Outlook: Management expects to improve liquidity in 2003, with an objective to reduce net debt to under $4 billion by year-end, dependent on operating results and successful business divestitures.
- Strategic Shift: SchlumbergerSema strategy was updated to focus on IT consulting and systems integration for the global energy sector, separating product businesses into the "Other" segment.
- Key Risks:
- Geopolitical: Exposure to political and economic uncertainty in Venezuela and Argentina, including potential currency devaluation and contract renegotiations.
- Market Conditions: Continued downturn in the seismic industry and weak IT spending environment.
- Accounting: Adoption of SFAS 142 (Goodwill) resulted in significant non-cash impairment charges; future recoverability of investments (e.g., Hanover Compressor) remains subject to assessment.
Investor Verification Checklist
- Goodwill Impairment: Verify the assumptions used in the $2.64 billion goodwill write-down for SchlumbergerSema and the impact of the new strategic plan on future valuations.
- North America Activity: Monitor rig count trends and pricing pressures in North America, which drove a 24% revenue decline in the core Oilfield Services segment.
- Debt Reduction Plan: Assess the feasibility of the management's target to reduce net debt to under $4 billion by the end of 2003.
- Discontinued Operations: Review the final proceeds and integration status of the Reed Hycalog divestiture.
- Geopolitical Exposure: Evaluate the specific financial impact of the Venezuela PIGAP II joint venture financing issues and the potential "put" option exercised by Hanover Compressor.