SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended: Commission file No.:
June 30, 2000 1-4601
- ------------- -------------
SCHLUMBERGER N.V.
(SCHLUMBERGER LIMITED)
(Exact name of registrant as specified in its charter)
NETHERLANDS ANTILLES 52-0684746
-------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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, 2000
----- ---------------------------
COMMON STOCK, $0.01 PAR VALUE 570,017,871
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1 :Financial Statements
- ----------------------------
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Unaudited)
(Stated in thousands except per share amounts)
Period Ended June 30,
---------------------------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------- -----------------------------------------------
2000 1999 (1) 2000 1999 (1)
------------------- ----------------------- ---------------------- ----------------------
REVENUE:
Operating $ 2,338,266 $ 2,011,831 $ 4,475,708 $ 4,129,135
Interest & other income 83,541 53,753 159,651 217,864
------------------- ----------------------- ---------------------- ----------------------
2,421,807 2,065,584 4,635,359 4,346,999
------------------- ----------------------- ---------------------- ----------------------
EXPENSES:
Cost of goods sold & services 1,794,136 1,582,856 3,427,759 3,358,433
Research & engineering 130,740 126,354 261,782 258,197
Marketing 110,988 106,881 213,997 210,164
General 113,455 94,904 217,689 194,094
Interest 65,341 42,874 128,437 87,828
------------------- ----------------------- ---------------------- ----------------------
2,214,660 1,953,869 4,249,664 4,108,716
------------------- ----------------------- ---------------------- ----------------------
Income from continuing operations
before taxes 207,147 111,715 385,695 238,283
Taxes on income 51,224 20,574 93,614 78,099
------------------- ----------------------- ---------------------- ----------------------
Income from continuing
operations (2) 155,923 91,141 292,081 160,184
Income from discontinued operations,
net of tax (3) - 36,146 - 56,270
------------------- ----------------------- ---------------------- ----------------------
Net Income $ 155,923 $ 127,287 $ 292,081 $ 216,454
=================== ======================= ====================== ======================
Basic Earnings Per Share
Continuing Operations $ 0.27 $ 0.16 $ 0.51 $ 0.28
Discontinued Operations - 0.07 - 0.11
------------------- ----------------------- ---------------------- ----------------------
Net Income $ 0.27 $ 0.23 $ 0.51 $ 0.39
=================== ======================= ====================== ======================
Diluted Earnings Per Share
Continuing Operations (2) $ 0.27 $ 0.16 $ 0.51 $ 0.28
Discontinued Operations (3) - 0.06 - 0.10
------------------- ----------------------- ---------------------- ----------------------
Net Income $ 0.27 $ 0.22 $ 0.51 $ 0.38
=================== ======================= ====================== ======================
Average shares outstanding 569,293 547,112 568,090 546,744
=================== ======================= ====================== ======================
Average shares outstanding
assuming dilution 579,707 563,529 578,124 561,722
=================== ======================= ====================== ======================
Depreciation and amortization
included in expenses (4) $ 311,550 $ 276,353 $ 623,893 $ 552,570
=================== ======================= ====================== ======================
Dividends declared per share $ 0.1875 $ 0.1875 $ 0.3750 $ 0.3750
=================== ======================= ====================== ======================
-2-
1) Restated for comparative purposes.
2) The six months 1999 results from Continuing Operations include a pretax
charge of $147 million partially offset by a pretax gain of $103 million (net -
$58 million after tax, $0.10 per share - diluted), consisting of the following:
. A charge of $118 million ($118 million after tax) related to the downsizing
of its global Oilfield Services activities, including $108 million of
severance cost and $10 million for asset impairments.
. A charge of $29 million ($20 million after tax) related to RMS and Test &
Transactions, consisting principally of $16 million of severance cost at
several RMS facilities resulting from a downturn in business and $5 million
of asset write-downs.
. A credit of $103 million ($80 million after tax) from the gain on the sale
of financial instruments received in connection with the 1998 sale of RPS.
The pretax gain on the sale of financial instruments is included in
Interest & other income. The pretax charge of $147 million is classified in
Cost of goods sold and services.
3) Discontinued Operations in 1999 include the operating results of the spun-
off Sedco Forex business. The six months 1999 results include an after-tax
charge of $33 million ($0.06 per share - diluted) for severance costs ($13
million) and legal claims.
4) Including multiclient seismic data costs.
See Notes to Consolidated Financial Statements
-3-
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
(Dollars in thousands)
Jun. 30, Dec. 31,
ASSETS 2000 1999 (1)
- ------
-------------- -------------
CURRENT ASSETS:
Cash and short-term investments $3,695,676 $4,389,837
Receivables less allowance for doubtful accounts
(2000 - $79,018; 1999 - $89,030) 2,616,429 2,429,842
Inventories 1,018,757 956,980
Deferred taxes on income 257,642 226,238
Other current assets 273,079 258,532
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7,861,583 8,261,429
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LONG-TERM INVESTMENTS, HELD TO MATURITY 1,307,461 726,496
INVESTMENTS IN AFFILIATED COMPANIES 612,440 535,434
FIXED ASSETS:
Property, plant and equipment 10,051,836 9,639,274
Less accumulated depreciation (6,298,394) (6,078,534)
-------------- -------------
3,753,442 3,560,740
-------------- -------------
MULTICLIENT SEISMIC DATA 319,234 311,520
EXCESS OF INVESTMENT OVER NET ASSETS OF
COMPANIES PURCHASED less amortization 1,358,813 1,333,681
DEFERRED TAXES ON INCOME 272,373 242,616
OTHER ASSETS 137,468 109,276
-------------- -------------
$15,622,814 $15,081,192
============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $2,418,102 $2,282,884
Estimated liability for taxes on income 420,334 383,159
Bank loans 468,415 444,221
Dividend payable 107,453 106,653
Long-term debt due within one year 26,344 257,571
-------------- -------------
3,440,648 3,474,488
LONG-TERM DEBT 3,573,545 3,183,174
POSTRETIREMENT BENEFITS 464,905 451,466
OTHER LIABILITIES 243,758 251,036
-------------- -------------
7,722,856 7,360,164
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock 1,859,961 1,820,186
Income retained for use in the business 7,995,648 7,916,612
Treasury stock at cost (1,808,694) (1,878,612)
Translation adjustment (146,957) (137,158)
-------------- -------------
7,899,958 7,721,028
-------------- -------------
$15,622,814 $15,081,192
============== =============
(1) Restated for comparative purposes.
See Notes to Consolidated Financial Statements
-4-
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
Cash flows from operating activities: 2000 1999 (1)
------------ ------------
Net income from continuing operations $ 292,081 $ 160,184
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization (2) 623,893 552,570
Earnings of companies carried at equity,
less dividends received (Dividends:
2000 - $0; 1999 - $616) (13,583) (4,332)
Provision for losses on accounts receivable 15,316 18,928
Change in operating assets and liabilities:
(Increase) decrease in receivables (222,935) 126,936
(Increase) decrease in inventories (57,158) 42,791
(Increase) decrease in deferred taxes on income (23,669) 463
Increase (decrease) in accounts payable and accrued
liabilities 56,683 (208,995)
Increase (decrease) in estimated liability
for taxes on income 39,303 (59,227)
Charge - 57,568
Other - net (105,934) (13,486)
------------ ------------
Net cash provided by operating activities 603,997 673,400
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (528,960) (399,596)
Multiclient seismic data capitalized (119,940) (111,049)
Sales/retirements of fixed assets 54,060 (14,538)
Decrease in investments 136,309 184,853
Sale of financial instruments - 203,572
Businesses acquired (261,446) (54,581)
(Increase) decrease in other assets (41,047) 5,871
Discontinued operations - (147,654)
------------ ------------
Net cash used in investing activities (761,024) (333,122)
------------ ------------
Cash flows from financing activities:
Dividends paid (212,368) (204,839)
Proceeds from employee stock purchase plan 61,560 52,250
Proceeds from exercise of stock options 109,693 38,943
Proceeds from issuance of long-term debt 530,939 620,000
Payments of principal on long-term debt (333,943) (600,000)
Net increase (decrease) in short-term debt 26,937 (194,607)
------------ ------------
Net cash provided by (used in) financing activities 182,818 (288,253)
------------ ------------
Net increase in cash 25,791 52,025
Cash, beginning of period 132,589 105,321
------------ ------------
Cash, end of period $ 158,380 $ 157,346
============ ============
(1) Restated for comparative purposes.
(2) Including multiclient seismic data costs.
See Notes to Consolidated Financial Statements
-5-
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
-------------- --------------------- ----------------- ------------------ --------------------
Balance, January 1, 2000 $1,820,186 $(1,878,612) $7,916,612 $(137,158) $ -
Net Income 292,081 292,081
Translation adjustment (9,799) (9,799)
Dividends declared (213,045)
Shares sold to optionees 39,775 69,918
-------------- --------------------- ----------------- ------------------ --------------------
Balance, June 30, 2000 $1,859,961 $(1,808,694) $7,995,648 $(146,957) $ 282,282
============== ===================== ================= ================== ====================
See Notes to Consolidated Financial Statements
-6-
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 1999 Annual Report. These policies have been
consistently applied during the interim period presented in this report. The
results of operations for the six month period ended June 30, 2000 are not
necessarily indicative of the results of operations that may be expected for the
entire year.
EARNINGS PER SHARE
- ------------------
The following is a reconciliation from basic earnings per share to diluted
earnings per share for the second quarter and the first six months of 2000:
(Stated in thousands except per share amounts)
Average
Net Shares Earnings
Second Quarter Income Outstanding per Share
- --------------
-------------------- -------------------- -----------------
Basic $ 155,923 569,293 $0.27
Effect of dilution:
Options 10,414 -
-------------------- -------------------- -----------------
$ 155,923 579,707 $0.27
==================== ==================== =================
Six Months
Average
Net Shares Earnings
Income Outstanding per Share
-------------------- -------------------- -----------------
Basic $ 292,081 568,090 $0.51
Effect of dilution:
Options 10,034 -
-------------------- -------------------- -----------------
$ 292,081 578,124 $0.51
==================== ==================== =================
1999 FOURTH QUARTER CHARGE
- --------------------------
In December 1999, Schlumberger recorded a pretax charge of $77 million related
to the asset impairments ($56 million) and severance costs ($13 million - 300
people) for reductions in the marine seismic fleet and restructuring of its land
drilling activity. At June 30, 2000, substantially all costs have been paid.
-7-
DISCONTINUED OPERATIONS
- -----------------------
Discontinued operations, in 1999, reflect the net operating results after taxes
of Schlumberger's offshore contract drilling business, Sedco Forex, which was
spun-off in December 1999.
Summarized financial information for the discontinued operations for the six
months ended June 30, 1999 is as follows:
Operating revenue $ 352 million
Income before taxes $ 57 million
Income after taxes $ 56 million
CONTINGENCIES
- -------------
The Consolidated Balance Sheet includes accruals for the estimated future costs
associated with certain environmental remediation activities related to the past
use or disposal of hazardous materials. Substantially all such costs relate to
divested operations and to facilities or locations that are no longer in
operation. Due to a number of uncertainties, including uncertainty of timing,
the scope of remediation, future technology, regulatory changes and other
factors, it is possible that the ultimate remediation costs may exceed the
amounts estimated. However, in the opinion of management, such additional costs
are not expected to be material relative to consolidated liquidity, financial
position or future results of operations.
In addition, Schlumberger and its subsidiaries are party to various other legal
proceedings. Although the ultimate disposition of these proceedings is not
presently determinable, in the opinion of Schlumberger, any liability that might
ensue would not be material in relation to the consolidated liquidity, financial
position or future results of operations.
INVESTMENTS IN AFFILIATED COMPANIES
- -----------------------------------
Investments in affiliated companies include Schlumberger's 40% investment of
$426 million in the MI Drilling Fluids joint venture.
-8-
SEGMENT INFORMATION
- -------------------
(Stated in millions)
----------------------------------------------------------------------------------------------------------
North Latin Europe/ Other Elims/ Total Elims/
Six Months 2000 America America CIS/W. Afr. Eastern Other OFS RMS T&T Other Consolidated
- --------------- ----------------------------------------------------------------------------------------------------------
Revenue $1,066 $511 $723 $805 $109 $3,214 $645 $657 $(40) $4,476
==========================================================================================================
Segment Income $81 $13 $41 $132 $1 $268 $11 $15 $(17) $277
Income Tax Expense 48 10 24 21 20 123 5 (5) (31) 92
----------------------------------------------------------------------------------------------------------
Pretax Segment Income $129 $23 $65 $153 $21 $391 $16 $10 $(48) $369
----------------------------------------------------------------------------------------
Interest Income 144
Interest Expense $(1) (127)
------------
Pretax Income $386
----------------------------------------------------------------------------------------------============
----------------------------------------------------------------------------------------------------------
North Latin Europe/ Other Elims/ Total Elims/
Six Months 1999 America America CIS/W. Afr. Eastern Other OFS RMS T&T Other Consolidated
- --------------- ----------------------------------------------------------------------------------------------------------
Revenue $742 $452 $813 $815 $90 $2,912 $687 $526 $4 $4,129
==========================================================================================================
Segment Income $20 $7 $43 $125 $(1) $194 $(6) $9 $(4) $193
Income Tax Expense (1) 10 8 24 32 5 79 4 1 (20) 64
----------------------------------------------------------------------------------------------------------
Pretax Segment Income $30 $15 $67 $157 $4 $273 $(2) $10 $(24) $257
---------------------------------------------------------------------------------------
Interest Income 108
Interest Expense $(4) $ (1) (83)
Sale of Financial
Inst. 103
Charge & Other (147)
------------
Pretax Income $238
----------------------------------------------------------------------------------------------============
(1) Income tax expense excludes a net charge of $14 million
related to the charge.
Nonoperating expenses, such as certain intersegment charges and interest expense
(except as shown above), are not included in segment operating income.
-9-
BUSINESS REVIEW
- ---------------
(Stated in millions)
Resource
Oilfield Management Test &
Services Services Transactions (2)
--------------------------- ---------------------------- -----------------------------
Second Quarter 2000 1999 % chg 2000 1999 % chg 2000 1999 % chg
- -------------- ---- ---- ----- ---- ---- ----- ---- ---- -----
Operating Revenue $ 1,685 $ 1,409 20% $ 321 $ 342 (6)% $ 350 $ 256 37%
Pretax Operating
Income (1) $ 219 $ 118 86% $ 5 $ (7) - $ 10 $ 2 390%
Resource
Oilfield Management Test &
Services Services Transactions (2)
--------------------------- ---------------------------- -----------------------------
Six Months 2000 1999 % chg 2000 1999 % chg 2000 1999 % chg
- ---------- ---- ---- ----- ---- ---- ----- ---- ---- -----
Operating Revenue $ 3,214 $ 2,912 10% $ 645 $ 687 (6)% $ 657 $ 526 25%
Pretax Operating
Income (1) $ 391 $ 273 43% $ 16 $ (2) - $ 10 $ 10 -
(1) Pretax operating income represents income before taxes, excluding interest
expense, interest income and the first quarter 1999 net charge.
(2) Test & Transactions results include Schlumberger Omnes, formerly a joint
venture, which was 100% acquired during the third quarter 1999.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations.
- --------------
Second Quarter 2000
--------------------
The second quarter operating revenue of $2.34 billion was 16% higher than the
same period last year. Income from continuing operations increased 71% to $156
million compared with $91 million last year. Per share net income from
continuing operations increased to $0.27 (diluted) versus $0.16 (diluted).
Oilfield Services operating revenue increased 10% versus the prior quarter while
the worldwide M-I rig count decreased by 1%. Compared with the same period last
year, revenue increased 20% as the worldwide M-I rig count grew 40%.
Resource Management Services (RMS) operating revenue was 6% lower than in the
second quarter of 1999. Excluding the adverse effects of currency exchange
rates, revenue increased 1%. Test & Transactions operating revenue, including
Omnes, increased 37% compared with the same quarter last year.
OILFIELD SERVICES
Oilfield Services operating revenue in the second quarter increased 10%
sequentially with improvements in all geographic Areas. Led by activity in North
America, revenue increased 20% versus the same period last year. Compared with
the prior quarter and the same period last year, revenue increased in all four
geographic Areas as the worldwide M-I rig count decreased 1% sequentially and
increased 40% year-over-year.
Pretax operating income in the second quarter increased 27% sequentially and 86%
versus the same period last year.
-10-
The quarter was characterized by increasing oil and gas demand, firmer oil and
gas prices and the relatively low level of excess production capacity, which led
to increased demand for oilfield services as oil companies began increasing
their exploration and production spending.
During the quarter Schlumberger undertook a number of strategic positioning
steps:
. On May 31, Schlumberger and Baker Hughes signed a memorandum of understanding
under which the Schlumberger surface seismic business, Geco-Prakla, would join
with the Western Geophysical seismic unit of Baker Hughes to form a new venture
to be called Western GECO. As part of the formation of the venture, Baker Hughes
would receive $500 million in cash from Schlumberger. The new venture would be
owned 70% by Schlumberger and 30% by Baker Hughes. The creation of Western GECO
is subject to the completion of a definitive agreement, and to regulatory and
board approvals.
. To enhance its Oilfield Services product offering for reservoir optimization,
Schlumberger acquired Operational Services, Inc. (OSI) on April 28. OSI provides
clients with a systematic approach to production management through efficient
systems and processes, including contract operations management of oil and gas
production, gas processing, co-generation facilities, contract maintenance
services for large rotating equipment, and stand-alone operational engineering
consulting services. The acquisition price was $13 million.
. In anticipation of growth in subsea completions and deepwater field
developments, Schlumberger purchased, for $11 million, a 40% share of Framo
Engineering AS, a leader in subsea hydrocarbon processing. Based in Bergen,
Norway, Framo has developed a range of products and services that substantially
increase hydrocarbon production. The combination of Framo Engineering subsea
products and services with Schlumberger downhole equipment and reservoir
knowledge offers a single source for selecting, integrating and operating
advanced technical solutions to optimize recovery in subsea developments.
North America
- -------------
In North America, second quarter revenue of $555 million increased 9%
sequentially and 57% compared with the second quarter of 1999 as the M-I rig
count decreased 7% sequentially and increased 76% year-over-year. Pretax
operating income of $67 million increased 9% sequentially and 419% versus the
same period last year. Sequentially, revenue increased in all regions, except
Canada, which was down due to the normal seasonal reduction in drilling
activity. All Product Groups posted significant year-over-year revenue gains,
with drilling bits, seismic and pressure pumping services showing the largest
year-over-year increases.
Latin America
- -------------
In Latin America, second quarter revenue of $262 million increased 5%
sequentially and 10% year-over-year as the M-I rig count increased 5%
sequentially and 19% versus the same period last year. Pretax operating income
of $15 million showed a strong 87% improvement, both
-11-
sequentially and year-over-year. Revenue increased in all GeoMarket regions,
both sequentially and year-over-year, with southern Latin America posting the
largest percentage increase, offset partly by lower marine seismic revenue
during the quarter due to the movement of seismic vessels to other markets.
Europe/CIS/West Africa
- ----------------------
Second quarter revenue of $385 million in the Europe/CIS/West Africa Area
increased 14% sequentially and was up 1% compared with the same quarter last
year. The M-I rig count, excluding the CIS, was up 7% versus the first quarter
of 2000, and up 2% over the same period last year. Pretax operating income of
$41 million increased 73% sequentially and 59% year-over-year. Second quarter
revenue this year excludes drilling fluids revenue as a result of the M-I
drilling fluids joint venture. CIS and West Africa showed the largest revenue
gains, both sequentially and compared with last year. In the Area, sequential
revenue growth was led by pressure pumping, wireline and seismic services.
Schlumberger completed an installation of its intelligent completion system in a
North Sea field for Norsk Hydro. The system was installed ahead of schedule,
leading to the highest producing well in the field, and was used to eliminate
gas breakthrough while optimizing oil production levels.
Other Eastern Hemisphere
- ------------------------
Second quarter revenue of $424 million in the Other Eastern Hemisphere Area
increased 12% sequentially and 10% year-over-year, while the M-I rig count
increased 4% sequentially and 7% year-over-year. Pretax operating income of $89
million increased 38% sequentially and 28% year-over-year. Geographically, the
Gulf region in the Middle East and Indonesia posted the largest year-over-year
revenue gains. Product Group revenue increased sequentially and year-over-year,
led by Reservoir Development.
RESOURCE MANAGEMENT SERVICES
Resource Management Services second quarter revenue decreased 6% versus the same
period in 1999. In national currencies, revenue rose 1% versus the same period
last year. Orders increased 1% (up 8% in national currencies) versus the same
period last year.
Excluding the impact of CellNet and the special provisions last year, second
quarter pretax operating income improved compared with the same period a year
ago.
In North America, second quarter revenue rose 12% versus the same period last
year, while orders increased by 53%. The large increase in orders was led by
higher demand for the CENTRON* static electricity meter and by new CellNet
business. In May, RMS North America acquired the assets of CellNet Data Systems,
the leading provider of telemetry technology for the development and deployment
of large-scale automatic meter reading (AMR) systems. Revenue was realized from
reading fees from already-deployed CellNet networks, primarily at AmerenUE,
Northern States Power and Puget Sound Energy. In addition revenue during the
quarter included a contribution from sales of the Metricom UtiliNet radios.
-12-
In Europe, second quarter revenue and orders both declined 17% (down 7% in
national currencies) versus the same period last year. Gas revenue in the UK
increased significantly due to strong residential meter demand including an
agreement for the sale of over 650,000 U6 gas meters in 2000.
Revenue in South America benefited from economic recovery in Chile and in
Brazil. Both countries reported increased orders over 1999 with electricity
particularly strong in Brazil. For South America overall, however, revenue was
flat in the second quarter versus the prior year while orders decreased 5%.
In Asia, second quarter revenue climbed 8% versus the same period in 1999. The
increase in revenue resulted, in part, from sales in India and increased exports
from Asia to other markets.
TEST & TRANSACTIONS
Test & Transactions second quarter revenue and orders, including Omnes,
increased 37% and 33%, respectively, compared with the same quarter last year.
Second quarter revenue for Cards increased 28% over the same period last year,
and orders rose 29%. The revenue results reflect continued strength in shipments
for GSM (Global Systems for Mobile Communications) SIM (Subscriber Identity
Module) cards. Orders were strong in Asia, particularly in China where the first
order for high-end Simera* (Java***-programmable) SIM cards was received. Orders
during the quarter were driven by mobile communications markets in Asia and
included the first order for new 3G (third-generation) mobile standard SIM cards
in Japan as well as orders from the launch of the Simera GAIT* TDMA card in
April and the Simera Airflex* CDMA card in June.
Including Omnes, which is not included in the 1999 second quarter revenue,
Network Solutions second quarter revenue increased 149% versus the same period
last year and orders increased 47%. Revenue during the quarter included a
contribution from the delivery of mobile communications applications to
customers in China, Australia and France. These applications permit cell phone
customers to access Internet-based services via their cell phones and pave the
way for secure mobile-commerce and mobile-banking growth. Orders also included a
contract for the design and systems integration of a data center for a
telecommunications client in the Caribbean as well as the first integrated
mobile communications solution covering cards, readers and service
administration platforms. The Xpert Connect* web-based automated help desk for
high-volume user access was introduced during the quarter.
E-Transactions Solutions second quarter revenue declined 17% from the same
period last year, which included exceptional revenue for the RATP (the Paris
Regional Transportation Administration). Orders increased by 33% year-over-year.
The order improvement spanned all activities and geographic markets. Two
integrated railway ticketing solutions tenders were won in France during the
quarter. New introductions in the MagIC* e-payment and Flexio* off-street
parking product lines also contributed to the order growth.
-13-
Semiconductor Solutions second quarter revenue increased 36% over last year, and
orders increased 39%. However, in the memory chip market, manufacturers are
delaying their buildup of RDRAM** production, affecting orders for the RDX2400*
test system. Strong demand in both the Asian and European markets for SOC
(System On a Chip) semiconductor test equipment, combined with continued demand
for Probe and Verification Systems, led the growth in revenue and orders,
assisted by the introduction of the EXA3000* SOC tester due to its early
acceptance in the critical Asian marketplace. The growth of the SABER*
semiconductor consulting and solutions integration business and customer service
business reflects the continued expansion of solutions activities within Test &
Transactions.
INCOME STATEMENT
Interest and other income includes Interest income of $74 million and Equity in
Net Earnings of Affiliated Companies of $10 million, of which $8 million is
related to the drilling fluids joint venture with Smith International. Compared
to last year, Interest income increased by $20 million mainly due to the higher
average returns on investments, from 4.7% to 6.1%, while Equity in Net Earnings
of Affiliated Companies increased by $10 million due primarily to the drilling
fluids joint venture income. Gross margin was 23% compared to 21% for the same
period last year. Research and engineering and marketing expenses increased by
3% and 4%, respectively. General expense as a percentage of operating revenue
increased from 4.7% to 4.9%. Interest expenses increased by $22 million as
average borrowing rates increased from 5.4% to 6.7% and average debt balances
increased slightly. The effective tax rate increased by 6 percentage points to
25% reflecting higher pretax income in the United States.
First Six Months 2000
---------------------
First half operating revenue of $4.48 billion was 8% higher than the same period
last year. Excluding the first quarter 1999 charge, income from continuing
operations of $292 million and diluted earnings per share from continuing
operations of $0.51 were both 34% above the same period last year.
OILFIELD SERVICES
Operating revenue increased by 10% with North and South America accounting for
most of this. Pretax operating income increased by 43%. The M-I rig count
increased by 30% over last year.
North America
- -------------
Revenue of $1.07 billion increased 44% compared with the first 6 months of 1999,
pretax operating income increased by 339%. The M-I rig count increased by 63%.
Revenue increased across all oilfield services. The increasing oilfield services
demand led to improvement in pricing levels, particularly for wireline, pressure
pumping, and logging-while-drilling (LWD) services.
Latin America
- -------------
Latin America revenue increased by $59 million, a 13% increase. The pretax
operating income increased by 61%, and the M-I rig count by 11%.
-14-
Revenue increased in all regions although some marine vessels were moved to
other markets.
Europe/CIS/West Africa
- ----------------------
Revenue of $723 million decreased by 11% compared to prior year. Pretax
operating income fell by 3% and the M-I rig count increased by 3%. CIS was the
only region to show an increase in revenue.
Other Eastern Hemisphere
- ------------------------
Revenue decreased 1% to $804 million. Compared to the same period last year
pretax operating income was down 3% and the M-I rig count decreased 2%. Middle
East revenue increased by 1% while Asia decreased by 5%.
RESOURCE MANAGEMENT SERVICES
Resources Management Services revenue was down 6%. Excluding the special
provision last year, pretax operating income increased by $3 million. This was
due mainly to the significant increases in UK & Southern Africa and South
American regions, partially offset by the loss at CellNet.
Revenue in North America was up 8% including CellNet; excluding CellNet revenue
grew by 5%. Orders grew by 32%, this large increase was led by higher demand for
CENTRON* static electricity meters and by new CellNet business.
In Europe revenue and orders were down by 16% and 20%, respectively. The
continued pressure on prices affected electricity revenue, while gas revenue has
increased significantly in the UK.
In South America revenue grew by 7% and orders grew by 11%. Brazil showed
improvement over last year mainly in electricity. In Asia revenue and orders
grew by 17% and 5%, respectively.
TEST & TRANSACTIONS
Revenue including Omnes was 25% higher than last year and pretax operating
income remained flat. Orders grew by 42% compared to last year.
Cards continue to grow with an increase in revenue of 25% and orders of 34%.
This is reflecting a strong Asian market for the product. Semiconductor revenue
and orders grew by 8% and 33%, respectively, over last year. The revenue for e-
Transactions fell by 17% while orders grew by 20%. The largest increase in
revenue was in Network Solutions, including Omnes which grew by 137% and orders
grew by 128%.
INCOME STATEMENT
Interest and other income includes Interest income of $146 million and Equity in
Net Earnings of Affiliated Companies of $14 million. Compared to last year,
Interest income increased by $33 million mainly due to the higher average
returns on investments, from 4.8% to 6.0%, while Equity in Net Earnings of
Affiliated Companies was $12 million higher reflecting the drilling fluids joint
venture income. The 1999 Interest and other income included a $103 million gain
on the sale of financial instruments relating to the sale of Retail Petroleum
Systems. Gross margin increased from 19% to 23% as 1999 included $147 million of
charges. Excluding these charges gross margin in 1999 was 22%. Research and
engineering and marketing expenses increased by 1% and 2%, respectively.
-15-
General expenses as a percentage of operating revenue increased from 4.7% to
4.9%. Interest expense increased $41 million as average borrowing rates
increased from 5.4% to 6.6%. The effective tax rate, excluding the 1999 charges
is 24% versus 23% for the same period last year due to higher pretax income in
the United States which was nearly offset by a favorable country profitability
mix in Other Eastern, RMS and Test & Transactions.
ACQUISITIONS
- ------------
In the second quarter 2000, Schlumberger acquired Operational Services, Inc. for
$13 million. OSI provides a systematic approach to production management through
efficient systems and processes. The acquisition was accounted for using the
purchase method of accounting, and cost in excess of net assets acquired is
being amortized on a straight-line basis over 15 years.
In the second quarter of 2000, Schlumberger completed the acquisition of
substantially all of the assets of CellNet Data Systems, Inc. at a cost of $209
million. CellNet is a provider of telemetry services for the development and
deployment of large-scale automatic meter reading systems. The acquisition was
handled through Chapter 11 procedure and was approved by the bankruptcy court.
NEW ACCOUNTING STANDARDS
- ------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
that Schlumberger recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The standard is effective in the year 2001 for Schlumberger.
Schlumberger uses derivative instruments such as interest rate swaps, currency
swaps, forward currency contracts and foreign currency options. Forward currency
contracts provide a hedge against currency fluctuations on assets/liabilities
denominated in other than a functional currency. Options are usually entered
into to hedge against currency variations on firm commitments generally
involving the construction of long-lived assets. Schlumberger does not
anticipate that the implementation of the new standard in 2001 will have a
material effect on the consolidated financial position and results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," which provides
guidance and interpretations of the application of generally accepted accounting
principles to revenue recognition. Adoption of this bulletin is not expected to
have a material effect on the Company's consolidated financial position or
results of operations.
FORWARD-LOOKING STATEMENTS
- --------------------------
Schlumberger cautions that, except for historical information, statements in
this Form 10-Q report and elsewhere may constitute forward-looking statements.
These include statements as to expectation, beliefs and future financial
performance, such as statements regarding growth opportunities for Schlumberger
in those industries. These statements involve a number of risks, uncertainties,
assumptions and other factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors include,
continuing customer commitment to certain key oilfield projects; changes in E&P
spending by major oil companies; the extent and timing of utilities' investment
in integrated solutions to utility management; growth in demand for smart cards
in e-commerce and Internet-enabled solutions and completion of the Western GECO
transactions as currently contemplated by the parties.
-16-
Item 3: Quantitative and Qualitative Disclosure about Market Risk.
- ------------------------------------------------------------------
Schlumberger does not believe it has a material exposure to financial market
risk. Schlumberger manages the exposure to interest rate changes by using a mix
of debt maturities and variable- and fixed-rate debt together with interest rate
swaps, where appropriate, to fix or lower borrowing costs. With regard to
foreign currency fluctuations, Schlumberger enters into various contracts, which
change in value as foreign exchange rates change, to protect the value of
external and intercompany transactions in foreign currencies. Schlumberger does
not enter into foreign currency or interest rate transactions for speculative
purposes.
* Mark of Schlumberger
** Rambus and RDRAM are registered trademarks of Rambus, Inc.
*** JAVA is a registered trademark of Sun Microsystems, Inc.
PART II. OTHER INFORMATION
-------- -----------------
Item 6: Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
Report on Form 8-K filed with the Commission on May 31, 2000 to report the
signing of a memorandum of understanding with Baker Hughes Inc. under which the
Schlumberger surface seismic business, Geco Prakla, would join with the Baker
Hughes surface seismic business, Western Geophysical, to form a new venture to
be called Western GECO.
-17-
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 8, 2000 /s/Jack Liu
-------------- --------------
Jack Liu
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
-18-
5
1,000
6-MOS
DEC-31-2000
JAN-01-2000
JUN-30-2000
3,695,676
0
2,394,539
(79,018)
1,018,757
7,861,583
10,051,836
(6,298,394)
15,622,814
3,440,648
0
0
0
1,859,961
6,039,997
15,622,814
2,025,840
4,475,708
1,249,450
3,427,759
821,905
15,316
128,437
385,695
93,614
292,081
0
0
0
292,081
0.51
0.51
