SLB

Business Context and Reporting Period

Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2000
Business Overview: Schlumberger operates primarily in three segments: Oilfield Services (OFS), Resource Management Services (RMS), and Test & Transactions (T&T). The company provides technology and services for the energy industry, utility metering, and electronic transaction security.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue increased 17% in Q3 2000 and 11% for the nine-month period compared to 1999. Oilfield Services (OFS) drove this growth with a 25% revenue increase in Q3, fueled by a 34% rise in the worldwide M-I rig count.
• Profitability Surge: Income from continuing operations rose 85% in Q3 2000 ($204.6M vs. $110.7M). This improvement is partly due to the absence of significant restructuring charges that impacted the first quarter of 1999 ($147M pretax charge).
• Segment Performance:
  • OFS: Pretax operating income doubled (100% increase) in Q3. North America saw the strongest growth (49% revenue increase).
  • RMS: Revenue declined 7% in Q3 due to currency headwinds and weakness in the European meter market, though pretax income rose 221% for the nine-month period.
  • T&T: Revenue grew 6% in Q3, but pretax operating income fell 89% due to lower revenue at Semiconductor Solutions and investments in Network Solutions.
• Interest Expense: Increased by $27M in Q3 and $68M for the nine months due to higher borrowing rates (average rates rose from 5.2% to 7.1% in Q3).

Guidance, Outlook, and Risks

• Acquisitions and Ventures:
  • Completed acquisition of CellNet Data Systems ($209M) in Q2 2000.
  • Formed a new seismic venture, Western GECO, with Baker Hughes (70% Schlumberger, 30% Baker Hughes), expected to close in Q4 2000.
  • Announced agreement to acquire a majority interest in Convergent Group for approximately $276M, expected to close in Q4 2000.
• Management Commentary: Strong demand for advanced oilfield services and firm oil/gas prices are driving pricing improvements. RMS faces continued pressure in Europe but growth in North America and Asia. T&T faces mixed results with strong Cards growth offset by Semiconductor weakness.
• Risks and Contingencies:
  • Market Risk: Exposure to interest rate changes and foreign currency fluctuations, managed via swaps and hedging.
  • Legal/Environmental: Accruals exist for environmental remediation; management does not expect additional costs to be material. Various legal proceedings are ongoing but not expected to be material.
  • Forward-Looking Factors: Results depend on customer commitment to oilfield projects, E&P spending by major oil companies, and utility investment in integrated solutions.

Investor Verification Checklist

• Discontinued Operations: Verify that 1999 comparisons exclude Sedco Forex (spun off in Dec 1999), which contributed $84.6M to net income in the prior nine-month period.
• Restructuring Charges: Confirm that 1999 results included a $147M pretax charge in Q1 and a $77M charge in Q4, which significantly depressed prior-year earnings.
• Debt Levels: Monitor the increase in interest expense relative to the slight decrease in average debt balances, indicating rising borrowing costs.
• Acquisition Integration: Track the completion and financial impact of the Western GECO venture and the Convergent Group merger in Q4 2000.
• Segment Margins: Review the divergence between OFS margin expansion and T&T margin compression (specifically Semiconductor Solutions).