Business context and reporting period
Schlumberger Limited (NYSE: SLB) filed this Form 10-K for the fiscal year ended December 31, 2009, including fourth-quarter results. The company supplies oilfield services and technology through Oilfield Services and WesternGeco; it operated in approximately 80 countries and employed about 77,000 people.
Key financial metrics
Amounts are in U.S. dollars; figures in millions except per-share data and percentages.
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $22,702 | $27,163 |
| Income from continuing operations | $3,164 | $5,422 |
| Net income attributable to Schlumberger | $3,134 | $5,435 |
| Diluted EPS | $2.59 | $4.45 |
| Gross margin | 23.4% | 30.2% |
| Cash from operating activities | $5,311 | $6,899 |
| Capital expenditures | $2,395 | $3,723 |
| Working capital at year-end | $6,391 | $4,811 |
| Long-term debt at year-end | $4,355 | $3,694 |
| Net debt (cash), as defined by management | ($126) | $1,129 |
Fourth-quarter revenue was $5.744 billion, versus $5.430 billion in Q3 2009. Attributable net income was $795 million and diluted EPS was $0.65; continuing-operations income attributable to Schlumberger was $817 million. Q4 Oilfield Services revenue was $5.170 billion and pretax segment operating income $1.006 billion; WesternGeco revenue was $549 million and pretax segment operating income $115 million.
Material changes versus prior period
- Full-year revenue fell 16% and attributable net income fell 42% from 2008. Lower customer activity and pricing pressure, particularly in North America, drove the decline; currency weakness reduced revenue by about 4%.
- Oilfield Services revenue declined 16% and pretax segment income declined 33%. North America revenue fell 37%; Latin America was marginally lower, Europe/CIS/Africa fell 13%, and Middle East & Asia fell 9%.
- WesternGeco revenue fell 25% and pretax segment income fell 61%; its year-end backlog declined to $1.0 billion from $1.8 billion.
- Operating cash flow decreased by $1.6 billion, mainly due to lower net income and $1.149 billion of pension funding, partly offset by improved working-capital requirements. Capital spending also decreased substantially.
- Net debt improved to a net cash position of $126 million from $1.129 billion net debt in 2008, while gross debt at year-end was approximately $5.5 billion.
Outlook, risks, contingencies and unusual items
- Management expected 2010 oil demand and customer exploration and production spending to improve if economic growth continued, but emphasized substantial uncertainty. It was more cautious on natural gas because markets remained oversupplied. Management anticipated stronger multiclient and land seismic activity; marine pricing improvement was expected to be limited.
- Expected 2010 capital expenditures: approximately $2.4 billion for Oilfield Services and $0.3 billion for WesternGeco. Expected defined-benefit pension contributions were $500–$600 million, subject to market and business conditions.
- Key risks include sensitivity to customer spending, oil and gas prices, service pricing, customer credit and collections, foreign exchange, geopolitical and sanctions exposure, environmental liabilities, operational accidents, and the ability to retain skilled personnel and maintain technology leadership. About 84% of 2009 revenue came from outside the United States.
- U.S. authorities were conducting a grand jury investigation and regulatory inquiry concerning certain operations in countries subject to sanctions; the company said it was cooperating and could not predict the outcome. A separate DOJ inquiry concerned freight-forwarding and customs services and possible Foreign Corrupt Practices Act violations; Schlumberger said it was cooperating and conducting its own investigation.
- Uncertain tax-position liabilities were approximately $1.03 billion, excluding $168 million of accrued interest and penalties; the timing of related cash outflows could not be reliably estimated. The filing stated that other legal proceedings’ outcomes and possible losses were not estimable, while management did not expect other proceedings to materially affect the company.
- 2009 included $238 million in pretax charges ($207 million after tax), primarily workforce reductions and pension/postretirement curtailments. A $22 million after-tax loss from discontinued operations related to resolution of a customs assessment and other contingencies. Venezuela announced a currency devaluation in January 2010; management expected no material consolidated impact.
Most important facts for investors to verify
- Whether 2010 customer spending and oilfield activity recovered as management anticipated, and whether pricing and margins stabilized.
- WesternGeco backlog, multiclient sales and marine pricing, given the backlog decline and weaker annual performance.
- Progress and potential financial consequences of the sanctions-related government inquiries and the FCPA-related inquiry.
- Resolution, timing and cash impact of uncertain tax positions, customer collection risks and pension funding obligations.
- Liquidity and debt maturity profile, including the $321 million convertible debenture subject to a June 2010 holder repurchase right; management reported $2.8 billion of committed facilities available and unused.
PricewaterhouseCoopers issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2009.