SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarter ended: Commission file No.:
JUNE 30, 1998 1-4601
- --------------------- --------------------
SCHLUMBERGER N.V.
(SCHLUMBERGER LIMITED)
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NETHERLANDS ANTILLES 52-0684746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
277 PARK AVENUE
NEW YORK, NEW YORK, U.S.A. 10172
42 RUE SAINT-DOMINIQUE
PARIS, FRANCE 75007
PARKSTRAAT 83
THE HAGUE,
THE NETHERLANDS 2514 JG
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(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, 1998
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COMMON STOCK, $0.01 PAR VALUE 499,170,039
PART I. FINANCIAL INFORMATION
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Item 1: Financial Statements
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SCHLUMBERGER LIMITED
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(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
------------------- -----------------
1998 1997 1998 1997
---------------- --------------- -------------- ---------------
REVENUE:
Operating $2,853,302 $2,601,679 $5,653,436 $5,003,739
Interest and other income 35,779 20,738 69,978 38,843
---------- ---------- ---------- ----------
2,889,081 2,622,417 5,723,414 5,042,582
---------- ---------- ---------- ----------
EXPENSES:
Cost of goods sold and services 2,080,692 1,929,324 4,116,154 3,712,112
Research & engineering 141,148 118,897 276,981 236,850
Marketing 82,518 76,745 164,027 151,378
General 103,275 93,568 204,326 181,349
Interest 22,598 19,317 45,844 37,136
---------- ---------- ---------- ----------
2,430,231 2,237,851 4,807,332 4,318,825
---------- ---------- ---------- ----------
Income before taxes 458,850 384,566 916,082 723,757
Taxes on income 99,495 78,060 205,995 157,308
---------- ---------- ---------- ----------
Net Income $ 359,355 $ 306,506 $ 710,087 $ 566,449
========== ========== ========== ==========
Basic Earnings Per Share $ 0.72 $ 0.62 $ 1.42 $ 1.15
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.69 $ 0.60 $ 1.37 $ 1.11
========== ========== ========== ==========
Average Shares Outstanding 498,853 493,863 498,563 493,644
========== ========== ========== ==========
Average shares outstanding
assuming dilution 519,065 510,961 518,754 510,091
========== ========== ========== ==========
Dividends declared per share $ 0.1875 $ 0.1875 $ 0.375 $ 0.375
========== ========== ========== ==========
See notes to consolidated financial statements
-2-
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
(Dollars in thousands)
Jun. 30, Dec. 31,
1998 1997
----------- -----------
ASSETS
- ------
CURRENT ASSETS:
Cash and short-term investments $ 1,781,252 $ 1,761,077
Receivables less allowance for doubtful accounts
(1998 - $71,237; 1997 - $60,535) 3,110,759 2,819,898
Inventories 1,224,328 1,094,070
Deferred taxes on income 174,748 175,927
Other current assets 228,993 220,248
----------- -----------
6,520,080 6,071,220
LONG-TERM INVESTMENTS, HELD TO MATURITY 679,978 742,751
FIXED ASSETS:
Property, plant and equipment 10,622,855 10,210,105
Less accumulated depreciation (6,614,868) (6,441,466)
----------- -----------
4,007,987 3,768,639
EXCESS OF INVESTMENT OVER NET ASSETS OF
COMPANIES PURCHASED less amortization 1,146,923 1,167,624
DEFERRED TAXES ON INCOME 223,855 202,774
OTHER ASSETS 146,668 143,723
----------- -----------
$12,725,491 $12,096,731
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,337,198 $ 2,297,370
Estimated liability for taxes on income 436,281 384,167
Bank loans 698,947 750,303
Dividend payable 94,043 93,821
Long-term debt due within one year 105,969 104,237
----------- -----------
3,672,438 3,629,898
LONG-TERM DEBT 1,137,778 1,069,056
POSTRETIREMENT BENEFITS 409,173 396,559
OTHER LIABILITIES 260,054 306,294
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5,479,443 5,401,807
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STOCKHOLDERS' EQUITY:
Common stock 941,221 931,096
Income retained for use in the business 8,584,835 8,061,731
Treasury stock at cost (2,230,846) (2,249,765)
Translation adjustment (49,162) (48,138)
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7,246,048 6,694,924
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$12,725,491 $12,096,731
=========== ===========
See notes to consolidated financial statements
-3-
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,
1998 1997
------- -------
Cash flows from operating activities:
Net income $ 710,087 $ 566,449
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 521,133 469,847
Earnings of companies carried at equity,
less dividends received (Dividends:
1998 - $0 ; 1997 - $0) (5,499) 8
Provision for losses on accounts receivable 16,943 6,041
Other adjustments 16 (1,273)
Change in operating assets and liabilities:
Increase in receivables (317,181) (356,746)
Increase in inventories (136,968) (140,024)
Decrease in deferred taxes on income 1,179 7,550
Decrease in accounts payable
and accrued liabilities (1,063) (37,427)
Increase in estimated
liability for taxes on income 52,502 24,904
Other - net (83,706) 81,883
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Net cash provided by operating activities 757,443 621,212
--------- ---------
Cash flows from investing activities:
Purchases of fixed assets (784,357) (590,958)
Sales/retirements of fixed assets 48,899 34,113
Decrease (increase) in investments 88,660 (131,736)
Decrease in other assets 5,731 5,776
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Net cash used in investing activities (641,067) (682,805)
--------- ---------
Cash flows from financing activities:
Dividends paid (186,809) (184,968)
Proceeds from exercise of stock options 29,044 31,362
Proceeds from employee stock purchase plan 49,550 32,667
Proceeds from issuance of long-term debt 633,944 154,920
Payments of principal on long-term debt (546,048) (28,880)
Net (decrease) increase in short-term debt (49,344) 56,743
---------- ---------
Net cash (used) provided by financing activities (69,663) 61,844
---------- ---------
Net increase in cash 46,713 251
Cash, beginning of period 116,708 137,259
---------- ---------
Cash, end of period $ 163,421 $ 137,510
========== =========
See notes to consolidated financial statements
-4-
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
AND SUBSIDIARY COMPANIES
STOCKHOLDERS' EQUITY
--------------------
(Unaudited)
(Dollars in thousands)
Common Stock Retained Translation Comprehensive
----------------------------
Issued In Treasury Income Adjustment Income (a)
---------------------------- -------------- -------------- ------------
Balance, January 1, 1998 $931,096 $(2,249,765) $8,061,731 $(48,138) $ -
Net Income 710,087 710,087
Translation adjustment (1,024) (1,024)
Dividends declared (186,983)
Shares sold to optionees,
DSPP and fees 10,125 18,919
____________ ______________ ______________ ______________ ____________
Balance, June 30, 1998 $941,221 $(2,230,846) $8,584,835 $(49,162) $709,063
============ ============== ============== ============== ============
(a) As required by SFAS No. 130
See notes to consolidated financial statements
-5-
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 1997 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, 1998
are not necessarily indicative of the results of operations that may be expected
for the entire year.
EARNINGS PER SHARE
- ------------------
As required by SFAS 128, the Company must report both basic and diluted earnings
per share. Basic earnings per share is computed by dividing net income by the
average number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the average number of common
shares outstanding assuming dilution, the calculation of which assumes that all
stock options and warrants are exercised at the beginning of the period and the
proceeds used by the Company to purchase shares at the average market price for
the period.
The following is a reconciliation from basic earnings per share to diluted
earnings per share for the second quarter and six months of 1998:
(Stated in thousands except per share amounts)
Second Quarter
- -------------- Average
Net Shares Earnings
Income Outstanding Per Share
--------- ----------- ---------
Basic $359,355 498,853 $ 0.72
Effect of dilution:
Options 11,091
Warrants 9,121
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Diluted $359,355 519,065 $ 0.69
======== =========== =========
Six Months
- ---------- Average
Net Shares Earnings
Income Outstanding Per Share
--------- ----------- ---------
Basic $710,087 498,563 $ 1.42
Effect of dilution:
Options 11,143
Warrants 9,048
-------- -----------
Diluted $710,087 518,754 $ 1.37
======== =========== =========
-6-
CONTINGENCIES
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The Company and its subsidiaries comply with government laws and regulations and
responsible management practices for the protection of the environment. 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, the Company 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 the Company, any liability that might
ensue would not be material in relation to the Consolidated Financial
Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 - Reporting Comprehensive Income. The required disclosure of comprehensive
income is reported in the analysis of Stockholders' Equity.
In June 1997, the FASB issued SFAS No. 131 - Disclosures about Segments of a
Business Enterprise and Related Information. The Standard is effective December
31, 1998 for the Company. Early this year, the Company announced a significant
management reorganization in the Oilfield Services segment. This new structure
has been formally in place for only several months and is being evaluated. The
1998 Annual Report will show the required disclosures for Oilfield Services
disaggregated according to the new management structure. The required
information for the Measurement & Systems segment will be presented on the basis
of how that segment is managed.
In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities. The Standard is effective in the third
quarter of 1999 for the Company. Currently, the Company primarily uses
derivative instruments such as interest rate swaps, forward currency contracts
and foreign currency options. The interest rate swaps are generally entered into
to adjust non-US denominated debt and interest rates to US dollars. Forward
currency contracts provide a hedge against currency fluctuations on
assets/liabilities denominated in other than a functional currency. Options are
usually entered into to hedge against currency variations on firm commitments
generally involving the construction of long-lived assets such as seismic
vessels and drilling rigs. The Company does not anticipate that the
implementation of this new Standard will have a material effect on consolidated
financial position and results of operations. The Standard will be adopted as
required.
-7-
YEAR 2000 ISSUE
- ---------------
The "Year 2000 Issue" is the inability of computers and computing technology to
correctly process the year 2000 date change.
Schlumberger recognizes the "Year 2000 Issue" creates a significant uncertainty
to its business. To minimize the business disruptions that can be caused by this
issue to our customers and shareholders, Schlumberger has established a
proactive corporate-wide approach to Year 2000 readiness.
Our approach uses a business risk assessment and prioritization process, and is
directly intended to produce Year 2000 ready products/services and to minimize
disruptions in our business operations or our ability to serve our customers.
Additionally, Schlumberger is actively working with customers, suppliers,
contractors, and alliance partners to promote Year 2000 readiness. A Year 2000
Readiness Statement for Schlumberger can be found on: www.slb.com.
The Company's Year 2000 readiness efforts are divided into two main categories:
internal business systems and products/services. In 1994, the Company decided to
upgrade its main internal business systems with compliant programs such as SAP
R/3** and QAD MFG/PRO***. In 1997, a complete inventory of all business systems
took place throughout the Company resulting in an accelerated implementation of
compliant programs and the establishment of contracts with third-party vendors
for the repair, testing and implementation of nearly 19,500 programs. Many of
these applications are already entering testing and deployment phase with a
target completion date of March 1999.
The main focus of the Year 2000 readiness efforts in 1998 is on the Company's
known key products and services. Our business units have completed the majority
of the assessment phase of existing products and services, and projects are
being established within the business units to repair non Year 2000 ready
products and services by end of 1998. The main focus in 1999 will be on testing
and implementation of repaired programs, products and services and the
development of contingency planning, as required. To assure these key Year 2000
readiness projects proceed satisfactorily, the Company has a corporate level
program office in place to coordinate, monitor, and report on these projects to
Company management.
Efforts are underway to protect the Company from being adversely impacted in the
Year 2000 by entities not affiliated with the Company (suppliers, financial
institutions, etc.). The Company is promoting knowledge sharing with customers,
suppliers and alliance partners to attempt the most efficient Year 2000
solutions.
Based upon results to date, the Company believes the known Year 2000 problems
with its internal business applications and products can be corrected to avoid
any significant interruptions. The Company still expects that the total cost of
addressing this issue will be $40 million - $60 million. This cost estimate does
not include the normal upgrading of business and financial systems that would be
Year 2000 ready. Costs incurred in connection with Year 2000 compliance will be
treated as period costs and expensed as incurred.
-8-
Item 2: Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations.
- ---------------------
Second Quarter 1998 Compared to Second Quarter 1997
---------------------------------------------------
Second quarter operating revenue was $2.9 billion, 10% higher than the same
period last year.
Net income of $359 million and diluted earnings per share of $0.69 were 17% and
15%, respectively, above second quarter 1997.
Oilfield Services revenue increased 11%, while rig count decreased 8%. Operating
income grew 16%. Contract drilling, marine seismic and pressure pumping and
cementing services contributed strongly to the results. North and South America
and Asia reported significant regional oilfield services revenue increases.
Measurement & Systems revenue grew 6%. Significant growth at Smart Cards &
Terminals was offset by the decline in Metering activities and unfavorable
currency exchange rates.
Business Review
(Stated in millions)
Oilfield Services Measurement & Systems
---------------------- ----------------------
Second Quarter 1998 1997 % change 1998 1997 % change
- -------------- ---- ---- -------- ---- ---- --------
Operating Revenue $ 2,075 $ 1,871 11% $ 779 $ 733 6%
Operating Income(1) $ 423 $ 364 16% $ 40 $ 40 -%
(1) Operating income represents income before income taxes, excluding
interest expense, interest and other income.
OILFIELD SERVICES
Oilfield Services operating revenue grew 11% during the second quarter, led by
contract drilling, up 25%, pumping and cementing, up 11%, and marine seismic
services, up 28%. North and South America and Asia reported significant revenue
increases.
Schlumberger and Camco International Inc. announced the signing of a definitive
stock merger agreement on June 19. This transaction, which is expected to be
closed at the end of the third quarter and accounted for as a pooling of
interests, further builds our capability to offer an unmatched array of premium
reservoir optimization related solutions and systems to our customers through
the combined excellence of Schlumberger and Camco people and the technical,
product and service delivery strengths of the companies.
North America
Oilfield Services revenue was 13% higher than in the same period last year,
representing 19% of consolidated revenue, despite a 13% fall in the number of
drilling rigs. Operating income grew 9%. The largest increases in revenue were
recorded in pressure pumping and cementing, up 21%, and seismic acquisition
services, up 24%. Activity in gas-related markets remained buoyant, while oil-
related operations were negatively affected as oil prices continued to decline.
Wireline services successfully completed the deepest logging job ever
-9-
performed in the Gulf of Mexico. Advanced wireline tools were deployed on
drillpipe to acquire formation evaluation data down to a total vertical depth of
25,772 ft. Innovative packaging and design techniques were used to overcome the
high-temperature and high-pressure well conditions.
Also in the Gulf of Mexico, a Schlumberger Oilfield Services team won a contract
for a 15-month exclusive production enhancement project involving 160 wells.
Schlumberger and Marathon Oil Company signed a drilling contract covering five
years for the third Sedco Express* new-generation deepwater semisubmersible rig,
scheduled to start operating in the Gulf of Mexico in the third quarter of the
year 2000.
Outside North America
Outside North America, revenue increased 10%, representing 53% of consolidated
revenue. Operating income grew 18%, while the rig count fell 2%. Strong revenue
growth was recorded in Asia, up 22%, and Latin America, up 22%. The benefits of
our newly introduced organizational structure have been seen in North Africa,
where Schlumberger was awarded two innovative field-optimization projects
incorporating a capped risk-and-reward agreement linked to production
enhancement results.
In Saudi Arabia, Schlumberger completed a well construction contract for the
first phase development of the giant Shaybah field. The project is now entering
its next phase, aimed at maintaining production at the current level.
In Russia, the preparatory phases of the strategic alliances with YUKOS and
Sibneft are proceeding on schedule. Oilfield service operations and integrated
project management are expected to commence on selected fields in early 1999.
Schlumberger was awarded a contract covering five years for the construction and
operation of an advanced jackup drilling unit, expected to be deployed in the
Caspian Sea in the third quarter of 2000. The rig will have the capability to
drill high-pressure wells as deep as 25,000 ft. in water depths up to 350 ft.
Contract Drilling Activity
Revenue from contract drilling operations grew 25% over the same quarter last
year, reflecting higher dayrates for semisubmersibles and jackups in the North
Sea, Africa, Asia and the Middle East. Total offshore rig utilization was
marginally higher at 94%, with jackup utilization remaining at 100%, and
semisubmersible utilization at 97%. Onshore rig utilization was 97%, compared
with 87% a year ago. The fleet numbered 83 at the end of the quarter, with 51
offshore rigs and 32 land rigs, including 12 offshore units under bareboat
charter or management contract.
Technology
Schlumberger continued to introduce superior technology that improves the
productivity of oilfield services operations. In marine seismic acquisition, the
implementation of the efficient, ultra-slim NESSIE*4 seismic streamer continued,
with a major upgrade of the Geco Resolution to eight-streamer capacity. The
rapid growth in demand for multicomponent seismic acquisition led to the major
conversion of the Geco Angler to operate as a dedicated, multicomponent 3D
survey vessel.
-10-
To improve the ability to characterize the reservoir and its behavior over time,
a specialized team has been established, which will provide advanced processing
and analysis of multicomponent and time-lapse (4D) seismic data. In addition,
unique reservoir simulation capability was added to the GeoQuest ECLIPSE* range
of software products with the acquisition of Technical Software Consultants A.S.
Their state-of-the-art FRONTSIM* flow simulator software provides enhanced tools
for evaluating geological models and validating geological assumptions with
dynamic data. It runs up to 100 times faster than conventional simulators, thus
shortening interpretation cycle time as well as reducing uncertainty.
Innovative interpretation techniques, developed for advanced technology
measurements, are improving production through optimal well completion. In
particular, the images acquired by the RAB* Resistivity-at-the-Bit LWD tool now
identify the highest potential formations during the drilling process resulting
in greater cost-effectiveness for the client.
With the aim of improving hydrocarbon production, the revolutionary SCALE
BLASTER* application has recently been tested, and proved successful at removing
scale on downhole piping. In oil and gas wells, the buildup of inorganic scale
can restrict, and even prevent, the flow of hydrocarbons to the surface. SCALE
BLASTER technology, deployed on coiled tubing, has provided clients with a
highly effective and valuable way of improving production without a rig
intervention. Furthermore, to better measure multiphase production, Schlumberger
and FRAMO Engineering A.S. of Norway signed a joint venture agreement to provide
surface and subsea flow meters to measure oil, gas and water flow in producing
wells. A joint technology center called 3-Phase Measurement A.S., to be located
in Bergen, Norway, will design and manufacture products and provide marketing
and technical support.
MEASUREMENT & SYSTEMS
Measurement & Systems revenue increased 6%, versus the second quarter of 1997,
despite adverse exchange rate effects. Operating income was flat. Smart Cards &
Terminals experienced a significant rise in revenue, while almost tripling its
operating income. During the quarter, Schlumberger signed an agreement to sell
the Retail Petroleum Systems activities to the Tokheim Corporation. The sale is
expected to close in the third quarter of this year. The Metering business
rationalization plan is progressing and should be completed by year end. As a
result, many activities have been streamlined, with 13 site closings.
Compared with last year's second quarter, Smart Cards & Terminals revenue rose
37%, primarily due to higher smart card shipments. Revenue for smart cards grew
40% over last year, propelled by a 75% increase in SIM (subscriber identity
module) cards and a doubling of growth for bank cards. Regionally, card sales
for Europe, North America and Asia increased 42%, 41% and 30%, respectively.
Revenue for point-of-sale terminals more than doubled from last year, following
the introduction of the new MagIC* 9000 portable terminal. Orders for Smart
Cards & Terminals were up 12% for the quarter. The Automated Test Equipment
(ATE) business exhibited a 17% increase in revenue; however, market conditions
began to soften during the quarter. The rise in revenue was primarily due to the
demand for high-end 400-Mhz logic test systems. This demand is driven by the
market's continued desire for faster microprocessor speeds, along with the
growth of the multimedia segment. Test Systems activity was particularly strong
in the Asia region, while Telecom products contributed significantly to the
growth in the North America region. Consistent with the current industry trends,
ATE orders declined 66% during the quarter.
-11-
In the Metering business, revenue was down 8% from last year. The most
significant shortfall in Europe was in France, down 13%, as the electricity
business was severely impacted by the ongoing technology shift toward electronic
products, with lower market volumes and reduced prices. Activity in the UK fell
15%, reflecting the sharp decline in demand of U6 residential gas meters from BG
Plc and reduced installation work by Maclean & Nuttall. Italy also experienced a
significant decrease on a 36% price drop in the electricity market. Orders
decreased by 12% compared with the second quarter of 1997. North American orders
dropped by 21% due to reduced electricity meter changeouts pending industry
deregulation. In Europe, a 14% decline in orders in France due to a weaker local
market was offset by the catch-up of orders by ENEL, the national utility in
Italy, and stronger bookings in The Netherlands, Portugal and Scandinavia.
Interest and other income increased $15 million from the same period last year
primarily due to a $10 million increase in interest income (higher average
investment balances). Gross margin increased from 26% to 27%. Research and
engineering expense increased 19% from last year representing 4.9% of operating
revenue compared with 4.6% in 1997. Marketing expense was up 8%. General
expense, expressed as a percentage of operating revenue, remained at 3.6%.
Interest expense increased $3 million from the same period last year due to
higher average debt. The effective tax rate of 22% increased 2 percentage points
from last year.
First Half 1998 Compared to First Half 1997
-------------------------------------------
Net income for the first six months of $710 million and diluted earnings per
share of $1.37 were 25% and 23%, respectively, above the same period 1997.
Operating revenue for the first six months was $5.7 billion, up 13% from 1997.
Oilfield Services revenue increased 15%, while rig count worldwide rose 1%.
Operating income grew 23%. Contract drilling and marine seismic contributed
significantly to the results.
Measurement & Systems revenue grew 7%. Strong growth at Smart Cards & Terminals
and Automated Test Equipment (ATE) was offset by the decline in Metering
activities and unfavorable currency exchange rates.
Business Review
(Stated in millions)
Oilfield Services Measurement & Systems
---------------------- -----------------------
Six Months 1998 1997 % change 1998 1997 % change
- -------------- ---- ---- -------- ---- ---- --------
Operating Revenue $ 4,146 $ 3,595 15% $ 1,509 $ 1,413 7%
Operating Income(1) $ 848 $ 689 23% $ 72 $ 65 11%
(1) Operating income represents income before income taxes, excluding
interest expense, interest and other income.
-12-
Oilfield Services
Operating revenue for Oilfield Services rose $551 million (15%) over last year.
All businesses posted substantial increases led by contract drilling, up 31%,
pumping and cementing, up 13%, and marine seismic services, up 14%. Revenue in
North and South America and Asia regions increased significantly from last year.
In response to evolving client needs and employee-identified opportunities,
Schlumberger management undertook a reorganization of Oilfield Services into the
Solutions Group and the Products Group. The Solutions Group is organized along
geographic lines in close proximity to customers to develop, sell and implement
all oilfield services as well as customized and integrated solutions to meet
specific client needs. The Products Group, formed by utilizing existing service
expertise, is responsible for product development across the organization as
well as training and technical support for each type of service in the field to
ensure the highest standards of service to clients. This new organizational
structure has resulted in two innovative field-optimization projects awarded to
Schlumberger.
North America
Revenue increased 16% from the same period last year while operating income grew
12%. Rig count rose 1%.
Wireline services experienced strong growth in the gas well-related market and
higher demand for MDT* Modular Formation Dynamics Tester service, due to its new
sampling and reservoir characterization techniques, delivering greater operating
efficiency. Innovative packaging and design techniques were used to overcome the
high-temperature and high-pressure wells of the Gulf of Mexico where the deepest
logging job ever performed was successfully completed.
Sand Control showed a large growth from one year ago fueled by increasing client
acceptance of ClearFRAC* fracturing fluid, the industry's first polymer-free
fluid which has been shown to improve the productivity of our clients' wells.
Schlumberger acquired Coastal Management Corporation (CMC), a leading provider
of integrated project management services to the North American
oil and gas industry. This acquisition will enhance the Schlumberger
position as the industry-leading provider of comprehensive project
management and services in the areas of field development, drilling and
workover operation, and production operations. CMC employs 160 people.
Outside North America
Outside North America revenue was up 15%. Operating income rose 24%. Rig count
was unchanged from last year. Latin America recorded a 23% gain from last year,
followed by Asia, up 27%. Drilling activity increased 31% reflecting higher
dayrates for semisubmersibles and jackups in the North Sea and Asia as well as
improved utilization levels and higher activity.
Schlumberger entered into strategic alliances with two Russian oil companies,
YUKOS and Sibneft which will enable them to outsource an agreed level of
oilfield services in their Russian oil fields over the next five years.
-13-
Schlumberger will be the sole provider of services on a number of selected
fields under development by YUKOS and Sibneft. In keeping with its long-standing
policy, Schlumberger will remain an independent service provider and will not
take ownership of reserves or production. Oilfield service operations and
integrated project management are expected to commence on selected fields in
early 1999.
Marine seismic activity increased 14% from last year with the implementation of
the ultra-slim NESSIE*4 seismic streamer, which provide improved data quality
compared with other 4C systems, and significantly improves clients' ability to
map the location and quantity of oil and gas. Schlumberger now offers a complete
range of networked seismic services, including onboard processing, onshore
processing and the new SeisConnect* data communication service. The SeisConnect
service combines the convenience of an oil company's in-house processing
operation with the massive computing power of our seismic processing hub.
The worldwide introduction of the VISION475* MWD/LWD system for small-diameter
wells has been highly successful. This application gives clients improved
confidence in evaluating the growing number of horizontal and highly deviated
wells, and reentry wells. The use of key acoustic velocity information during
drilling has significantly increased following the introduction of the slimmer
6.75-inch ISONIC* logging-while-drilling tool.
The PLATFORM EXPRESS* service continues its market penetration as clients
increasingly perceive the added value of high-resolution answers. The new CMR-
200* combinable magnetic resonance technology is gaining recognition for its
superior measurement of hydrocarbon type and quantity.
Measurement & Systems
Revenue grew 7% from last year, despite the impact of unfavorable exchange rate
effects. Strong growth at Smart Cards & Terminals and Automatic Test Equipment
(ATE) more than offset the decline in Metering activities. Operating income rose
11%.
During the first six months, Smart Cards & Terminals revenue increased 37%
fueled by higher smart card shipments. Revenue for smart cards was up 42% over
last year due to increased demand for subscriber identity module (SIM) cards and
higher shipments of microprocessor cards for financial applications and larger
memory card shipments for prepaid phone applications. Banking terminal revenue
was strong driven by the success of the MagIC* 9000 portable handheld electronic
payment terminal and shipments of Delta* 21 terminals to Turkey and South
Africa. Orders increased 21%. Revenue for ATE was 38% higher than last year
reflecting the demand for 400-MHz high-end logic testers. Compared to last year,
Asia and North America experienced high revenue growth. Orders for ATE declined
26%.
In the Metering business, revenue was down 8% from last year. The most
significant shortfall in Europe was in France, down 10%, due to lower shipments
in electronic single phase and industrial electricity metering affected by the
ongoing phase-out of electromechanical products at the electricity business.
Orders were down 13% from last year. Italy revenue was down significantly
reflecting decreased orders from ENEL, the national utility, and a 36% price
-14-
drop in the electricity market. Germany activity fell 13% from lower sales of
residential and industrial gas meters and regulators, while the decline in the
UK gas business reflected reduced deliveries of U6 residential gas meters to BG
Plc and lower installation work by Maclean & Nuttall. These declines were offset
by improvements in South America due to strong activity in Brazil, Argentina,
Chile and Colombia. CIS revenue also increased with higher sales across the
region.
Interest and other income increased $31 million from the same period last year
primarily due to a $24 million increase in interest income (higher average
investment balances). Gross margin increased from 26% to 27%. Research and
engineering expense increased 17% from last year representing 4.9% of operating
revenue compared with 4.7% in 1997. Marketing expense was up 8%. General
expense, expressed as a percentage of operating revenue, remained at 3.6%.
Interest expense increased $9 million from the same period last year due to
higher average debt. The effective tax rate of 23% increased 1 percentage point
from last year.
*Mark of Schlumberger
** SAP and R/3 are registered trademarks of SAP AG
*** MFG/PRO is a registered trademark of QAD
-15-
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information
- -------------------------
Under Rule 14a-4(c)(1) under the Securities Exchange Act of 1934, the Company
will be entitled to use discretionary authority to vote proxies with respect to
proposals to be presented at the Company's Annual General Meeting that are not
received by the Company at least 45 days prior to the anniversary date of
mailing of the Company's prior year's Proxy Statement. The Company's Proxy
Statement dated March 6, 1998 furnished to stockholders in connection with the
Company's 1998 Annual General Meeting was first mailed to stockholders on March
6, 1998. Accordingly, the Company will be able to use discretionary authority to
vote at the 1999 Annual General Meeting with respect to any proposal submitted
after January 20, 1999.
Item 6: Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits: Exhibit 99(1) Press Release dated June 19, 1998 headed
"Schlumberger and Camco Announce Merger
Agreement"
Exhibit 99(2) Press Release dated July 30, 1998 headed
"Schlumberger and Camco Clear US Antitrust
Review"
(b) Reports on Form 8-K: Filed Report dated June 26, 1998 to report on
merger agreement among Schlumberger Technology
Corporation, a Texas corporation, Schlumberger
OFS, Inc., a Delaware corporation, and Camco
International Inc., a Delaware corporation.
-16-
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 principal financial
officer.
Schlumberger Limited
(Registrant)
Date: August 14, 1998 /s/ Arthur Lindenauer
--------------- ---------------------
Arthur Lindenauer
Executive Vice President - Finance
and Chief Financial Officer
-17-
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ----------- ----
Exhibit 99 (1) Press Release dated June 19, 1998 headed
"Schlumberger and Camco Announce Merger 19
Agreement"
Exhibit 99 (2) Press Release dated July 30, 1998 headed
"Schlumberger and Camco Clear US Antitrust 21
Review"
-18-
Exhibit 99 (1)
PRESS RELEASE
[LOGO] [LOGO]
Schlumberger CAMCO
FOR IMMEDIATE RELEASE: FRIDAY, JUNE 19, 1998
SCHLUMBERGER AND CAMCO ANNOUNCE MERGER AGREEMENT
New York, June 19 -- Schlumberger [NYSE:SLB] and Camco [NYSE:CAM] today
announced the signing of a definitive merger agreement by Schlumberger
Technology Corporation, a wholly owned subsidiary of Schlumberger, and Camco,
which was unanimously approved by the boards of directors of the companies. The
combined company will offer an unmatched array of oilfield services to its
customers for reservoir optimization throughout the world.
Under the terms of the agreement, Camco shareholders will receive 1.18 newly
issued shares of Schlumberger common stock for each outstanding share of Camco
common stock. The exchange ratio is fixed and not subject to adjustment. The
transaction is expected to be tax free to Camco shareholders and will be
accounted for as a pooling of interests. Based on the closing price of
Schlumberger yesterday at $69 15/16 and Camco's 38 million common shares
outstanding, the transaction is currently valued at about $3.14 billion.
Consolidated operating revenue and net income of Schlumberger and Camco would
have been approximately $11.6 billion and $1.38 billion in 1997. The current
combined market capitalization is approximately $37 billion. Camco will be
operated as a division within the Schlumberger Oilfield Services group.
Euan Baird, Chairman and Chief Executive officer of Schlumberger, said, "This
combination provides an exciting opportunity to further enhance our position as
the leader in the reservoir optimization business. The highly complementary
activities of Camco improve our capability to respond to customers' demands for
integrated solution and to engineer systems to improve the productivity of
their oil and gas operations."
Gilbert Tausch, Chairman and Chief Executive Officer of Camco, said, "This
merger satisfies Camco's strategic plan to be able to participate in more phases
of our customers' field operations. Camco will be able to add its technology of
production operations to the well known technology of Schlumberger in ares of
reservoir enhancement. We have practically no overlap of operations and have
worked successfully with Schlumberger in many areas of the world."
Schlumberger and Camco have historically been the most profitable companies in
their peer group. Both companies have an extensive geographic presence
worldwide, exhibit an excellent cultural fit and share strengths in
relationships with customers, governments and suppliers.
The merger will enhance services for customers, broaden opportunities for
employees, and add value for shareholders. The transaction is expected to be
accretive to earnings per share in 1999, which is anticipated to be the first
-19-
full year of combined operations. It is subject to the approval of Camco
shareholders as well as customary regulatory approvals. The transaction is
expected to close around the end of the third quarter of 1998.
Schlumberger is a worldwide leader in technical services with 63,500 employees
and operations in over 100 countries. In 1997, revenue was $10.65 billion.
Camco International Inc. is a worldwide oilfield equipment and service company
providing specialized products and services in drilling, well completion,
production and well services for the oil and gas industry. Camco's trade names
include Camco Coiled Tubing Services, Camco Products, Camco Wireline, Hycalog,
Lasalle Engineering, Lawrence Technology, Production Operators, Reda, Reed Tool
and Site Oil Tools.
###
For further information, contact:
- --------------------------------
Simone Crook
Director Investor Relations & Communications
Schlumberger Limited New York
Phone: (1-212) 350-9432
Email: crook@new-york.sl.slb.com
Claude Suter
Investor Relations & Communications
Schlumberger Limited Paris
Phone: (33-1) 40 62 13 30
Email: suter@paris.sl.slb.com
Bruce Longaker
Vice President, Finance
Camco International, Inc. - Houston
Phone: (1-713) 749-5650
-20-
Exhibit 99 (2)
PRESS RELEASE
[LOGO] [LOGO]
Schlumberger CAMCO
FOR IMMEDIATE RELEASE: THURSDAY, JULY 30, 1998
SCHLUMBERGER AND CAMCO CLEAR US ANTITRUST REVIEW
New York, July 30 -- Schlumberger Limited [NYSE:SLB] and Camco International,
Inc. [NYSE:CAM] today announced that the required waiting period under the US
Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired. The proposed
merger between Schlumberger Technology Corporation, a wholly-owned subsidiary of
Schlumberger, and Camco International, Inc., is expected to proceed without
further US antitrust review.
The Companies anticipate that the transaction will close on August 31, 1998,
following the Camco stockholders meeting.
Schlumberger is a worldwide leader in technical services with 65,000 employees
and operations in over 100 countries. In 1997, revenue was $10.65 billion.
Camco International, Inc. is a worldwide oilfield equipment and service company
with 5500 employees. Camco provides specialized products and services in
drilling, well completion, production and well services for the oil and gas
industry. In 1997, revenue was $914 million.
###
For further information, contact:
- --------------------------------
Simone Crook
Director Investor Relations & Communications
Schlumberger Limited New York
Phone: (1-212) 350-9432
Email: crook@new-york.sl.slb.com
Bruce Longaker
Vice President, Finance
Camco International, Inc. - Houston
Phone: (1-713) 749-5650
-21-
5
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
1,781,252
0
3,181,996
(71,237)
1,224,328
6,520,080
10,622,855
(6,614,868)
12,725,491
3,672,438
0
0
0
941,221
6,304,827
12,725,491
1,357,873
5,723,414
901,962
4,116,154
645,334
16,943
45,844
916,082
205,995
710,087
0
0
0
710,087
1.42
1.37
As required by SFAS 128
5
1,000
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
1,442,165
0
2,625,676
(57,608)
1,053,522
5,492,470
9,798,712
(6,357,615)
10,800,745
3,470,163
0
0
0
829,743
5,187,473
10,800,745
1,284,372
5,042,582
855,241
3,712,112
569,577
6,041
37,136
723,757
157,308
566,449
0
0
0
566,449
1.15
1.11
Adjusted for two-for-one stock split on June 2, 1997.
As required by SFAS 128.
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
1,201,625
0
2,436,943
(52,826)
983,609
5,043,502
9,667,875
(6,307,034)
10,338,466
3,317,681
0
0
0
824,285
4,972,643
10,338,466
590,148
2,420,165
392,967
1,782,788
280,367
1,496
17,819
339,191
79,248
259,943
0
0
0
259,943
0.53
0.51
Restated for two-for-one stock split on June 2, 1997.
As required by SFAS 128.
5
1,000
YEAR
DEC-31-1996
JAN-01-1996
DEC-31-1996
1,358,948
0
2,319,072
(58,981)
938,974
5,042,617
9,577,749
(6,219,168)
10,325,051
3,474,410
0
0
0
818,803
4,807,577
10,325,051
2,428,409
9,025,665
1,704,462
6,835,444
1,442,375
27,036
72,020
675,806
(175,677)
851,483
0
0
0
851,483
1.74
1.70
Restated for two-for-one stock split on June 2, 1997.
As required by SFAS 128.
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
1,220,614
0
2,233,730
(53,297)
934,550
4,748,023
9,446,086
(6,244,784)
9,772,739
3,164,421
0
0
0
805,589
4,616,966
9,772,739
1,796,677
6,492,000
1,576,940
4,933,339
1,151,881
16,460
54,005
352,775
(243,645)
596,420
0
0
0
596,420
1.22
1.20
Restated for two-for-one stock split on June 2, 1997.
As required by SFAS 128.
5
1,000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
1,157,535
0
2,147,255
(46,586)
914,117
4,379,460
9,315,445
(6,157,159)
9,207,136
2,839,599
0
0
0
763,120
4,468,804
9,207,136
1,551,161
4,212,055
1,009,838
3,181,600
548,005
7,922
35,463
446,987
79,402
367,585
0
0
0
367,585
0.75
0.74
Restated for two-for-one stock split on June 2, 1997.
As required by SFAS 128.
5
1,000
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
1,025,814
0
2,048,904
(59,999)
870,121
4,094,591
9,198,441
(6,089,214)
8,958,121
2,739,850
0
0
0
753,621
4,334,184
8,958,121
756,987
2,045,198
487,448
1,549,603
269,248
4,318
17,343
209,004
38,137
170,867
0
0
0
170,867
0.35
0.35
Restated for two-for-one stock split on June 2, 1997.
As required by SFAS 128.
5
1,000
YEAR
DEC-31-1995
JAN-01-1995
DEC-31-1995
1,120,533
0
1,998,119
(58,246)
782,168
4,023,703
9,108,107
(5,989,649)
8,910,100
2,764,272
0
0
0
737,328
4,226,689
8,910,100
3,019,177
7,713,230
1,991,411
5,804,157
1,057,079
20,306
81,620
770,374
121,217
649,157
0
0
0
649,157
1.33
1.32
