Form 8-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

 

Date of Report (date of earliest event reported): July 22, 2003

 

 

 

SCHLUMBERGER N.V. (SCHLUMBERGER LIMITED)

(Exact name of registrant as specified in its charter)

 

 

Netherlands Antilles    1-4601    52-0684746

(State or other jurisdiction

of incorporation)

   (Commission File Number)   

(IRS Employer

Identification No.)

 

 

153 East 53rd Street, 57th Floor     
New York, New York    10022-4624
42, rue Saint-Dominique     
Paris, France    75007
Parkstraat 83,     
The Hague,     
The Netherlands    2514 JG
(Addresses of principal executive offices)    (Zip or Postal Codes)

 

 

Registrant’s telephone number in the United States, including area code: (212) 350-9400

 



Item 7.   FINANCIAL STATEMENTS AND EXHIBITS

 

(c)  Exhibits

  99.1   First Quarter 2003 Press Release dated July 22, 2003.
  99.2   Question and Answer document on the July 22, 2003 Press Release.
  99.3   Revenue & Income from Continuing Operations

 

 

Item 9.   REGULATION FD DISCLOSURE

 

The Second Quarter Press Release attached hereto as Exhibit 99.1, the Question and Answer document attached hereto as Exhibit 99.2 and the Revenue & Income from Continuing Operations Schedule attached hereto as Exhibit 99.3, which are incorporated in this Item 9 by reference, were posted on the Schlumberger internet web site (www.slb.com/ir) on July 22, 2003 and are furnished under Items 9 and 12 (in accordance with SEC Release 33-8216).

 

In addition to financial results determined in accordance with generally accepted accounting principles (GAAP) that are included in the attached Second Quarter Press Release and Question and Answer document, these documents also include the following non-GAAP financial measures (as defined under the SEC’s Regulation G):

 

  Net debt: Net debt is gross debt less cash, short-term investments and fixed income investments held to maturity. Management believes that “net debt” provides useful information regarding the level of the Company’s indebtedness by reflecting cash and investments that could be used to repay debt, and that the level of net debt provides useful information as to the results of the Company’s deleveraging efforts.

 

  Income from continuing operations excluding the charge related to the extinguishment of certain Euro denominated debt and effective tax rate excluding debt extinguishment costs: The second quarter of 2003 includes an $81 million charge related to the extinguishment of certain Euro denominated debt ($0.14 per share). Management believes that the exclusion of this charge enables it to evaluate more effectively the Company’s operations period over period and to identify operating trends that could otherwise be masked by the excluded item. The effective tax rate for the second quarter of 2003, including debt extinguishment costs, was 31%.

 

The foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for, or superior to, total debt, net income, cash flows or other measures of financial performance prepared in accordance with GAAP as more fully discussed in the Company’s financial statements and filings with the Securities and Exchange Commission.

 

 

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 hereunto duly authorized.

 

 

SCHLUMBERGER N.V.

(SCHLUMBERGER LIMITED)

By:  

   /S/    FRANK A. SORGIE
    
     Frank A. Sorgie
     Chief Accounting Officer

 

 

Date: July 22, 2003

 

First Quarter 2003 Press Release.

Exhibit 99.1

 

 

LOGO

 

 

Schlumberger Announces Second Quarter 2003 Results

 

NEW YORK, July 22, 2003 – Schlumberger Limited (NYSE:SLB) reported today second quarter 2003 operating revenue of $3.52 billion and income from continuing operations of $142 million, which includes a charge of $81 million related to the extinguishment of certain Euro denominated debt.

 

Income from continuing operations (including the charge of $0.14 per share) was $0.24 per share. Excluding the charge, income from continuing operations was $0.38 per share, compared to $0.33 per share last year.

 

Oilfield Services revenue of $2.13 billion increased 8% versus the first quarter of 2003, and increased 9% compared to the second quarter of last year. Pretax operating income was $382 million, increases of 21% sequentially and 10% year-on-year.

 

WesternGeco revenue of $306 million was flat versus the first quarter of 2003, and decreased 15% compared to the second quarter of last year. Pretax operating results were a loss of $16 million compared to breakeven in the first quarter of 2003 and income of $18 million in the second quarter of last year.

 

SchlumbergerSema revenue of $840 million increased 6% sequentially and 16% year-on-year. Pretax operating income was $24 million, an increase of 65% sequentially and $21 million year-on-year.

 

Discontinued operations recorded a loss of $30 million ($0.05 per share) in the quarter.

 

Net income was $112 million ($0.19 per share).

 

Schlumberger Chairman and CEO Andrew Gould commented, “The second quarter results for Oilfield Services showed strong activity trends in the North American land gas market, a return to more normal activity levels in Venezuela and high growth in Mexico. Good performance in the North Sea and West Africa was helped by strong technology penetration in the completion and directional drilling markets. Overall, operating results were accompanied by a continuing overhead reduction that led to very satisfactory sequential pretax income growth.

 

In spite of the profitability of the Land and Marine product lines, WesternGeco showed a pretax loss due to lower sales of multiclient data. Considerable progress was made with the introduction of Q*- Marine technology that continues to show remarkable examples of reservoir quality data for which our customers are recognizing the benefits and are prepared to pay premium pricing.

 

SchlumbergerSema had a solid quarter helped by continued cost cutting in what remains a lackluster market for IT services in Europe. Good progress was made in booking orders in line with our objective of achieving double-digit growth in Energy IT services.

 

Improved capital discipline coupled with advances in the disposal of certain non-core assets meant that considerable strides were made towards our declared objective of net debt of $4 billion by the end of 2003.

 

Looking forward, gas drilling in North America is expected to remain strong for the rest of the year, and may continue next year as the rapid decline rates of new wells reduce production capacity. Recent high re-injection rates into storage suggest short-term demand could be falling as a result of the current high gas prices. In international markets, the continued absence of a large excess production capacity should sustain activity at current levels for the remainder of the year.”


Other highlights were:

 

  Schlumberger raised $1.425 billion through an offering of its senior convertible debentures due June 1, 2023.

 

  Between June 12 and July 22, 2003, certain subsidiaries of Schlumberger launched and concluded a tender offer on three of its outstanding European bonds. The companies bought back $1.3 billion of principal of these bonds for a total cost of $1.5 billion, which includes the premium, and issuing and tender costs. The total charge on the tender was $168 million, of which $81 million was recorded in the second quarter when the first tender closed, with the balance to be recorded in the third quarter of this year. The interest savings generated by this re-financing are estimated at $46 million per annum.

 

  On June 24, 2003, Schlumberger announced that certain of its subsidiaries signed a definitive agreement with a partnership led by Francisco Partners and Shah Management for the sale of the NPTest business unit. Cash proceeds from the sale will be $220 million and the transaction is expected to close in July. Loss on the sale of $12 million has been recorded as discontinued operations in the second quarter.

 

  On July 16, 2003, certain subsidiaries of Schlumberger Limited signed a definitive agreement with Itron, Inc. (NASDAQ:ITRI) for the sale of its Electricity Metering business unit. Under terms of the agreement, Itron will pay $255 million in cash at closing. The transaction is subject to Hart-Scott-Rodino clearance, financing, and is expected to close before year-end. Schlumberger expects the transaction to result in a net after tax gain, which will be recorded as discontinued operations when the transaction closes.

 

  The second quarter results included the recognition of the deferred gain of $14 million on the sale of the PIGAP II joint venture, which was part of the August 2001 sale of the gas compression business. Additionally, the results also include a $15 million after tax charge for a patent infringement settlement related to a business unit planned for sale.

 


Consolidated Statement of Income (Unaudited)

 

(Stated in thousands except per share amounts)  
     Second Quarter

    Six Months

 

For Periods Ended June 30


   2003

    2002

    2003(5)

    2002

 
Revenue

Operating

   $ 3,515,653     $ 3,270,547     $ 6,801,864     $ 6,468,593  

Interest and other income(1)

     39,088       38,176       68,746       72,013  
    


 


 


 


       3,554,741       3,308,723       6,870,610       6,540,606  
    


 


 


 


Expenses

Cost of goods sold and services(2)

     2,772,300       2,556,526       5,381,520       5,083,804  

Research & engineering

     149,051       154,631       299,002       304,156  

Marketing

     89,929       86,177       176,685       172,767  

General

     168,220       158,912       331,867       315,731  

Debt extinguishment costs(3)

     81,473       —         81,473       —    

Interest

     92,301       96,413       185,164       178,666  
    


 


 


 


       3,353,274       3,052,659       6,455,711       6,055,124  
    


 


 


 


Income from continuing operations before taxes and minority interest

     201,467       256,064       414,899       485,482  

Taxes on income

     61,783       65,396       131,502       130,513  
    


 


 


 


Income from continuing operations before minority interest

     139,684       190,668       283,397       354,969  

Minority interest(2)

     2,671       (643 )     6,920       (7,137 )
    


 


 


 


Income from Continuing Operations

     142,355       190,025       290,317       347,832  

Income (Loss) from Discontinued Operations

     (30,233 )     6,010       (29,033 )     20,675  
    


 


 


 


Net Income

   $ 112,122     $ 196,035     $ 261,284     $ 368,507  
    


 


 


 


Diluted Earnings Per Share:

                                

Income from Continuing Operations

   $ 0.24     $ 0.33     $ 0.50     $ 0.60  

Income (Loss) from Discontinued Operations

     (0.05 )     0.01       (0.05 )     0.04  
    


 


 


 


Net Income

   $ 0.19     $ 0.34     $ 0.45     $ 0.64  
    


 


 


 


Average shares outstanding

     582,475       577,242       582,342       576,774  

Average shares outstanding assuming dilution

     589,024       581,445       586,502       581,275  

Depreciation and amortization included in expenses(4)

   $ 416,728     $ 387,680     $ 801,118     $ 746,599  

1)   Includes interest income of:
    Second quarter 2003—$13 million (2002—$20 million).
    Six months 2003—$28 million (2002—$38 million).
2)   The first quarter of 2002 includes a $29 million charge (pretax $30 million and minority interest credit of $1 million) related to the financial/economic crisis in Argentina ($0.05 per share – diluted).
3)   Related to the repurchase of Euro denominated bonds ($0.14 per share – diluted).
4)   Including multiclient seismic data costs.
5)   Reclassified, in part, for comparative purposes.

 


Condensed Balance Sheet (Unaudited)

 

(Stated in thousands)
Assets    June 30, 2003

    Dec. 31, 2002

Current Assets               

Cash and short-term investments

   $ 3,217,852          $ 1,736,016

Other current assets

     5,790,491       5,449,424
    


 

       9,008,343       7,185,440

Fixed income investments, held to maturity

     300,000       407,500

Fixed assets

     4,448,867       4,663,756

Multiclient seismic data

     976,760       1,018,483

Goodwill

     4,412,867       4,229,993

Other assets

     1,845,869       1,930,023
    


 

     $ 20,992,706     $ 19,435,195
    


 

Liabilities and Stockholders’ Equity

              

Current Liabilities

              

Accounts payable and accrued liabilities

   $ 4,492,882     $ 4,580,762

Estimated liability for taxes on income

     645,895       625,058

Bank loans and current portion of long-term debt

     2,321,944       1,135,533

Dividend payable

     109,891       109,565
    


 

       7,570,612       6,450,918

Long-term debt

     6,353,471       6,028,549

Postretirement benefits

     580,306       544,456

Other liabilities

     240,519       251,607
    


 

       14,744,908       13,275,530

Minority interest

     547,433       553,527

Stockholders’ Equity

     5,700,365       5,606,138
    


 

     $ 20,992,706     $ 19,435,195
    


 

 


Net Debt (Unaudited)

 

Net Debt represents gross debt less cash, short-term investments and fixed income investments, held to maturity. Details of the Net Debt follows:

 

(Stated in millions)        

Six Months


   2003

       

Net Debt, beginning of period

   $ (5,021 )        

Net income from continuing operations

     290          

Debt extinguishment costs

     81          

Depreciation and amortization

     801          

Change in working capital

     (485 )        

Capital expenditures

     (550 )        

Dividends paid

     (218 )        

Employee stock plans

     100          

Sale of Grant Prideco stock

     106          

Other

     58          

Translation effect on net debt

     (320 )        
    


       

Net Debt, end of period

   $ (5,158 )        
    


       
(Stated in millions)  

Components of Net Debt


  

June 30,

2003


   

Dec. 31,

2002


 

Cash and short-term investments

   $ 3,218     $ 1,736  

Fixed income investments, held to maturity

     300       408  

Bank loans and current portion of long-term debt

     (2,322 )             (1,136 )

Long-term debt

     (6,354 )     (6,029 )
    


 


     $ (5,158 )   $ (5,021 )
    


 


 

At June 30, 2003, both short-term investments and the current portion of long-term debt were increased by approximately $1.3 billion as the repurchase of certain European bonds with the proceeds of the convertible debentures was completed in July.

 


Business Review

(Stated in millions)    Second Quarter

    Six Months

 
     2003(2)

    2002

   % chg

    2003(2)

    2002(2)

   % chg

 

Oilfield Services

                                          

Operating Revenue

   $ 2,127        $ 1,960    9 %       $ 4,104     $ 3,863    6 %

Pretax Operating Income(1)

   $ 382     $ 347    10 %   $ 697     $ 654    7 %

WesternGeco

                                          

Operating Revenue

   $ 306     $ 360    (15 )%   $ 613     $ 745    (18 )%

Pretax Operating Income (Loss)(1)

   $ (16 )   $ 18    —       $ (16 )       $ 65    —    

SchlumbergerSema

                                          

Operating Revenue

   $ 840     $ 727    16 %   $ 1,633     $ 1,433    14 %

Pretax Operating Income(1)

   $ 24     $ 4    —       $ 39     $ 4    —    

Other(3)

                                          

Operating Revenue

   $ 316     $ 291    8 %   $ 597     $ 552    8 %

Pretax Operating Income(1)

   $ 14     $ 5    —       $ 16     $ 2    —    

 


1)   Pretax operating income represents income before taxes and minority interest, excluding interest income, interest expense and amortization of intangibles.
2)   The second quarter of 2003 excludes $81 million of debt extinguishment costs. The first quarter of 2002 excludes an aggregate $30 million charge related to the financial/economic crisis in Argentina.
3)   Principally comprises the Cards, Terminals and Meters North America activities.

 


Oilfield Services

(Excluding WesternGeco)

 

 

Second quarter operating revenue of $2.13 billion increased 8% sequentially and 9% year-on-year. In comparison, the M-I rig count decreased 2% sequentially, but increased 19% year-on-year.

 

Pretax operating income of $382 million rose 21% sequentially and 10% year-on-year. The combination of increased activity in all Areas and continued cost reduction efforts across the organization resulted in the strong sequential improvement in pretax operating income.

 

 

North America

 

Revenue of $638 million increased 7% sequentially and 14% year-on-year as the M-I rig count decreased 6% sequentially, but increased 30% year-on-year. Pretax operating income of $92 million grew 26% sequentially and 20% year-on-year.

 

Record low gas storage levels in the US drove significant drilling activity in the US Land GeoMarket, which recorded strong year-on-year and sequential growth, while deep water Gulf of Mexico activity remained relatively flat. An extended winter campaign resulted in higher year-on-year activity in Canada, which decreased sequentially, due to spring break-up.

 

PowerDrive* sales continued strong in most GeoMarkets, and field trials of the PowerDrive Xceed* fully rotational steerable system in North America indicate that it can reduce drilling time by as much as 50 percent. DeepSTIM III, a fit-for-purpose stimulation vessel equipped with the latest advanced stimulation and information technology, was launched in the Gulf of Mexico in June. Well Services introduced Viscoelastic Diverting Acid* (VDA) treatments, an advanced acidizing system for carbonate formations which provides significantly improved results over previously used diversion-based acid treatment systems.

 

 

Latin America

 

Revenue of $349 million was up 20% sequentially and 12% year-on-year. In contrast, the M-I rig count increased 9% sequentially and 24% year-on-year. Pretax operating income of $59 million rose 74% sequentially and 60% year-on-year.

 

Record growth in Mexico reflected the continuing increase in Integrated Project Management activity in the Burgos basin and Chicontepec project to meet Mexico’s heightened demand for gas energy and light oil output. Increased activity in Central America and Latin America South, and the resumption of activity focused on restoring production in Venezuela also contributed to the strong second quarter performance.

 

All technology segments contributed to increased revenue during the quarter, with notable success for Drilling & Measurements activity utilizing geosteering and PowerDrive systems. Horizontal wells in Brazil were drilled and logged with GeoVISION* imaging tools to provide the unique benefit of steering wells in the optimum productive reservoir layer. Real-time integration of resistivity images with PERFORM* drilling optimization transmitted via InterAct* real-time communication enabled fast, lower risk well placement in complex intervals.

 

 

Europe/CIS/West Africa

 

Revenue of $615 million increased 5% both sequentially and year-on-year compared with the M-I rig count (excluding Russia) which dropped 1% sequentially and 10% year-on-year. Pretax operating income of $114 million grew 15% sequentially and 3% year-on-year.


In the North Sea, increased demand for Integrated Project Management, Well Completions & Productivity and Well Services led to strong sequential growth in the United Kingdom/Ireland GeoMarket. Additionally, Continental Europe, Western and Southern Africa posted year-over-year and sequential increases from demand, particularly in Well Services and Well Completions & Productivity. Russia grew year-on-year, however declined sequentially following strong sales of artificial lift equipment and stimulation services in the prior quarter. Overall improvement in the region was partially offset by continued slow activity in Nigeria.

 

Well Completions & Productivity continued to demonstrate its tubing conveyed perforating (TCP) expertise by offering highly differentiated solutions, such as the OrientXact* TCP gun orientation system that North Sea clients have used to improve productivity and prevent sand production in extended-reach and horizontal wells. OrientXact*, combined with PowerJet* shaped charge technology, has become a major commercial success in the North Sea. In the UK, multiple Drilling & Measurements contracts were also awarded in the second quarter.

 

Middle East & Asia

 

Revenue of $509 million increased 4% sequentially and 5% year-on-year as the M-I rig count rose 4% sequentially and 8% year-on-year. Pretax operating income of $134 million increased 16% sequentially and 12% year-on-year. The pretax increase partially reflected a gain of $4 million related to the sale of a rig.

 

Almost all GeoMarkets grew year-on-year, notably the Arabia GeoMarket where drilling activity increased. This was partially offset by declines in Brunei, Malaysia, the Philippines and the Persian Gulf. Sequential growth was led by China with strong demand for Wireline and Well Services. Well Completions & Productivity displayed impressive growth, including the award of the Cuulong contract, the first completions project for Schlumberger in Vietnam.

 

Several technologies were successfully introduced this quarter, including the Wireline Cased Hole Formation Resistivity tool in the Egypt and India GeoMarkets. Drilling & Measurements introduced PowerDrive Xceed in the Persian Gulf GeoMarket, and Well Services introduced VDA in the Arabia and India GeoMarkets. Drilling & Measurements also introduced PowerDrive Xtra rotary steerable services into different hole sizes including 6” slim holes, while delivering real-time well placement answers using VISION* Logging-While-Drilling services in combination with INFORM (integrated forward modeling) and Petrel workflow tools.

 

Highlights

 

  Shell’s BMC-10 deepwater exploration well in Brazil used Schlumberger Directional Drilling, Logging While Drilling and Measurement While Drilling services in the final section of the well, producing several records including the deepest water depth drilled in Brazil, the deepest water depth drilled by Shell worldwide, and the fourth deepest water depth drilled worldwide.

 

  Schlumberger Information Solutions (SIS) is integrating its advanced Merak Value and Risk management tools with Rose and Associates LLP’s risk estimating methodology to provide a seamless exploration and new venture value management workflow that enables customers to make optimum exploration decisions.

 

  Schlumberger is providing Hocol, S.A. with remote real-time well pump monitoring and control service, including its new espWatcher* service, which delivers reliable and secure remote connectivity and viewing of Schlumberger Reda ESP variable speed drive controllers; remote satellite-based data acquisition; immediate alarm and alert callout notification; and remote pump start-up, speed control and resolution of pump problems.

 

  Norway’s Revus Energy AS contracted SIS to provide Europe’s first Living Model* workflow solution to integrate new data, rapidly update understanding of the subsurface and reduce uncertainty, which are becoming increasingly important as the industry moves toward the true SmartField*.


WesternGeco

 

Revenue of $306 million was flat sequentially and decreased 15% year-on-year. Pretax operating loss of $16 million compared to a break-even in the first quarter of 2003 and a profit of $18 million in the second quarter last year.

 

The continued rationalization of Land seismic operations in North America and lower activity in the Middle East contributed to the year-on-year revenue decline, while sequential results were impacted by increased Marine activity in Europe, Caspian and Middle East, offset by seasonal declines in multiclient sales in North and South America and West Africa, and the end of the Land acquisition winter season in Alaska. Both sequential and year-on-year pretax results were negatively impacted by lower sales of the multiclient library in North America, partially offset by the restructuring and cost-cutting initiatives that were implemented in the second quarter.

 

Including multiclient pre-commitments, the total backlog at the end of the second quarter stood at $291 million. The Marine seismic backlog is strong in Mexico, Asia/Pacific and Europe, with the North Sea fully booked for the 2003 season. Land backlog is still strong in the Middle East, and Data Processing remains steady. Q-Marine utilization will increase during Q3, with the majority of the working Q-equipped fleet employed on third-party contract work.

 

Q technology revenue increased in the second quarter, with several new contracts underway, including a multiproject Q-Marine contract covering three ExxonMobil assets in West Africa, the Gulf of Mexico and the North Sea. WesternGeco has begun to license reservoir quality Q data – which show details invisible on conventional 3D seismic – as part of a highly focused multiclient program over some of the most prospective acreage in the Gulf of Mexico.

 

 

SchlumbergerSema

 

Operating revenue of $840 million in the second quarter increased 6% sequentially and 16% year-on-year. The improvements are mainly due to the strengthening of the European currencies against the US dollar, with a positive impact of $15 million sequentially and $94 million year-on-year. Besides the currency impact, the year-on-year growth was mainly due to expanding activity in the Public Sector in the UK.

 

Consulting & Systems Integration revenue was 8% higher sequentially and 16% higher year-on-year, reflecting the stronger currencies in Europe. Network Information Solutions revenue improved 3% sequentially and 22% year-on-year. The year-on-year increase was mainly due to the effect of the strengthened Euro coupled with a new contract in UK for the Department of Work and Pensions.

 

The Energy segment revenue of $197 million grew 4% sequentially, demonstrating progress that SchlumbergerSema is making in this industry. Illustrating this breakthrough is the signature of a strategic contract with a leading electricity/utility company in France; the selection by Perenco, an independent upstream oil and gas company based in London and Paris, of the Schlumberger DeXa.Net Remote Connectivity solution to link all its offshore and land-based facilities across West Africa; and the award by Petrobras Rio of a two-year desktop support outsourcing contract. Additionally, a partnership was signed with Hewlett-Packard to jointly pursue opportunities in the Americas for Oil & Gas.

 

Pretax operating income of $24 million increased $10 million, or 65%, sequentially and $21 million year-on-year. The year-on-year improvement reflected significant indirect cost reduction programs carried out throughout 2002 particularly in North America and Asia, coupled with higher profitability on North American contracts.

 

 

Europe, Middle East and Africa

 

Revenue of $658 million increased 9% sequentially and 19% year-on-year. Both year-on-year and sequential revenue growths reflected the positive impact of the European currencies strongly appreciating against the US dollar.


Additionally, the UK also contributed to the overall improvement due to new Public Sector contracts such as Department of Work and Pensions, Department of Trade and Industry, and in the Transport segment in the UK for the Government Vehicle and Operator Services Agency, and Network Rail. Lackluster activity in France, mostly due to the decline in the French IT services industry leading to an overcapacity of consulting and systems integration specialists, coupled with a depressed market in Germany and Eastern Europe, principally in Telecom, partially offset the Area’s yearly improvement. Furthermore, due to overcapacity in the IT market, Sweden GeoMarket activity decreased significantly, mainly in Telecom and Systems Integration.

 

Pretax operating income of $25 million increased $12 million, or 87%, sequentially, but decreased 25% year-on-year. Despite revenue increasing over last year, pretax operating income decreased mainly in Sweden and France, suffering from lower daily fee rates on System Integration contracts and overcapacity. The sequential profitability increase was primarily due to contracts in the UK, and in Nigeria for the African Games.

 

 

North and South America

 

Revenue of $132 million decreased 3% sequentially and 7% year-on-year, mostly due to an overall sluggish IT services environment, as well as the deliberate exiting of certain unprofitable segments, principally in Telecom. Energy remained the main Area contributor, and there was strong growth in the Public Sector.

 

Pretax operating income of $4 million decreased $1 million sequentially, but increased $17 million from a loss of $14 million year-on-year. Despite revenue decreasing year-on-year, pretax operating income increased mainly due to systematic cost cutting programs carried out in North America. In addition, the Area experienced gross margins improvement year-on-year as a result of an intensified focus on profitable projects.

 

Asia

 

Revenue of $51 million decreased 3% sequentially and 2% year-on-year. The decreases are mainly due to the impact of SARS, which significantly affected the activity during the quarter with project reductions and postponements, and partially due to lower activity in Japan.

 

Pretax operating income of $7 million decreased $3 million sequentially, but increased $4 million year-on-year. Despite the decline in revenue year-on-year, Asia operating income increased mainly due to indirect cost savings and improved gross margins. The sequential decline is mainly due to lower activity in Japan and the exceptional release of employee-related cost accruals during the first quarter.

 

 

Telecom Products

 

Revenue of $17 million increased 34% sequentially, but decreased 25% year-on-year. Sequentially, the revenue increase was mainly due to higher billing systems maintenance and support contracts coupled with higher messaging contracts.

 

Pretax operating loss of $3 million improved by $2 million sequentially and $3 million year-on-year. Despite a lower activity level, the improvement came as a consequence of reductions in R&E centers in France and North America.

 

 

Highlights

 

  As a result of the energy market deregulation in Belgium, SchlumbergerSema and INTER-REGIES have set up an innovative IT-based clearing house system that will provide secure exchange and processing of information between key energy market players.

 

  SchlumbergerSema signed an agreement with Sprint to provide systems integration, data migration and network inventory management services over the next four years to support Sprint’s migration from a circuit-switched telephone network to a packet network.


  Gartner, Inc. ranked SchlumbergerSema among the fastest growing companies in its “Worldwide Top 25 IT Management Services Vendors” report, with SchlumbergerSema emerging as the second-fastest growing company among the leading ten companies on the list.

 

 

Other

 

Revenue for Cards of $162 million increased 10% sequentially and was flat year-on-year. The sequential increase was mostly due to Mobile Telecom activity in Asia, with over 28 million cards shipped during the quarter, and higher banking cards deliveries in the UK and in Belgium.

 

Pretax operating income for Cards was $8 million compared to $500,000 in the first quarter 2003 and $7 million last year.

 

 

About Schlumberger

 

Schlumberger is a global oilfield and information services company with major activity in the energy industry. The company employs 78,000 people of more than 140 nationalities working in 100 countries and comprises three primary business segments. Schlumberger Oilfield Services is the world’s premier oilfield services company supplying a wide range of technology services and solutions to the international oil and gas industry. WesternGeco, jointly owned with Baker Hughes, is the world’s largest and most advanced surface seismic company. SchlumbergerSema is a leading supplier of IT consulting, systems integration, and network and infrastructure services to the energy industry, as well as to the public sector, telecommunications and finance markets. In 2002, Schlumberger operating revenue was $13.2 billion. For more information, visit www.slb.com.

 

* Mark of Schlumberger

 

# # #

 

 

For more information, please contact:

    

Christian Lange, Investor Relations Director

   Paulo Loureiro, Investor Relations Manager

+1-212-350-9405

   +1-212-350-9432

lange@new-york.sl.slb.com

   ir-nam@slb.com

 

 

Question and Answer document.

Exhibit 99.2

 

LOGO

 

Second Quarter 2003 Results – Supplemental Information

Note: A full version of the restated revenue and pretax income numbers can be found at http://www.slb.com/ir

 

 

Q1)   What was Oilfield Services after-tax Return on Sales (ROS), including WesternGeco, for the quarter?

Oilfield Services after-tax ROS, including WesternGeco, in the second quarter 2003 was 12.0% compared to 10.3% in the first quarter 2003.

 

Q2)   What is the current size of the WesternGeco multiclient library?

The net book value of the multiclient library as of June 30, 2003 was $977 million. The amount capitalized during Q2 2003 was $43 million, primarily in North America.

 

Q3)   What were multiclient sales in the quarter and what was the cost of sales?

Multiclient revenues were $87 million during the quarter (down from $108 million in Q1 2003 and essentially flat compared to the same period last year) including $37 million of surveys with zero book value.

 

Q4)   In what way is Q-Marine applicable for 4D projects?

4D projects with conventional technology have typically needed quite a long period between each repeated survey in order for the difference in signal from production to be greater than the noise from the differences between the two surveys. By dramatically improving repeatability, Q reduces the interval needed between surveys, enabling corrective action to be taken by the operator much faster. For example WesternGeco has just completed the first Q-on-Q repeat 4D, with less than two years between these surveys.

 

Q5)   What is the utilization ratio for SchlumbergerSema?

For the six months 2003:

  ·   Consulting: 67%
  ·   Systems integration: 80%

 

Q6)   What was the Q2 effective tax rate and what is the ETR guidance for 2003?

The effective tax rate for the second quarter, excluding the debt extinguishment costs, which were not tax affected, was 22% compared to 33% in the first quarter of 2003. The decrease was primarily due to country mix of pretax results in WesternGeco and Oilfield Services. It is estimated that the effective tax rate, excluding charges, will be in the upper 20’s in 2003.

 

Q7)   Why did Net Debt decrease in Q2?

Net debt decreased $160 million in the quarter which included the proceeds from the sale of Grant Prideco stock ($106 million) and seasonal proceeds related to the employee stock plans ($97 million). There was an adverse non-cash currency translation effect of $241 million in the quarter mainly due to the weakening of the US dollar against the Euro and British Pound. June 30, 2003 net debt† was $5,158 million.

 

†(Net debt is gross debt less cash, short term investments as well as fixed income investments held to maturity. In past quarters we referred to ‘liquidity’ that was defined as the reverse; cash, short-term investments and fixed income investments held to maturity, less debt.)

 

Q8)   Could you describe your recent re-financing of debt?

Our European subsidiaries had bond financing denominated in Euros and British Pounds which given their earnings profile was expensive on an after tax basis. Our goal was to replace them in part by a convertible issue.

 

On June 4, we issued $1.425 billion of convertibles (including a green shoe option) in two tranches:

  ·   $975 million at 1.5% and $72.33 conversion price with a call and put in five years
  ·   $450 million at 2.125% with a conversion price of $80 with a call and put in seven years


Between June 12 and July 22, we launched and concluded a tender offer on three of our outstanding European bonds. We bought back $1.3 billion of principal of these bonds for a total cost of $1.5 billion, which includes the premium, and issuing and tender costs. The total charge on the tender was $168 million, of which $81 million was recorded in the second quarter with the balance to be recorded in the third quarter of this year. The interest saving generated by this re-financing is estimated at $46 million per annum. The net present value of this re-financing is estimated to be approximately $60 million. Given the date of the first put of the convertibles and the maturities of the bonds repurchased, Schlumberger overall debt maturities remained more or less unchanged.

 

Issue


  

Amount

Millions


   Coupon

 

%bought

back


 

Principal
repurchased

$ million


  

Cost incl premium

$ million


SSA ‘08

   €850    5.250%   68%      658       731

SSA ‘11

   €500    5.875%   48%      275       314

SPLC ‘08

   £250    6.250%   93%      386       423
                  1,319    1,468

 

Q9)   Why did gross debt increase to $8.7 billion?

This is a temporary increase due to the fact that the proceeds of the convertible bonds issued in June could not be used immediately for the buy back of bonds in Europe. With the tender for these bonds closed and settled in full on July 22, the gross debt will decrease to $7.4 billion. Similarly, cash and short-term investments were temporarily higher.

 

Q10)   Where do you stand on your divestitures plan?

We have contracts for the sale of our NPTest division as well as for our Electricity Metering business in North America for a total proceeds of $475 million. We sold another of our remaining drilling rigs in July and expect to finalize the sale of the last one in August. We have filed for the sale of our Hanover Compressor Note. Overall, we expect to generate over $700 million of proceeds from this plan between now and year end.

 

Q11)   What is the current status of the Hanover Compressor PIGAP II put option?

In May, we entered into an agreement with Hanover Compressor (HC) in which they agreed to terminate their put option and retain their interest in the PIGAP JV. At the same time, HC modified the terms of the $58 million contingent obligation associated with the PIGAP JV by issuing to us a $58 million 6% interest, non-recourse note to be repaid out of distributions from the JV. Also in May, we agreed with HC to transform their current $173 million subordinated note into a $262 million zero coupon subordinated note due March 31, 2007 accruing interest at 11%. HC has filed a shelf registration statement to register the note on our behalf, which is the first step in enabling us to publicly sell the note if and when market conditions are favorable.

 

Q12)   What is the net debt objective for Schlumberger?

Management expects to achieve its goal of reducing the company’s net debt to approximately $4 billion by year-end 2003 from cash flow from operations coupled with the continuation of the divestiture program.

 

Q13)   Interest income and expense changes?

Interest income of $13.3 million decreased $0.9 million sequentially and $6.5 million compared to same quarter last year. Average return decreased from 3.3% last quarter to 2.4% and from 4.4% last year. Average investment balance of $2.1 billion was up $492 million sequentially and $370 million compared to the same quarter last year due to the proceeds from the convertible debenture offering in June 2003.

 

Interest expense of $92.3 million decreased $0.6 million sequentially and $4.1 million from the same quarter last year. Average borrowing rates of 4.8% decreased from 5.2% last quarter and 4.9% last year. Average debt balance of $7.5 billion increased $383 million sequentially, due to the proceeds from the

 


convertible debenture offering in June 2003, and decreased $154 million compared to the same quarter last year.

 

Q14)   What is the difference between OFS pretax income and the sum of the business Areas?

The difference of approximately $17 million comes from Oilfield Services headquarters projects and costs plus Oilfield Services consolidation eliminations.

 

Q15)   What is the difference between the SchlumbergerSema pretax income and the business Areas?

The difference of about $11 million is due to SchlumbergerSema headquarters’ costs that are not allocated to the Areas and the results of Major Events, Business Continuity and Telecom Products.

 

Q16)   What is the difference between Schlumberger pretax income and the pretax income of the business segments, including income from ‘Other’ activities?

Major items include corporate headquarters expenses, interest expense and income, interest on post-retirement benefits, amortization of identifiable intangibles, currency exchange gains and losses, and debt extinguishment costs.

 

Q17)   What is the Schlumberger position regarding the expensing of stock options to employees?

The company has two stock compensation plans – stock option awards and an employee stock purchase plan. The company discloses in its annual report to shareholders the effect on net income and earnings per share had the plans been expensed under a Black-Scholes option-pricing model. The effect in 2002 was $156 million ($0.27 per share). The company will record stock option expense in the income statement beginning in the second half of 2003, on a prospective basis for grants after January 1, 2003. The effect on the entire year 2003 net income and earnings per share will be insignificant.

 

Q18)   What is the current position on funding the company pension plans?

The material defined benefit plans include plans in the USA and the United Kingdom. Each of these plans is under-funded on an actuarial basis as a result of lower interest rates and poor financial market performance. The company will increase its funding of the plans over the next few years unless there is a meaningful recovery in the markets and/or interest rates rise. This increased funding has been included into the net debt reduction plan as discussed in question 12.

 

In accordance with FASB #87, the company has recorded a cumulative increase in the pension liability of $278 million at June 30, 2003, compared to $413 million at March 31, 2003. At quarter’s end the total pension liability was equal to the minimum liability. The offset has been recorded in Other Comprehensive Income. The minimum liability represents the difference between the Accumulated Benefit Obligation (present value of benefits earned to date) and the plan assets plus the balance sheet accrual at June 30, 2003.

 

Q19)   What is the present guidance on full year 2003?
  ·   Capex: $1.1 billion
  ·   Multiclient: $180 million
  ·   Depreciation and amortization: $1.4 billion excluding multiclient

 

Q20)   How does Schlumberger calculate Return on Capital Employed (ROCE)?

ROCE is computed as: [Net income from continuing operations excluding charges + Minority Interest + Interest Expense – Interest Income – Tax benefit on interest expense] divided by [Stockholders’ Equity + Net Debt + Minority Interest].

 

Q21)   What was Schlumberger’s annualized ROCE run-rate for the quarter?

Annualized ROCE in the second quarter 2003 was 9.9% compared to 7.3% in the first quarter. The increase in the quarter reflected the higher return.

 

# # #

 

This question and answer document, the second quarter 2003 earnings release and other statements we make contain forward looking statements, which include any statements that are not historical facts, such as our expectations regarding business outlook, economic recovery, expected capex, multi-client and depreciation and amortization


expenditures, the funding of pension plans and related pension expense, the likelihood of and benefits to be derived from divestitures, conditions in the oilfield service business, including activity levels during 2003, production increases in non-OPEC areas, issues affecting the seismic industry, including sales pertaining to Q technology, continued deepwater drilling activity, benefits from contract awards, future results of operations, pricing, future effective tax rates, the realization of cost reduction and savings in SchlumbergerSema and expectations regarding the future business and performance of SchlumbergerSema. These statements involve risks and uncertainties, including, but not limited to, the extent and timing of a rebound in the global economy, changes in exploration and production spending by major oil companies, including our expectations for renewed growth in gas drilling and improvement in rigless gas pressure pumping activities in NAM; recovery of activity levels, improved pricing and realization of cost reduction and cost savings targets associated with the seismic business, Q seismic technology contracts; continuing customer commitment to certain key oilfield projects, general economic and business conditions in key regions of the world, including Argentina and political and economic uncertainty in Venezuela, Nigeria and further socio-political unrest in the Persian Gulf and/or Asia, changes in business strategy for SchlumbergerSema businesses including the expected growth of Schlumberger IT Consulting and Systems Integration Services and Network and Infrastructure Solutions in the global energy sector, continuing customer commitment to key long-term services and solutions contracts in our SchlumbergerSema businesses; a reversal of the weak IT environment and an increase in IT spending; the extent and timing of a recovery in the telecommunications industry; continued growth in the demand for smart cards and related products and in e-Government systems integration efforts in Western Europe; the impact of SARS; Schlumberger ability to meet its identified liquidity projections, including the generation of sufficient cash flow from oilfield operating results and the successful completion of certain business divestitures, the adoption and effect of new accounting standards, potential contributions to pension plans and other factors detailed in our second quarter 2003 earnings release, our most recent Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize (or the consequences of such a development changes), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

 

Revenue and Income from Continuing Operations.

Exhibit 99.3

 

LOGO

REVENUE & INCOME FROM CONTINUING OPERATIONS

(Restated for NP Test & Verification Systems as Discontinued Operations)

($ Millions)

 

REVENUE FROM CONTINUING
OPERATIONS
   2002

    2003

 
     Q1

    Q2

    Q3

    Q4

    Year

    Q1

    Q2

 

OILFIELD SERVICES

                                                        

North America

   $ 563.7     $ 558.9     $ 558.4     $ 551.2     $ 2,232.2     $ 595.4     $ 638.4  

Latin America

     324.6       310.4       316.9       350.2       1,302.1       289.6       348.9  

Europe/CIS/W. Africa

     554.9       587.3       647.8       594.7       2,384.7       588.0       615.4  

Middle East & Asia

     445.9       486.1       477.5       468.8       1,878.3       489.3       509.2  

Eliminations & Other

     14.3       16.8       17.8       24.8       73.7       14.6       14.8  
    


 


 


 


 


 


 


     $ 1,903.4     $ 1,959.5     $ 2,018.4     $ 1,989.7     $ 7,871.0     $ 1,976.9     $ 2,126.7  
    


 


 


 


 


 


 


WESTERNGECO

   $ 385.1     $ 359.9     $ 399.3     $ 331.7     $ 1,476.0     $ 306.7     $ 305.9  
    


 


 


 


 


 


 


SCHLUMBERGERSEMA

                                                        

North & South America

   $ 146.0     $ 142.2     $ 132.2     $ 124.9     $ 545.3     $ 136.2     $ 132.2  

Europe/Middle East/Africa

     529.2       552.0       579.5       656.4       2,317.1       605.1       657.7  

Asia

     50.5       52.0       52.5       58.0       213.0       52.5       50.9  

Telecom Products

     15.9       22.5       15.3       15.8       69.5       12.6       16.9  

Eliminations

             (42.1 )     (34.0 )     (42.4 )     (153.7 )     (13.6 )     (17.5 )
    


 


 


 


 


 


 


     $ 706.4     $ 726.6     $ 745.5     $ 812.7     $ 2,991.2     $ 792.8     $ 840.2  
    


 


 


 


 


 


 


OTHER

   $ 260.5     $ 291.3     $ 303.9     $ 345.8     $ 1,201.5     $ 281.3     $ 315.7  

Eliminations

   $ (57.4 )   $ (66.7 )   $ (78.1 )   $ (95.4 )   $ (297.6 )   $ (71.5 )   $ (72.8 )
    


 


 


 


 


 


 


Revenue from Continuing Operations

   $ 3,198.0     $ 3,270.6     $ 3,389.0     $ 3,384.5     $ 13,242.1     $ 3,286.2     $ 3,515.7  
    


 


 


 


 


 


 


INCOME FROM CONTINUING
OPERATIONS
   2 0 0 2

    2 0 0 3

 
     Q1

    Q2

    Q3

    Q4

    Year

    Q1

    Q2

 

OILFIELD SERVICES

                                                        

North America

   $ 80.3     $ 76.3     $ 65.4     $ 56.2     $ 278.2     $ 72.8     $ 91.9  

Latin America

     39.1       36.6       43.6       50.7       170.0       33.7       58.5  

Europe/CIS/W. Africa

     98.2       111.2       100.8       64.8       375.0       99.9       114.3  

Middle East & Asia

     104.6       119.3       114.4       115.5       453.8       115.8       134.1  

Eliminations & Other

     (15.3 )     3.9       2.2       (11.2 )     (20.4 )     (7.6 )     (16.6 )
    


 


 


 


 


 


 


     $ 306.9     $ 347.3     $ 326.4     $ 276.0     $ 1,256.6     $ 314.6     $ 382.2  
    


 


 


 


 


 


 


WESTERNGECO

   $ 47.0     $ 18.4     $ (0.5 )   $ 6.4     $ 71.3     $ —       $ (16.0 )
    


 


 


 


 


 


 


SCHLUMBERGERSEMA

                                                        

North & South America

   $ (17.0 )   $ (13.6 )   $ (1.5 )   $ (10.5 )   $ (42.6 )   $ 4.3     $ 3.5  

Europe/Middle East/Africa

     35.5       33.1       35.8       63.5       167.9       13.3       24.7  

Asia

     4.1       2.9       0.9       (3.0 )     4.9       10.6       7.3  

Telecom Products

     (6.7 )     (6.2 )     (8.5 )     (3.0 )     (24.4 )     (5.5 )     (3.2 )

Eliminations

     (15.0 )     (12.7 )     (30.0 )     (13.8 )     (71.5 )     (7.9 )     (8.0 )
    


 


 


 


 


 


 


     $ 0.9     $ 3.5     $ (3.3 )   $ 33.2     $ 34.3     $ 14.8     $ 24.3  
    


 


 


 


 


 


 


OTHER

   $ (3.9 )   $ 5.4     $ 5.8     $ 15.5     $ 22.8     $ 2.6     $ 13.8  

Eliminations

   $ (29.0 )   $ (43.2 )   $ (27.8 )   $ (48.0 )   $ (148.0 )   $ (40.5 )   $ (43.3 )
    


 


 


 


 


 


 


Pre-Tax Operating Income

   $ 321.9     $ 331.4     $ 300.6     $ 283.1     $ 1,237.0     $ 291.5     $ 361.0  

Interest Income

     18.0       18.9       16.3       15.0       68.2       13.1       12.8  

Interest Expense

     (80.2 )     (94.2 )     (96.4 )     (93.3 )     (364.1 )     (91.2 )     (90.8 )

Charges

     (30.3 )     —         —         (3,138.3 )     (3,168.6 )     —         (81.5 )

Tax expense

     (65.1 )     (65.4 )     (56.9 )     (95.4 )     (282.8 )     (69.7 )     (61.8 )

Minority Interest

     (6.5 )     (0.7 )     4.7       94.4       91.9       4.3       2.6  
    


 


 


 


 


 


 


Income from Continuing Operations

   $ 157.8     $ 190.0     $ 168.3     $ (2,934.5 )   $ (2,418.4 )   $ 148.0     $ 142.3