SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------
FORM 10-Q
---------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------------------------
For the Quarter ended: Commission file No.:
June 30, 2001 1-4601
- -------------------------- ----------------------------
SCHLUMBERGER N.V.
(SCHLUMBERGER LIMITED)
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NETHERLANDS ANTILLES 52-0684746
-------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
153 EAST 53 STREET, 57th Floor
NEW YORK, NEW YORK, U.S.A. 10022
42 RUE SAINT-DOMINIQUE
PARIS, FRANCE 75007
PARKSTRAAT 83
THE HAGUE,
THE NETHERLANDS 2514 JG
- ------------------------------------ --------------
(Addresses of principal executive (Zip Codes)
offices)
Registrant's telephone number: (212) 350-9400
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2001
----------------------------- ----------------------------
COMMON STOCK, $0.01 PAR VALUE 573,882,168
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1: Financial Statements
- ----------------------------
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Unaudited)
(Stated in thousands except per share amounts)
Periods Ended June 30,
-----------------------------------------------------------------------
Second Quarter Six Months
---------------------------------- -----------------------------------
2001 2000 (1) 2001 2000 (1)
---------------- ---------------- ----------------- -----------------
REVENUE:
Operating $3,634,599 $2,338,266 $6,544,033 $4,475,708
Interest & other income 59,388 83,541 149,417 159,651
---------------- ---------------- ----------------- -----------------
3,693,987 2,421,807 6,693,450 4,635,359
---------------- ---------------- ----------------- -----------------
EXPENSES:
Cost of goods sold & services 3,072,545 1,830,007 5,267,284 3,490,025
Research & engineering 173,209 130,740 343,805 261,782
Marketing 140,948 81,196 228,365 156,016
General 193,885 104,501 314,480 208,275
Interest 108,757 65,341 184,958 128,437
---------------- ---------------- ----------------- -----------------
3,689,344 2,211,785 6,338,892 4,244,535
---------------- ---------------- ----------------- -----------------
Income before taxes and
minority interest 4,643 210,022 354,558 390,824
Taxes on income 91,090 51,224 199,030 93,614
---------------- ---------------- ----------------- -----------------
Income (Loss) before minority
interest (86,447) 158,798 155,528 297,210
Minority interest (6,838) (2,875) (12,925) (5,129)
---------------- ---------------- ----------------- -----------------
Net Income (Loss) $ (93,285) $ 155,923 $ 142,603 $ 292,081
================ ================ ================= =================
Basic Earnings (Loss) Per Share $ (0.16) $ 0.27 $ 0.25 $ 0.51
================ ================ ================= =================
Diluted Earnings (Loss) Per Share $ (0.16) $ 0.27 $ 0.25 $ 0.51
================ ================ ================= =================
Average shares outstanding 573,451 569,293 573,255 568,090
================ ================ ================= =================
Average shares outstanding
assuming dilution 573,451 579,707 580,725 578,124
================ ================ ================= =================
Depreciation and amortization
included in expenses (2) $ 484,515 $ 311,550 $ 903,541 $ 623,893
================ ================ ================= =================
Dividends declared per share $ 0.1875 $ 0.1875 $ 0.3750 $ 0.3750
================ ================ ================= =================
(1) Reclassified, in part, for comparative purposes.
(2) Including multiclient seismic data costs.
See Notes to Consolidated Financial Statements
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
(Dollars in thousands)
Jun. 30, Dec. 31,
ASSETS 2001 2000 (1)
---------------- ---------------
CURRENT ASSETS:
Cash and short-term investments $1,505,515 $3,040,150
Receivables less allowance for doubtful accounts
(2001 - $143,348; 2000 - $106,503) 4,253,233 2,768,848
Inventories 1,407,986 1,111,585
Deferred taxes on income 349,053 259,184
Other current assets 476,165 313,444
---------------- ---------------
7,991,952 7,493,211
---------------- ---------------
LONG-TERM INVESTMENTS, HELD TO MATURITY 659,000 1,547,132
INVESTMENTS IN AFFILIATED COMPANIES 691,103 654,516
FIXED ASSETS:
Property, plant and equipment 11,640,753 10,821,509
Less accumulated depreciation (6,689,875) (6,426,995)
---------------- ---------------
4,950,878 4,394,514
---------------- ---------------
MULTICLIENT SEISMIC DATA 983,046 975,775
EXCESS OF INVESTMENT OVER NET ASSETS OF
COMPANIES PURCHASED less amortization,
AND INTANGIBLE ASSETS 6,997,281 1,716,427
DEFERRED TAXES ON INCOME 139,405 271,059
OTHER ASSETS 275,106 120,097
---------------- ---------------
$22,687,771 $17,172,731
================ ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $4,535,773 $2,910,725
Estimated liability for taxes on income 487,139 379,916
Bank loans 1,124,074 556,020
Dividend payable 108,208 108,043
Long-term debt due within one year 97,254 36,201
---------------- ---------------
6,352,448 3,990,905
LONG-TERM DEBT 6,616,572 3,573,047
POSTRETIREMENT BENEFITS 511,655 476,380
MINORITY INTEREST 622,196 605,313
OTHER LIABILITIES 510,494 231,870
---------------- ---------------
14,613,365 8,877,515
---------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock 1,974,194 1,963,905
Income retained for use in the business 8,151,074 8,223,476
Treasury stock at cost (1,737,435) (1,752,961)
Accumulated other comprehensive income (313,427) (139,204)
---------------- ---------------
8,074,406 8,295,216
---------------- ---------------
$22,687,771 $17,172,731
================ ===============
(1) Reclassified, in part, for comparative purposes.
See Notes to Consolidated Financial Statements
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
Cash flows from operating activities: 2001 2000 (1)
--------------- ---------------
Net income $ 142,603 $ 292,081
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization (2) 903,541 623,893
Impairment charge for RMS businesses 280,000 -
Earnings of companies carried at equity, less
dividends received (2001 - $-; 2000 - $-) (29,205) (13,583)
Provision for losses on accounts receivable 6,149 15,316
Change in operating assets and liabilities:
Increase in receivables (628,017) (222,935)
Increase in inventories (286,855) (57,158)
Decrease (increase) in deferred taxes 23,937 (23,669)
(Increase) decrease in other current assets (71,281) 16,769
Increase in accounts payable and
accrued liabilities 136,868 39,914
Increase in estimated liability
for taxes on income 18,394 39,303
Other - net (283,975) (105,934)
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 212,159 603,997
--------------- ---------------
Cash flows from investing activities:
Purchase of fixed assets (990,404) (528,960)
Multiclient seismic data capitalized (221,219) (119,940)
Sales/retirements of fixed assets & other (17,971) 54,060
Decrease in investments 2,510,047 136,309
Businesses acquired, net of cash acquired (353,024) (261,446)
Acquisition of Sema plc, net of cash acquired (4,778,498) -
Decrease (increase) in other assets 10,108 (41,047)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (3,840,961) (761,024)
--------------- ---------------
Cash flows from financing activities:
Dividends paid (214,840) (212,368)
Proceeds from employee stock purchase plan 58,362 61,560
Proceeds from exercise of stock options 25,815 109,693
Proceeds from issuance of long-term debt 3,293,700 530,939
Payments of principal on long-term debt (25,581) (333,943)
Net increase in short-term debt 551,129 26,937
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,688,585 182,818
--------------- ---------------
Net increase in cash 59,783 25,791
Cash, beginning of period 160,718 132,589
--------------- ---------------
CASH, END OF PERIOD $ 220,501 $ 158,380
=============== ===============
(1) Restated, in part, for comparative purposes.
(2) Including multiclient seismic data costs.
See Notes to Consolidated Financial Statements
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
STOCKHOLDERS' EQUITY
--------------------
(Unaudited)
(Dollars in thousands)
Accumulated Other
Comprehensive Income
-------------------------------- -----------------
Common Stock Retained Mark to Translation Comprehensive
---------------------------------
Issued In Treasury Income Market Adjustment Income
-------------- ----------------- --------------- ---------------- --------------- -----------------
Equity, January 1, 2001 $1,963,905 $ (1,752,961) $8,223,476 $ - $ (139,204) $ -
Net Income 142,603 142,603
Derivatives marked to market (26,958) (26,958)
Translation adjustment (226,265) (226,265)
RMS disposition 79,000 79,000
Dividends declared (215,005)
Shares sold to optionees (net
of fees) 10,289 15,526
Employee Stock Purchase Plan
-------------- ----------------- --------------- ---------------- --------------- -----------------
Equity, June 30, 2001 $1,974,194 $ (1,737,435) $8,151,074 $ (26,958) $ (286,469) $ (31,620)
============== ================= =============== ================ =============== =================
See Notes to Consolidated Financial Statements
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
In the opinion of management, all adjustments necessary to present fairly the
financial position and the results of operations have been made in the
accompanying interim financial statements. The Company's significant accounting
policies are summarized in its 2000 Annual Report. These policies have been
consistently applied during the interim period presented in this report. The
results of operations for the three and six month periods ended June 30, 2001
are not necessarily indicative of the results of operations that may be expected
for the entire year.
EARNINGS PER SHARE
- ------------------
The following is a reconciliation from basic earnings per share to diluted
earnings per share for the second quarter and the first six months of 2001:
(Stated in thousands except per share amounts)
Average Earnings
Net Shares (Loss)
Second Quarter Income (Loss) Outstanding per Share
- -------------- --------------- -------------- ------------
Basic $ (93,285) 573,451 ($0.16)
Effect of dilution:
Options (1) - -
--------------- -------------- ------------
$ (93,285) 573,451 ($0.16)
=============== ============== ============
Six Months
- ----------
Basic $ 142,603 573,255 $0.25
Effect of dilution:
Options 7,470 -
--------------- -------------- ------------
$ 142,603 580,725 $0.25
=============== ============== ============
(1) Due to the net loss, there is no dilutive effect in the second quarter.
CHARGES
- -------
The first quarter 2001 included a $25 million ($0.04 per share - diluted) in-
process research and development charge related to the acquisition of Bull CP8.
This charge is classified in Research & Engineering in the Consolidated
Statement of Income.
The second quarter 2001 included a $280 million ($0.48 per share - diluted)
estimated impairment charge from the expected disposition of certain Resource
Management Services businesses (Electricity and Water outside North America and
the worldwide Gas businesses). This charge, which included the write off of
goodwill ($139 million) and cumulative translation adjustment ($79 million), is
classified in Cost of goods sold and services in the Consolidated Statement of
Income.
CONTINGENCIES
- -------------
The Consolidated Balance Sheet includes accruals for the estimated future costs
associated with certain environmental remediation activities related to the past
use or disposal of hazardous materials. Substantially all such costs relate to
divested operations and to facilities or locations that are no longer in
operation. Due to a
number of uncertainties, including uncertainty of timing, the scope of
remediation, future technology, regulatory changes and other factors, it is
possible that the ultimate remediation costs may exceed the amounts estimated.
However, in the opinion of management, such additional costs are not expected to
be material relative to consolidated liquidity, financial position or future
results of operations.
In addition, Schlumberger and its subsidiaries are party to various other legal
proceedings. Although the ultimate disposition of these proceedings is not
presently determinable, in the opinion of Schlumberger any liability that might
ensue would not be material in relation to the consolidated liquidity, financial
position or future results of operations.
INVESTMENT IN SEMA PLC
- ----------------------
On February 12, 2001, Schlumberger announced that it had reached an agreement
with the board of directors of Sema plc on the terms of a recommended offer for
the entire issued and to be issued share capital of Sema plc.
On March 8, 2001, Schlumberger acquired, through market purchases, approximately
20% of the issued share capital of Sema at a cost of $1 billion.
On April 6, 2001, the offer for the shares of Sema plc was declared
unconditional in all respects. The aggregate consideration for the acquisition
of 100% of the issued Sema shares was $5.15 billion (including expenses of the
transaction) which is being financed from existing cash resources and borrowings
under a $3 billion credit facility.
The acquisition was accounted for using the purchase method of accounting and
the goodwill and identifiable intangibles aggregated $5.19 billion which are
being amortized on a straight line basis. The final allocation of the purchase
price and amortization periods had not yet been completed. For the third
quarter, goodwill and identifiable intangibles will be amortized on a straight
line basis over a composite life of 18 years.
The aggregate value of goodwill and identifiable intangibles comprised the
following:
(Dollars in billions)
Cost (including expenses) $ 5.15
Purchase accounting adjustments (1) 0.34
Net tangible assets acquired (0.30)
------------
$ 5.19
============
(1) Purchase accounting adjustments consisted primarily of severance costs ($84
million), facility reductions ($33 million), pension plan adjustments ($136
million) and tax restructuring costs ($50 million).
For financial reporting purposes, Schlumberger included the results of
operations of Sema in its consolidated accounts commencing April 1, 2001.
Sema is an IT services company (with approximately 22,000 employees) that
provides its customers with design, implementation, operations and management of
information systems and IT-related consulting services. Among the industry
sectors which Sema serves, Sema has increasingly focused on the
telecommunications and finance sectors, and provides a range of its own software
products specifically designed for these sectors in addition to its IT services.
Sema's customers include a wide variety of businesses and governmental
departments around the world. Sema's services and product offerings include
systems integration and consulting; software products for the
telecommunications, energy, transport and finance sectors; and outsourcing.
INVESTMENTS IN AFFILIATED COMPANIES
- -----------------------------------
Investments in affiliated companies include Schlumberger's 40% investment in the
MI Drilling Fluids Joint Venture (June 30, 2001 - $499 million; December 31,
2000 - $461 million). Equity in income of investments carried under the equity
method (2001 - $29 million; 2000 - $14 million) are included in Interest & other
income on the Consolidated Statement of Income.
NEW ACCOUNTING STANDARDS
- ------------------------
Commencing January 1, 2001, Schlumberger adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities (See Item 2:Management's
Discussion and Analysis of Financial Condition and Results of Operations).
SFAS 141 (Business Combinations) has been adopted by Schlumberger for
acquisitions subsequent to June 30, 2001. SFAS 142 (Goodwill and Other
Intangible Assets) will be adopted by Schlumberger commencing January 1, 2002.
As required by SFAS 142, Schlumberger will undertake a review for impairment in
2002. In the second quarter 2001, Schlumberger incurred amortization of goodwill
and other intangibles amounting to $85 million (net of tax). With the adoption
of SFAS 142, the equivalent amount is estimated to be $12 million per quarter in
2002.
SEGMENT INFORMATION
- -------------------
Following the acquisition of Sema plc on April 6, 2001, Schlumberger created a
new business segment, SchlumbergerSema, which resulted from the merger of Sema
plc with certain businesses from Schlumberger's former segments, Test &
Transactions and Resource Management Services. Following this reorganization,
Schlumberger now operates two reportable segments, Oilfield Services and
SchlumbergerSema.
(Stated in millions)
---------------------------------------------------------------------------------------------------------
Elims/ Total Schlumberger Elims/
Six Months 2001 NAM LAM ECA MEA Other OFS Sema Other Other Consolidated
---------------------------------------------------------------------------------------------------------
Revenue $1,865 $ 720 $1,014 $ 976 $ 215 $4,790 $ 1,221 $ 572 $ (39) $ 6,544
=========================================================================================================
Segment Income $ 282 $ 65 $ 115 $ 168 $ (24) $ 606 $ 1 $ 14 $ (87) $ 534
Minority Interest - - - - 11 11 3 - (1) 13
Income Tax Expense 170 22 39 31 10 272 (16) (4) (53) 199
---------------------------------------------------------------------------------------------------------
Segment Income before tax $ 452 $ 87 $ 154 $ 199 $ (3) $ 889 $ (12) $ 10 $ (141) $ 746
===========================================================================================
Interest Income 96
Interest Expense (3) (182)
Charges (305)
--------------
Pretax Income $ 355
-------------------------------------------------------------------------------------------==============
---------------------------------------------------------------------------------------------------------
Elims/ Total Schlumberger Elims/
Six Months 2000 NAM LAM ECA MEA Other OFS Sema Other Other Consolidated
---------------------------------------------------------------------------------------------------------
Revenue $1,066 $ 511 $ 723 $ 804 $ 158 $3,262 $ 478 $ 770 $ (34) $ 4,476
=========================================================================================================
Segment Income $ 81 $ 13 $ 41 $ 132 $ 31 $ 298 $ 15 $ 23 $ (61) $ 275
Minority Interest - - - - - - 4 1 - 5
Income Tax Expense 48 10 24 21 21 124 (7) 9 (32) 94
---------------------------------------------------------------------------------------------------------
Segment Income before tax $ 129 $ 23 $ 65 $ 153 $ 52 $ 422 $ 12 $ 33 $ (93) $ 374
===========================================================================================
Interest Income 144
Interest Expense (1) (127)
--------------
Pretax Income $ 391
-------------------------------------------------------------------------------------------==============
BUSINESS REVIEW
- ---------------
(Stated in millions)
Oilfield
Services SchlumbergerSema Other (1)
-------------------------- -------------------------- ---------------------------
Second Quarter 2001 2000 % chg 2001 2000 % chg 2001 2000 % chg
- -------------- ---- ---- ----- ---- ---- ----- ---- ---- -----
Operating Revenue $ 2,467 $ 1,709 44% $ 901 $ 252 257% $ 287 $ 394 (27)%
Pretax Operating
Income (2) $ 471 $ 234 101% $ (15) $ 3 -% $ 7 $ 22 (66)%
Six Months
- ----------
Operating Revenue $ 4,790 $ 3,262 47% $ 1,221 $ 478 156% $ 572 $ 770 (26)%
Pretax Operating
Income (2) $ 889 $ 422 111% $ (12) $ 12 -% $ 10 $ 33 (69)%
(1) Includes those Resource Management Services businesses planned for
divestiture, Semiconductor Solutions and Global Tel*Link.
(2) Pretax operating income represents income before taxes and minority
interest, excluding interest expense, interest income, amortization of
goodwill and identifiable intangibles ($92 million and $125 million in the
second quarter of 2001 and six months 2001, respectively). All prior
periods have been restated for comparative purposes.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations.
- --------------
Second Quarter 2001 Compared to Second Quarter 2000
---------------------------------------------------
Net Loss for the second quarter was $93 million ($(0.16) per share - diluted)
after a $280 million ($0.48 per share - diluted) estimated impairment charge
from the expected disposition of certain Resource Management Services
businesses. Excluding this charge, net income for the quarter was $187 million
($0.32 per share - diluted) compared to $156 million ($0.27 per share - diluted)
last year.
Oilfield Services revenue, including WesternGeco, increased 44% versus the
second quarter of 2000 as the worldwide M-I rig count grew 27%. Compared with
the first quarter of 2001, revenue increased 6% as the worldwide M-I rig count
decreased 5%.
SchlumbergerSema revenue was $901 million for the quarter, a 7% sequential
increase on a proforma basis. This included revenue for the acquired businesses
of Sema ($560 million) and Bull CP8 ($35 million).
OILFIELD SERVICES
Oilfield Services operating revenue in the second quarter increased 44% year-on-
year with significant growth across all Areas and services driven by improved
pricing levels and the introduction of new technologies.
Sequentially, revenue increased 6% led by the Europe/CIS/West Africa Area and
activities within Well Completions & Productivity where there was a sharp
increase in product sales including Reda electrical submersible pumps. All
services grew sequentially except for WesternGeco.
The worldwide M-I rig count increased 27% year-on-year but decreased 5%
sequentially due mainly to the Canada spring break-up. Pretax operating income
in the second quarter grew 101% compared to the same period last year and 12%
sequentially.
The consolidation program for WesternGeco proceeded according to plan. The
seismic market has improved compared with last year; however, it remains soft,
predominantly due to spare capacity in the marine seismic market.
North America
- -------------
Revenue of $941 million increased 70% compared with the same quarter last year
and 2% sequentially. The M-I rig count increased 36% year-on-year and decreased
7% sequentially. Pretax operating income of $226 million was 237% higher than
the second quarter last year and remained flat sequentially. The large increase
in year-on-year revenue was partly attributable to the WesternGeco Joint
Venture.
Pricing improvements and an increase in non-rig related activity drove year-on-
year revenue growth. Year-on-year pretax operating income was led by strong
growth in Well Completions & Productivity, Well Services and Wireline
activities. The Alaska and US Land GeoMarkets recorded the strongest pretax
operating income growth year-on-year and sequentially, the latter being offset
by the Canada spring break-up.
Latin America
- -------------
Revenue of $355 million increased 36% year-on-year but decreased 3%
sequentially. This is in line with the M-I rig count, which increased 26%
compared with the same period last year and decreased 2% sequentially. Pretax
operating income of $44 million was 190% higher compared to last year and
increased 3% sequentially.
Year-on-year revenue growth was recorded across all services. In particular, the
activities associated with the IPM Burgos alliance project grew 52%. In
addition,
Schlumberger was awarded two deepwater completion contracts in Brazil,
confirming Schlumberger expertise in this area. The decrease in sequential
revenue growth, largely due to a slow down in marine seismic activity
particularly in the Mexico GeoMarket, was mitigated by continued revenue growth
from other services despite reduced rig activity.
Strong IPM activity contributed to the positive sequential pretax operating
income growth.
Europe/CIS/West Africa
- ----------------------
Revenue of $550 million increased 43% compared with the same quarter last year,
and 19% sequentially. The M-I rig count, excluding CIS, increased 17% year-on-
year and 1% sequentially. Pretax operating income of $96 million increased 134%
year-on-year and 69% sequentially.
Year-on-year and sequential revenue growth exceeded rig count growth due mainly
to increased non-rig related activity particularly in the North Sea and West
Africa. During the quarter, the first commercial survey utilizing the Q-Marine*
seismic system was successfully completed. Q*-Technology establishes a new level
of precision for seismic reservoir characterization and evaluation. The West
Africa and Nigeria GeoMarkets led the strongest year-on-year revenue growth with
increased testing activity, especially in West Africa where several PhaseTester*
Vx* multiphase well testing technology contracts were awarded in the last six
months. Vx-Technology determines a well's oil, gas and water flow rates without
the need for traditional test separators thus improving efficiency and
environmental performance.
Pretax operating income growth was led by WesternGeco, Well Completions &
Productivity and IPM activities.
Middle East & Asia
- ------------------
Second quarter revenue of $509 million increased 20% year-on-year and 9%
sequentially. The M-I rig count increased 6% year-on-year with a slight
sequential increase. Pretax operating income of $108 million increased 21% year-
on-year and 17% sequentially.
Year-on-year revenue growth was led by the Malaysia GeoMarket due to increased
activity across all services. Sequential revenue growth exceeded the rig count
growth due to improved pricing and increased non-rig related activity. This
included the award of a 4000 well petrophysical study to Data & Consulting
Services in the Middle East. Growth was also led by Well Completions &
Productivity, Testing and Wireline which was particularly active in the China
GeoMarket.
The GeoMarkets in this Area contributed to pretax operating income by raising
basic service prices while increasing market share.
SCHLUMBERGERSEMA
The SchlumbergerSema business segment reported operating revenue for the quarter
of $901 million, which included revenue from the recent acquisitions of Sema plc
($560 million) and Bull CP8 ($35 million).
The pretax operating loss for the quarter of $15 million was largely attributed
to losses in the utility sector, to lower profitability in telecom-related smart
cards and integration costs of about $5 million associated with the Sema
acquisition. The businesses acquired with Sema were break-even.
Revenue from the utility sector was up 11% sequentially on increased activity in
the utility business in North America. Service revenues from remotely readable
meter installations increased during the quarter. In addition, orders in
Utilities
increased by 9% in particular due to a new consulting contract with Louisiana
Gas & Electric.
Cards revenue of $176 million increased sequentially by 5% including the Bull
CP8 acquisition. Revenue was 20% lower than the previous quarter excluding the
Bull CP8 acquisition. Mobile communications cards (SIM) revenue was down 22%,
reflecting excess inventories carried by Asian mobile operators and reduced
demand for cellular handsets. Sequentially, orders for mobile prepaid cards were
8% higher and banking cards almost doubled, reflecting increased shipments of
cards to the UK and Proton e-purse cards to the Netherlands and to Belgium.
OTHER
The segment includes the portion of the Resource Management Services businesses,
Semiconductor Solutions and Global Tel*Link which are expected to be disposed of
in the near future. Revenue from the Resource Management Services businesses was
20% below last year; Semiconductor Solutions revenue was 50% below a year ago.
The operating loss at Semiconductor Solutions was more than offset by the profit
at Resource Management Services.
In the second quarter, the Company recorded an impairment charge of $280 million
($0.48 per share - diluted) related to the expected disposition of certain of
the Resource Management Services businesses (Electricity and Water outside North
America and the worldwide Gas businesses). The charge included the write off of
goodwill ($139 million) and cumulative translation adjustment ($79 million).
INCOME STATEMENT
Interest and other income decreased $24 million from the same period last year
as a $38 million decrease in interest income (2001 - $35 million; 2000 - $73
million) reflecting a decrease of $2.6 billion in average investment balances
which were used to finance the acquisition of Sema plc shares and a decrease in
average returns on investments from 6.1% to 5.6%, was partially offset by a $9
million gain from the sale of investments, also related to funding the Sema plc
share purchases, and a $5 million increase in equity income. Gross margin,
excluding the $280 million charge, of 23% was one and a half percentage points
above last year. Research and engineering expense as a percentage of revenue
decreased 0.8% and marketing expense increased 0.4%. General expense as a
percentage of revenue increased from 4.5% to 5.3%. Interest expense increased by
$43 million as average debt balances were up $2.8 billion due primarily to the
Sema acquisition and the average borrowing rates decreased from 6.6% to 6.4%.
The effective tax rate, excluding the $280 million charge, increased by 8
percentage points to 32% reflecting higher pretax income in the United States
and the effect of higher non-tax deductible goodwill amortization.
First Six Months 2001 Compared to First Six Months 2000
--------------------------------------------------------
Operating revenue for the first half of the year was $6.5 billion, a 46%
increase over the same period last year. Excluding charges, net income was $448
million and diluted earnings per share were $0.77, increases of 53% and 51%,
respectively, over the same period last year.
OILFIELD SERVICES
Operating revenue increased 47% due in large part to North America and
Europe/CIS/West Africa. Pretax operating income increased by 111% over last
year. The M-I rig count increased by 30%. Pricing improvements and the
WesternGeco Joint Venture influenced the growth in revenue.
North America
- -------------
Revenue increased 75% to $1.87 billion compared to the first six months of 2000,
pretax operating income of $452 million increased 252%. The M-I rig count
increased 30% over the same period last year. The increase in revenue reflected
the higher
non-rig related activities, price increase, new technologies and better
utilization of existing resources. Canada's revenue was negatively affected by
the early spring break-up.
Latin America
- -------------
Latin America revenue of $720 million increased by 41% compared to last year.
The pretax operating income increased by 272% and the M-I rig count increased by
30%. The decline in revenue from seismic activities in the GeoMarkets was offset
by strong Burgos Allianza ll activity. Venezuela and Trinidad and Tobago also
had to adjust Prisa contract bonus and inflation adjustment billings.
Europe/CIS/West Africa
- ----------------------
Revenue of $1.01 billion increased 40% over the same period last year. Pretax
operating income increased 136% and the M-I rig count (excluding CIS) increased
by 21%. IPM had a significant increase in revenue due mainly to the TFE Atora
EPF project in Gabon.
Middle East & Asia
- ------------------
Revenue increased 21% to $976 million. Compared to the same period last year,
pretax operating income was up 30% and the M-I rig count increased by 7%. The
GeoMarkets in this Area contributed to pretax operating income by raising basic
service prices while increasing market share.
SCHLUMBERGERSEMA
Revenue was $1.22 billion, 156% higher than last year and pretax operating
income was a loss of $12 million. Revenue for Utilities and Transactions Systems
both increased over last year.
OTHER
Revenue from the Resource Management Services businesses decreased 22% compared
to last year. Semiconductor Solutions revenue declined 42%. The profit at
Resource Management Services was partially offset by Semiconductor Solutions
losses.
INCOME STATEMENT
Interest and other income decreased $10 million from the same period last year
as a $44 million decrease in interest income (2001 - $102 million; 2000 - $146
million) reflecting a decrease in average investment balances which were used to
finance the acquisition of Sema plc shares, was partially offset by a $19
million gain from the sale of investments, also related to funding the Sema plc
share purchases, and a $16 million increase in equity income. Average returns on
investments increased from 6.0% to 6.2%. Gross margin, excluding the $280
million charge, of 24% was nearly two percentage points above last year.
Research and engineering, marketing and general expenses as a percentage of
revenue were flat. Interest expense increased $57 million as average borrowing
rates decreased from 6.6% to 6.5%. The increase in expenses was due mainly to
the acquisition of Sema plc. The effective tax rate, excluding the charges,
increased from 24% to 30% for the same period last year due to higher
profitability in the United States and the effect of higher non-tax deductible
goodwill amortization.
NEW ACCOUNTING STANDARDS
- ------------------------
Commencing January 1, 2001, Schlumberger adopted SFAS 133 (Accounting for
Derivative Instruments and Hedging Activities). Occasionally, Schlumberger uses
derivative instruments such as interest rate swaps, currency swaps, forward
currency contracts and foreign currency options. Forward currency contracts
provide a hedge against currency fluctuations on assets/liabilities denominated
in other than a functional
currency. Options are usually entered into as a hedge against currency
variations on firm commitments generally involving the construction of
long-lived assets.
Schlumberger maintains a foreign-currency risk management strategy that uses
derivative instruments to protect its interests from unanticipated fluctuations
in earnings and cash flows caused by volatility in currency exchange rates.
Movements in foreign currency exchange rates pose a risk to Schlumberger's
operations as exchange rate changes may affect profitability and cash flow.
Schlumberger uses foreign currency forward exchange contracts, swaps and
options. Schlumberger also maintains an interest rate risk management strategy
that uses derivatives to minimize significant, unanticipated earnings
fluctuations caused by interest rate volatility. Schlumberger's specific goals
are (1) to manage interest rate sensitivity by modifying the repricing or
maturity characteristics of certain of its debt and (2) to lower (where
possible) the cost of borrowed funds.
By using derivative financial instruments to hedge exposure to changes in
exchange rates and interest rates, Schlumberger exposes itself to credit risk
and market risk. Schlumberger minimizes the credit risk by entering into
transactions with high-quality counterparties, limiting the exposure to each
counterparty and monitoring the financial condition of its counterparties.
Market risk is managed through the setting and monitoring of parameters that
limit the types and degree of market risk which are acceptable.
At June 30, 2001, Schlumberger recognized a net $27 million charge in
Stockholders' Equity relating to SFAS 133. This charge was primarily due to the
change in the fair market value of Schlumberger's US interest rate swaps as a
result of declining interest rates. The effect on Stockholders' Equity at
December 31, 2000 was not significant.
In June 2001, SFAS 141 (Business Combinations) and SFAS 142 (Goodwill and Other
Intangible Assets) were issued. See "New Accounting Standards" in the "Notes to
the Consolidated Financial Statements".
ACQUISITIONS
- ------------
In April 2001, Schlumberger acquired Sema plc for an aggregate consideration of
$5.15 billion. See "Investment in Sema plc" in the "Notes to the Consolidated
Financial Statements".
In March 2001, Schlumberger acquired Bull CP8, a market leader in
microprocessor-based smart cards and associated systems applications for the
banking, mobile communications and network security industries. The acquisition
price was $313 million. Assets acquired included identifiable intangibles
(primarily patents) of $136 million and goodwill of $140 million. Additionally,
in-process research & development which aggregated $25 million was charged to
expense in the first quarter.
LIQUIDITY
- ---------
In April 2001, Schlumberger borrowed $3 billion to finance the acquisition of
Sema plc. See "Investment in Sema plc" in the "Notes to the Consolidated
Financial Statements".
FORWARD-LOOKING STATEMENTS
- --------------------------
Schlumberger cautions that, except for historical information, statements in
this 10-Q report, the second quarter 2001 earnings release and associated
conference call, and elsewhere may constitute forward-looking statements. These
include statements as to expectations, beliefs and future financial performance,
such as statements regarding business prospects in the key industries in which
Schlumberger operates and growth opportunities for Schlumberger in those
industries. These statements involve a number of risks, uncertainties,
assumptions and other factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors include:
continuing customer commitment to certain
key long-term contracts; changes in E&P spending by major oil and gas companies,
including renewed growth in gas drilling; economic, competitive and
technological factors affecting markets, services, and prices in Schlumberger
Sema businesses, including the extent and timing of a recovery in the
telecommunications industry segment and utilities investment in utility
management solutions; Schlumberger's ability to integrate newly acquired
businesses and to realize identified synergies and cost savings from those
acquisitions; timing and proceeds from anticipated divestitures; general
economic and business conditions in key regions of the world; and changes in
business strategy.
Item 3: Quantitative and Qualitative Disclosure about Market Risk.
- ------------------------------------------------------------------
Schlumberger does not believe it has a material exposure to financial market
risk. Schlumberger manages the exposure to interest rate changes by using a mix
of debt maturities and variable- and fixed-rate debt together with interest rate
swaps, where appropriate, to fix or lower borrowing costs. With regard to
foreign currency fluctuations, Schlumberger enters into various contracts, which
change in value as foreign exchange rates change, to protect the value of
external and intercompany transactions in foreign currencies. Schlumberger does
not enter into foreign currency or interest rate transactions for speculative
purposes.
* Mark of Schlumberger
PART II. OTHER INFORMATION
---------------------------
Item 6: Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit 3(a) - Deed of Incorporation as amended May 4, 2001.
Exhibit 3(b) - By-Laws as amended April 19, 2001.
(b) Reports on Form 8-K:
1. Report on Form 8-K filed with the Commission on
April 20, 2001 to report that Schlumberger
Investments, a wholly owned subsidiary of
Schlumberger Limited, announced that its offer for
the ordinary Share Capital of Sema plc had been
declared unconditional in all respects.
2. Report on Form 8-K/A filed with the Commission on
June 15, 2001 to file the pro forma financial
information required by Form 8-K filed with the
Commission on April 20, 2001.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in his capacity as chief accounting
officer.
Schlumberger Limited
(Registrant)
Date: August 8, 2001 .../s/Jean-Marc Perraud
-------------- -----------------------------
Jean-Marc Perraud
Controller and
Chief Accounting Officer
INDEX TO EXHIBITS
-----------------
Exhibit No: Description Appendix
- ----------- ----------- --------
Exhibit 3(a) Deed of Incorporation amended A
On May 4, 2001
Exhibit 3(b) By-Laws as amended on
April 19, 2001 B