<PAGE>
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.:
SEPTEMBER 30, 1997 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
- ---------------------------------- -------------
(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 October 31, 1997
----------------- -------------------------------
COMMON STOCK, $0.01 PAR VALUE 497,727,589
<PAGE>
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)
<TABLE>
<CAPTION>
(Stated in thousands except per share amounts)
Periods Ended September 30,
----------------------------------------------------------------------------
Third Quarter Nine Months
---------------------------------- ------------------------------------
1997 1996 1997 1996
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
REVENUE:
Operating $2,736,150 $2,261,839 $7,739,889 $6,440,457
Interest and other income 33,906 18,106 72,749 51,543
---------- ---------- ---------- ----------
2,770,056 2,279,945 7,812,638 6,492,000
---------- ---------- ---------- ----------
EXPENSES:
Cost of goods sold and services 2,000,986 1,751,739 5,713,098 4,933,339
Research & engineering 120,130 111,218 356,980 336,757
Marketing 72,523 70,791 223,901 219,315
General 90,010 88,776 271,359 262,718
Interest 22,938 18,542 60,074 54,005
Unusual items - 333,091 - 333,091
Taxes on income 106,900 (323,047) 264,208 (243,645)
---------- ---------- ---------- ----------
2,413,487 2,051,110 6,889,620 5,895,580
---------- ---------- ---------- ----------
Net Income $ 356,569 $ 228,835 $ 923,018 $ 596,420
========== ========== ========== ==========
Net Income Per Share (1) $ 0.72 $ 0.47 $ 1.87 $ 1.22
========== ========== ========== ==========
Average shares outstanding (1) 495,839 491,461 494,376 489,172
========== ========== ========== ==========
Dividends declared per share (1) $ 0.1875 $ 0.1875 $ 0.5625 $ 0.5625
========== ========== ========== ==========
</TABLE>
(1) Adjusted for two-for-one stock split on June 2, 1997.
Note: In September 1996, the Company recorded three unusual items which
largely offset one another:
. With increasing profitability and strong outlook in the US, the Company
recognized a portion of the US income tax benefit related to its US
subsidiary's tax loss carryforwards and all temporary differences. This
resulted in a credit of $360 million.
. A charge of $300 million after tax related primarily to the Electricity and
Gas Management and Geco-Prakla Land and Transition Zone businesses.
. A charge of $58 million after tax, including a loss on the divestiture of the
remaining defense-related activity, certain asset impairments and other
charges.
See notes to consolidated financial statements
-2-
<PAGE>
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
----------- -----------
ASSETS (Dollars in thousands)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 1,506,751 $ 1,358,948
Receivables less allowance for doubtful accounts
(1997 - $57,512; 1996 - $58,981) 2,680,662 2,260,091
Inventories 1,101,414 938,974
Deferred taxes on income 175,344 222,456
Other current assets 201,081 262,148
----------- -----------
5,665,252 5,042,617
LONG-TERM INVESTMENTS, HELD TO MATURITY 774,499 323,717
FIXED ASSETS:
Property, plant and equipment 9,944,461 9,577,749
Less accumulated depreciation (6,395,959) (6,219,168)
----------- -----------
3,548,502 3,358,581
EXCESS OF INVESTMENT OVER NET ASSETS OF
COMPANIES PURCHASED less amortization 1,147,947 1,225,335
DEFERRED TAXES ON INCOME 200,296 203,983
OTHER ASSETS 166,951 170,818
----------- -----------
$11,503,447 $10,325,051
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,160,435 $ 2,200,161
Estimated liability for taxes on income 421,240 367,562
Bank loans 797,344 743,018
Dividend payable 93,620 92,842
Long-term debt due within one year 81,898 70,827
----------- -----------
3,554,537 3,474,410
LONG-TERM DEBT 856,627 637,203
POSTRETIREMENT BENEFITS 399,191 383,129
OTHER LIABILITIES 326,241 203,929
----------- -----------
5,136,596 4,698,671
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 892,162 818,803
Income retained for use in the business 7,782,432 7,137,744
Treasury stock at cost (2,265,514) (2,315,946)
Translation adjustment (42,229) (14,221)
----------- -----------
6,366,851 5,626,380
----------- -----------
$11,503,447 $10,325,051
=========== ===========
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
SCHLUMBERGER LIMITED.
---------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended
September 30,
1997 1996
------------ ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 923,018 $ 596,420
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 715,014 660,701
Earnings of companies carried at equity,
less dividends received (Dividends:
1997 - $189; 1996 - $304 ) (2,074) 2,847
Provision for losses on accounts receivable 12,597 16,460
Other adjustments (2,033) (3,664)
Change in operating assets and liabilities:
Increase in receivables (485,490) (268,831)
Increase in inventories (193,174) (160,523)
Decrease in deferred taxes on income 47,112 -
Increase in accounts payable and accrued
liabilities 619 38,898
Increase in estimated liability for
taxes on income 57,089 8,827
Other - net 79,761 (59,170)
--------- ---------
Net cash provided by operating activities 1,152,439 831,965
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets (1,000,668) (768,236)
Sales/retirements of fixed assets 67,870 65,744
Increase in investments (630,660) (42,174)
Net proceeds on sale of drilling rigs 174,000 -
Payment for purchase of businesses - (34,263)
Decrease (increase) in other assets 6,621 (3,266)
--------- ---------
Net cash used in investing activities (1,382,837) (782,195)
--------- ---------
Cash flows from financing activities:
Dividends paid (277,589) (274,346)
Proceeds from exercise of stock options 73,736 102,833
Proceeds from employee stock purchase plan 50,055 38,949
Proceeds from issuance of long-term debt 311,797 129,472
Payments of principal on long-term debt (50,207) (99,855)
Net increase in short-term debt 94,572 76,794
--------- ---------
Net cash provided by (used in) financing
activities 202,364 (26,153)
--------- ---------
Net (decrease) increase in cash (28,034) 23,617
Cash, beginning of period 137,259 72,515
--------- ---------
Cash, end of period $ 109,225 $ 96,132
--------- ---------
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
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 1996 Annual Report. These policies have been
consistently applied during the interim period presented in this report. The
results of operations for the three and nine month periods ended September 30,
1997 are not necessarily indicative of the results of operations that may be
expected for the entire year.
EARNINGS PER SHARE
- ------------------
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share". The new standard is
effective for all fiscal periods ending after December 15, 1997. At that time,
the company will report in accordance with the full requirements of the new
standard.
For information purposes, the following table illustrates the effect of the new
standard on earnings per share:
Three months Nine months
ended Sept. 30 ended Sept. 30
-------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Earnings per share as
currently reported $0.72 $0.47 $1.87 $1.22
Earnings per share -
assuming dilution (*) $0.69 $0.46 $1.80 $1.20
(*) Stock option and warrant effect.
INCOME TAX EXPENSE
- ------------------
The Company and its subsidiaries operate in over 100 taxing jurisdictions.
In the third quarter of 1996, the Company recognized 50% of the US income tax
benefit related to its US subsidiary's tax loss carryforward and all temporary
differences. In the second quarter of 1997, the remaining valuation allowance
was released as it was more likely than not that the tax loss carryforward will
be realized on a tax return basis. The resulting reduction in income tax expense
in the second quarter was not significant.
-5-
<PAGE>
SALE OF DRILLING RIGS
- ---------------------
In September 1997, the Sedco Forex semisubmersibles Drillstar and Sedco Explorer
were sold to a newly formed venture in which the Company has a 25% interest. The
rigs will be operated by Sedco Forex under bareboat charters. The gain on sale
has been deferred and will be amortized over a six year period. This transaction
has no effect on the third quarter's results and will have no significant impact
on future results of operations. The net proceeds resulting from this
transaction were $174 million.
CONTINGENCIES
- -------------
The Company and its subsidiaries comply with government laws and regulations and
responsible management practices for the protection of the environment. The
Consolidated Balance Sheet includes accruals for the estimated future costs
associated with certain environmental remediation activities related to the past
use or disposal of hazardous materials. Substantially all such costs relate to
divested operations and to facilities or locations that are no longer in
operation. Due to a number of uncertainties, including uncertainty of timing,
the scope of remediation, future technology, regulatory changes and other
factors, it is possible that the ultimate remediation costs may exceed the
amounts accrued. 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 a case in Texas involving the validity of a 1988 settlement and release in
connection with an incidental business venture, the trial court, in 1993,
rendered a judgment notwithstanding the verdict of the jury, exonerating
Schlumberger from any liability. In late 1994, a Texas Court of Appeals reversed
the trial court judgment and reinstated the jury award of about $75 million
against Schlumberger. The Texas Supreme Court granted the Schlumberger motion
to hear the case. Oral argument was held before the Texas Supreme Court in
October, 1995. Schlumberger and outside counsel believe the decision of the
trial court was correct. Consequently, no provision has been made in the
Consolidated Financial Statements for this matter.
In May 1996, in a case involving a $3 million contract dispute, the trial court
in Johnson County, Texas, entered judgment on jury findings adverse to
Schlumberger for $23 million in damages, which has been doubled, plus attorneys'
fees and interest. The Company and its outside counsel believe the findings and
the judgment are not supported by the evidence and law, and have filed an
appeal. Accordingly, no provision has been made in the accompanying financial
statements for this matter.
In addition, the Company and its subsidiaries are party to various other legal
proceedings. Although the ultimate disposition of these proceedings is not
presently determinable, in the opinion of the Company any liability that might
ensue would not be material in relation to the Consolidated Financial
Statements.
-6-
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Third Quarter 1997 Compared to Third Quarter 1996
-------------------------------------------------
Third quarter operating revenue was $2.74 billion, 21% higher than the same
period last year.
Net income of $357 million and earnings per share of $0.72 were 56% and 53%,
respectively, above third quarter 1996.
Oilfield Services revenue grew 25%, while rig count worldwide grew 17%. All
businesses contributed significantly to the 49% increase in operating income.
Measurement & Systems revenue increased 11%, while operating income grew 53%
compared to the same period last year. Revenue growth at Automatic Test
Equipment and Electronic Transactions more than compensated for unfavorable
exchange rate variations.
BUSINESS REVIEW
(Stated in millions)
Oilfield Services Measurement & Systems
---------------------- ---------------------
Third Quarter 1997 1996 % change 1997 1996 % change
- ------------- ---- ---- -------- ---- ---- --------
Operating Revenue $ 2,008 $ 1,606 25% $ 726 $ 657 11%
Operating Income(1) $ 431 $ 289 49% $ 29 $ 19 53%
(1) operating income represents income before income taxes, excluding
interest expense, interest and other income, and the 1996 unusual items.
OILFIELD SERVICES
Led by North America, Oilfield Services operating revenue rose $402
million, 25% over third quarter 1996. All business units contributed
significantly to the results. Operating income rose 49%.
North America
High levels of activity led to robust growth in North America across all
businesses. The rig count rose 29%. Revenue increased 40%, representing 22% of
consolidated revenue. This surge was driven by strong seismic survey activity
and by heightened demand for pumping services, particularly fracturing and
cementing services, coupled with significant price increases in those
businesses. Demand for new wireline logging technology was high, and two major
Wireline & Testing contracts were started in Canada and Alaska. Three seismic
acquisition surveys were completed and data from two surveys were delivered to
clients as part of our four-year Transition 2000 program in Louisiana. In July,
after extensive upgrading, the Bill Shoemaker, a semisubmersible operated by
Sedco Forex, mobilized for a six-month drilling contract in Canada for the
Hibernia project. In August, GeoQuest opened a state-of-the-art Data Management
Center in Houston, Texas, to provide clients with a single site offering a full
range of confidential and secure data services, to consolidate their exploration
and production data archival, retrieval processing and analysis needs.
-7-
<PAGE>
Outside North America
Revenue grew 20% and represented 52% of consolidated revenue. The rig count grew
1%. Business was strong in the North Sea and Middle East regions and across all
activities. Higher activity in the Middle East led to increased demand for high-
technology wireline answers as provided by the MDT* Modular Formation Dynamics
Tester, PLATFORM EXPRESS* and CMR* Combinable Magnetic Resonance systems. In the
North Sea, firmer pricing drove strong growth, especially in Fracturing and Sand
Control services. Marine seismic revenue was lifted primarily by improved
utilization rates and firmer proprietary survey pricing. Major land seismic
acquisition projects were begun in Kazakstan, Egypt and Oman. High survey and
geologic activity in Mexico, as well as petrophysical and geophysical studies in
Venezuela, led to higher demand for data services and software sales.
In July, Schlumberger IPM (Integrated Project Management) began work on the
Burgos project in northern Mexico. The expected revenue for this 18-month
project is $110 million. In addition to the overall project management,
Schlumberger will perform a complete suite of services, starting with 3D land
seismic acquisition campaigns, full wireline logging and reservoir technologies
consulting services, in order to better understand the reservoir formations and
production enhancement possibilities. The scope of work also includes rig
management for the drilling of multiple wells and specialized pumping,
stimulation and completion services. Work has already started, with Sedco Forex
operating two newly acquired land rigs and Geco-Prakla acquiring 3D land seismic
data. The integration of various Schlumberger services and technologies has
already led to efficiencies and has increased productivity. Schlumberger has no
equity interest in the project.
Throughout the quarter, technological innovation was implemented
effectively in applications that span the entire life of a reservoir and
thus improve the recoverability of hydrocarbons. For example, in marine
seismic services, the new NESSIE* 4C multiwave array data acquisition
system, which significantly improves data quality and the ability to
characterize reservoirs, completed sizable 2D projects and was mobilized
for a first 3D project. Also, the recently upgraded seismic vessel Geco
Orion added to efficiency and set a new world record with the deployment of 40
km [25 miles] of streamers, using five 8-km [5-mile] streamers with an 800-meter
[0.5 mile] separation between outer streamers. Geosteering is now possible in
slimmer holes, due to the unique and innovative Anadrill Vision475* slimhole,
full-logging-suite MWD/LWD technology. Its successful introduction in the Gulf
of Mexico and the North Sea was quickly followed by its worldwide
commercialization. Directional drilling services continued to grow in every
region, with increasing demand for reentry drilling services in older wells.
These reentry wells are being drilled with increasingly tighter curves to enter
thin pay zones. Wells with only a 45-foot radius have been drilled using the
PowerPak* short-radius motor from Anadrill. Based on its exceptional diagnostic
capabilities for analyzing production in high-angle and horizontal wells, demand
for PL Flagship* production logging services continued in the Middle East.
Dowell ClearFRAC* technology also contributed to enhance hydrocarbon production.
This revolutionary solids-free fracturing system was commercialized in North
America, answering strong client demand for a system which enhances well
productivity without residue.
-8-
<PAGE>
Drilling revenue rose 40%, resulting from higher dayrates worldwide,improved
utilization rates and a larger fleet. At quarter end, there were 53 offshore
rigs and 32 land rigs in operation. The fleet includes 12 offshore units
operated by Sedco Forex (under bareboat charters or management contracts). The
total offshore rig utilization was 94%, compared to 96% in the same quarter last
year. Jackup utilization remained at 100%, while the semisubmersible utilization
rate was lower due to the upgrade of the Sedco 707, now in Brazil, to add
dynamic positioning and deep-water capabilities. The industry-wide average
offshore rig utilization was 95%. Sedco Forex land rig utilization increased
from 56% to 93%. Sedco Forex also purchased the Victory, a 300-foot jackup in
August. The rig is presently in Australia under bareboat charter to its original
owner until January 1998, when the rig will be renamed Trident 19. In September,
the Sedco Forex semisubmersibles Drillstar and Sedco Explorer were sold to a
newly formed venture in which Schlumberger has a 25% interest. The rigs will be
operated by Sedco Forex under bareboat charters. The gain on sale has been
deferred and will be amortized over a six-year period. This transaction had no
effect on the quarter's results and will have no significant impact on future
results of operations.
MEASUREMENT & SYSTEMS
Revenue rose 11% compared with one year ago, despite the dramatic effect of
unfavorable exchange rates. The increase was fueled by continued strong demand
for the ITS9000* family of semiconductor test products, in addition to strong
card growth and recovery at Retail Petroleum Systems in the Electronic
Transactions division and previously announced acquisitions. Operating income
rose 53% compared to the prior year.
During the quarter, revenue for Automatic Test Equipment increased 65% from the
same period last year, and reflected continued significant growth in the
ITS9000* family of products, significant shipments of 400-megahertz testers at
Test Systems and higher deliveries of burn-in loaders and unloaders at Automated
Systems. These increases were driven by clients' planned production ramp-ups at
high-volume facilities in the Far East and in North America. Orders improved by
140%. Electronic Transactions revenue was up 37%, or 57% when restated in
national currencies, from the same period last year. Cards growth followed
strong demand for subscriber identity module (SIM) cards in China, the
Netherlands, Italy and the US, and increased shipments of token cards for
payphone applications to China, Mexico and Greece. Revenue at Retail Petroleum
Systems grew due to higher deliveries of systems in addition to the effect of
acquisitions in 1996. Including previously announced acquisitions, orders
increased 19% in US dollars.
Metering revenue was slightly down by 3% when restated in local currencies, and
by 12% in US dollars. In North America, there was stronger demand for
residential and large industrial water meters, partially offset by some softness
in the electricity metering market resulting from the uncertainty surrounding
electricity market deregulation. Orders grew 6% from the same period last year
mainly due to sustained demand for both products and services in the water
metering segment. In Europe, revenue was down both in Gas and Electricity due to
the unfavorable exchange rate impact, to lower deliveries to British Gas in the
UK and to a significant drop in demand for electricity meters in Italy.
Substitution of electromechanical products with solid-state technology had a
negative impact on both revenue and margins as a consequence of its lower
selling price. Revenue at Systems & Services declined by 3% in local currencies
and by 11% in US dollars. Service activities in Europe were mixed as real
-9-
<PAGE>
growth in contractual work in France and Italy were offset by the decline in
service activity in the UK. Orders declined 10% in US dollars, but increased 1%
when restated in national currencies.
Interest and other income increased $16 million from the third quarter of 1996
due primarily to a $7 million increase in interest income (higher average
investment balances) and the gain on the sale of real estate. Gross margin,
excluding the 1996 unusual items, increased from 25% to 27%. Research and
engineering expense increased 8% from last year but decreased to 4.4% of
operating revenue from 4.9% in 1996. Marketing expense was up 2%. General
expense, expressed as a percentage of operating revenue, decreased from 3.9% to
3.3%. Interest expense increased $4 million from the third quarter last year
mainly due to higher average debt. The effective tax rate increased 2
percentage points, to 23%, which reflects the higher US income tax expense
following the utilization of the tax loss carryforward.
-10-
<PAGE>
First Nine Months 1997 Compared to First Nine Months 1996
---------------------------------------------------------
Net income for the first nine months of $923 million and earnings per share of
$1.87, were 55% and 53% higher, respectively, than the same period last year.
Operating revenue for the first nine months was $7.7 billion, up 20% from 1996.
Oilfield Services revenue grew 27%, while rig count worldwide grew 16%. All
businesses contributed significantly to the 64% increase in operating income.
Measurement & Systems revenue increased 5%, while operating income grew 14%
compared to the same period last year. The increase in operating results was due
to Automatic Test Equipment.
Business Review
(Stated in millions)
Oilfield Services Measurement & Systems
---------------------- ---------------------
Nine Months 1997 1996 % change 1997 1996 % change
- ----------- ---- ---- -------- ---- ---- --------
Operating Revenue $ 5,603 $ 4,403 27% $ 2,137 $ 2,041 5%
Operating Income(1) $ 1,120 $ 681 64% $ 95 $ 83 14%
(1) Operating income represents income before income taxes, excluding
interest expense, interest and other income, and the 1996 unusual items.
OILFIELD SERVICES
Operating revenue for Oilfield Services was $1.2 billion (27%) above last year.
All regions and businesses posted substantial increases led by Dowell, Wireline
& Testing and Sedco Forex.
Oilfield Services operating income increased overall by 64%.
North America
Revenue increased 36%, representing 21% of consolidated revenue. Rig count
increased 26%. All businesses were ahead of last year, fueled by high activity
in the Gulf of Mexico, favorable weather in Canada during the spring breakup,
strong seismic survey activity, and heightened demand for pumping services.
The Gulf of Mexico benefited from the use of DeepSEA EXPRESS* service, foam
cementing systems and strong vessel performance.
Logging-while-drilling (LWD) and directional drilling activity grew, due to an
expanded client base and strong drilling activity during the traditional spring
slowdown in Canada.
Demand for new wireline logging technology was high, and two major Wireline &
Testing contracts were started in Canada and Alaska. Three seismic acquisition
surveys were completed and data from two surveys were delivered to clients as
part of our four-year Transition 2000 program in Louisiana.
-11-
<PAGE>
Outside North America
The rig count increased by 2% outside North America with revenue up 24%,
representing 52% of consolidated revenue. Oilfield Services businesses, across
all geographic regions, benefited from the strong upswings in activity and
improved technology.
Integrated Project Management (IPM) activity increased considerably
compared with the same period in 1996, with overall revenue rising over 150%. In
July, IPM began work on the Burgos project in northern Mexico. The expected
revenue for this 18-month project is $110 million. In addition to the overall
project management, Schlumberger will perform a complete suite of services,
starting with 3D land seismic acquisition campaigns, full wireline logging and
reservoir technologies consulting services, in order to better understand the
reservoir formations and production enhancement possibilities. Schlumberger has
no equity interest in the project.
The new Wireline & Testing PL Flagship* production logging technology continued
to gain acceptance in the Middle East and the North Sea owing to its unique
capacity to diagnose production problems in high-angle and horizontal wells.
Logging-while-drilling and measurements-while-drilling have had continued
success in the smaller hole market with the introduction of SHARP* second-
generation slim MWD technology, which extends the capability of our current
technology to ultra-short-radius drilling.
The VIPER* system, a coiled tubing measurements-while-drilling (MWD) and motor
system for slim holes, demonstrates the integration value of our oilfield
services.
Geosteering is now possible in slimmer holes, due to the unique and innovative
Anadrill Vision475* slimhole, full-logging-suite MWD/LWD technology. Its
successful introduction in the Gulf of Mexico and the North Sea was quickly
followed by its worldwide commercialization. In marine seismic services, the new
NESSIE* 4C multiwave array data acquisition system, which significantly improves
data quality and the ability to characterize reservoirs, completed sizable 2D
projects and was mobilized for a first 3D project. Also, the recently upgraded
seismic vessel Geco Orion added to efficiency and set a new world record with
the deployment of 40 km [25 miles] of streamers, using five 8-km [5-mile]
streamers with an 800-meter [0.5 mile] separation between outer streamers.
Sedco Forex purchased the Victory, a 300-foot jackup in August. The rig is
presently in Australia under bareboat charter to its original owner until
January 1998, when the rig will be renamed Trident 19. In September, the Sedco
Forex semisubmersibles Drillstar and Sedco Explorer were sold to a newly formed
venture in which Schlumberger has a 25% interest. The rigs will be operated by
Sedco Forex under bareboat charters. The gain on sale has been deferred and will
be amortized over a six-year period. This transaction had no effect on the year-
to-date results and will have no significant impact on future results of
operations.
-12-
<PAGE>
Information Technology and Data Management Services grew significantly. Software
Products sales increased significantly over last year on continued sharp growth
in North America and in South America, Europe and the CIS. Also during the
period, GeoQuest signed an agreement with a major European oil company to
jointly develop data management software applications.
MEASUREMENT & SYSTEMS
Revenue grew 5% from last year, despite the impact of unfavorable exchange rate
effects. Increased card demand, recovery at Retail Petroleum Systems coupled
with 1996 acquisitions at Electronic Transactions, and strong growth at ATE
contributed to this increase. Orders increased 13%.
Measurement & Systems operating income rose 14% compared to the prior year, due
to ATE. Improvements in the US metering market were more than offset by
shortfalls in Europe.
During the nine months, ATE revenue rose 27% while orders increased by 67%.
Electronic Transactions revenue improved 31%. Cards growth was particularly
strong, with increased demand for subscriber identity module (SIM) cards.
Including the performance of previously acquired companies, orders grew 30%.
Metering revenue was down 11%, as conditions in Europe offset gains made by
North and South America. Metering orders were down 8% versus last year. Systems
& Services revenue was in line with last year as growth of contractual work in
France and Italy was offset by a decline in service activity in the UK. Compared
with the prior year, orders increased by 1%.
Interest and other income increased $21 million from the same period last year
primarily due to a $13 million increase in interest income (higher average
investment balances) and the gain on the sale of real estate. Gross margin,
excluding the 1996 unusual items, increased from 24% to 26%. Research and
engineering expense increased 6% from last year but decreased to 4.6% of
operating revenue from 5.2% in 1996. Marketing expense was up 2%. General
expense, expressed as a percentage of operating revenue, decreased from 4.1% to
3.5%. Interest expense increased $6 million from the same period last year
mainly due to higher average debt. The effective tax rate increased 3
percentage points, to 22%, which reflects the higher US income tax expense
following the utilization of the tax loss carryforward.
*Mark of Schlumberger
-13-
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6: Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits : None
(b) Reports on Form 8-K: None
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: November 14, 1997 /s/ Arthur Lindenauer
----------------- ---------------------
Arthur Lindenauer
Executive Vice President - Finance
and Chief Financial Officer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,506,751
<SECURITIES> 0
<RECEIVABLES> 2,738,174
<ALLOWANCES> (57,512)
<INVENTORY> 1,101,414
<CURRENT-ASSETS> 5,665,252
<PP&E> 9,944,461
<DEPRECIATION> (6,395,959)
<TOTAL-ASSETS> 11,503,447
<CURRENT-LIABILITIES> 3,554,537
<BONDS> 0
0
0
<COMMON> 892,162
<OTHER-SE> 5,474,689
<TOTAL-LIABILITY-AND-EQUITY> 11,503,447
<SALES> 1,921,435
<TOTAL-REVENUES> 7,812,638
<CGS> 1,356,508
<TOTAL-COSTS> 5,713,098
<OTHER-EXPENSES> 852,240
<LOSS-PROVISION> 12,597
<INTEREST-EXPENSE> 60,074
<INCOME-PRETAX> 1,187,226
<INCOME-TAX> 264,208
<INCOME-CONTINUING> 923,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923,018
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.80
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