<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, 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
------------------------------------- ---------------
(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, 2000
----------------------------- -------------------------------
COMMON STOCK, $0.01 PAR VALUE 572,551,868
<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)
(Stated in thousands except per share amounts)
<TABLE>
<CAPTION>
Periods Ended September 30,
--------------------------------------------------
Third Quarter Nine Months
----------------------- -----------------------
2000 1999 (1) 2000 1999 (1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Operating $2,447,272 $2,086,512 $6,922,980 $6,215,647
Interest & other income 89,683 59,852 249,334 277,716
---------- ---------- ---------- ----------
2,536,955 2,146,364 7,172,314 6,493,363
---------- ---------- ---------- ----------
EXPENSES:
Cost of goods sold & services 1,854,181 1,617,212 5,281,940 4,975,645
Research & engineering 134,278 131,342 396,060 389,539
Marketing 106,302 113,032 320,299 323,196
General 113,127 95,127 330,816 289,221
Interest 72,495 45,080 200,932 132,908
---------- ---------- ---------- ----------
2,280,383 2,001,793 6,530,047 6,110,509
---------- ---------- ---------- ----------
Income from continuing operations
before taxes 256,572 144,571 642,267 382,854
Taxes on income 51,974 33,892 145,588 111,991
---------- ---------- ---------- ----------
Income from continuing operations 204,598 110,679 496,679 270,863
Income from discontinued operations,
net of tax - 28,302 - 84,572
---------- ---------- ---------- ----------
Net Income $ 204,598 $ 138,981 $ 496,679 $ 355,435
========== ========== ========== ==========
Basic Earnings Per Share
Continuing Operations $ 0.36 $ 0.20 $ 0.87 $ 0.48
Discontinued Operations - 0.05 - 0.16
---------- ---------- ---------- ----------
Net Income $ 0.36 $ 0.25 $ 0.87 $ 0.64
========== ========== ========== ==========
Diluted Earnings Per Share
Continuing Operations $ 0.35 $ 0.20 $ 0.86 $ 0.48
Discontinued Operations - 0.05 - 0.16
---------- ---------- ---------- ----------
Net Income $ 0.35 $ 0.25 $ 0.86 $ 0.64
========== ========== ========== ==========
Average shares outstanding 571,351 548,671 569,177 547,386
========== ========== ========== ==========
Average shares outstanding
assuming dilution 581,737 565,551 579,328 562,998
========== ========== ========== ==========
Depreciation and amortization
included in expenses (2) $ 295,260 $ 280,403 $ 919,153 $ 832,973
========== ========== ========== ==========
Dividends declared per share $ 0.1875 $ 0.1875 $ 0.5625 $ 0.5625
========== ========== ========== ==========
</TABLE>
1) Restated for comparative purposes.
2) Including multiclient seismic data costs.
See Notes to Consolidated Financial Statements
<PAGE>
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Sep. 30, Dec. 31,
ASSETS 2000 1999
------ ----------------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 3,750,870 $ 4,389,837
Receivables less allowance for doubtful accounts
(2000 - $79,676; 1999 - $89,030) 2,530,680 2,429,842
Inventories 1,056,769 956,980
Deferred taxes on income 246,635 226,238
Other current assets 290,297 258,532
----------- -----------
7,875,251 8,261,429
----------- -----------
LONG-TERM INVESTMENTS, HELD TO MATURITY 1,296,702 726,496
INVESTMENTS IN AFFILIATED COMPANIES 649,823 535,434
FIXED ASSETS:
Property, plant and equipment 10,169,851 9,639,274
Less accumulated depreciation (6,356,100) (6,078,534)
----------- -----------
3,813,751 3,560,740
----------- -----------
MULTICLIENT SEISMIC DATA 327,022 311,520
EXCESS OF INVESTMENT OVER NET ASSETS OF
COMPANIES PURCHASED less amortization 1,332,483 1,333,681
DEFERRED TAXES ON INCOME 260,783 242,616
OTHER ASSETS 166,194 109,276
----------- -----------
$15,722,009 $15,081,192
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,377,627 $ 2,282,884
Estimated liability for taxes on income 338,011 383,159
Bank loans 598,902 444,221
Dividend payable 107,972 106,653
Long-term debt due within one year 38,446 257,571
----------- -----------
3,460,958 3,474,488
LONG-TERM DEBT 3,416,789 3,183,174
POSTRETIREMENT BENEFITS 467,247 451,466
OTHER LIABILITIES 244,455 251,036
----------- -----------
7,589,449 7,360,164
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 1,959,918 1,820,186
Income retained for use in the business 8,092,938 7,916,612
Treasury stock at cost (1,758,746) (1,878,612)
Translation adjustment (161,550) (137,158)
----------- -----------
8,132,560 7,721,028
----------- -----------
$15,722,009 $15,081,192
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<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,
Cash flows from operating activities: 2000 1999 (1)
------------ -----------
<S> <C> <C>
Net income from continuing operations $ 496,679 $ 270,863
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (2) 919,153 832,973
Earnings of companies carried at equity, less dividends received (2000 - $0; 1999 - $616) (24,325) (6,843)
Provision for losses on accounts receivable 16,369 37,709
Change in operating assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables (159,882) 152,068
(Increase) decrease in inventories (108,550) 21,940
(Increase) in deferred taxes on income (12,662) (13,828)
(Increase) in other current assets (35,999) (4,337)
Increase (decrease) in accounts payable and accrued liabilities 102,101 (273,137)
(Decrease) in estimated liability for taxes on income (41,196) (61,549)
Charge - 57,568
Other - net (70,583) (27,364)
----------- ----------
Net cash provided by operating activities 1,081,105 986,063
----------- ----------
Cash flows from investing activities:
Purchase of fixed assets (880,001) (563,863)
Multiclient seismic data capitalized (162,280) (175,481)
Sales/retirements of fixed assets 90,804 3,450
Decrease in investments 76,720 192,035
Sale of financial instruments - 203,572
Businesses acquired (261,446) (419,338)
(Increase) in other assets (72,117) (6,735)
Discontinued operations - (246,861)
----------- ----------
Net cash used in investing activities (1,208,320) (1,013,221)
----------- ----------
Cash flows from financing activities:
Dividends paid (319,157) (307,444)
Proceeds from employee stock purchase plan 69,089 70,765
Proceeds from exercise of stock options 150,509 70,971
Proceeds from issuance of long-term debt 600,173 1,110,664
Payments of principal on long-term debt (520,998) (749,465)
Net increase (decrease) in short-term debt 160,376 (69,390)
----------- ----------
Net cash provided by financing activities 139,992 126,101
----------- ----------
Net increase in cash 12,777 98,943
Cash, beginning of period 132,589 105,321
----------- ----------
Cash, end of period $ 145,366 $ 204,264
=========== ==========
</TABLE>
(1) Restated for comparative purposes.
(2) Including multiclient seismic data costs.
See Notes to Consolidated Financial Statements
<PAGE>
SCHLUMBERGER LIMITED
--------------------
(Schlumberger N.V., Incorporated in the Netherlands Antilles)
and Subsidiary Companies
STOCKHOLDERS' EQUITY
--------------------
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Common Stock Retained Translation Comprehensive
------------------------------------
Issued In Treasury Income Adjustment Income
----------------- --------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $1,820,186 $(1,878,612) $7,916,612 $(137,158) $ -
Net Income 496,679 496,679
Translation adjustment (24,392) (24,392)
Dividends declared (320,353)
Tax benefit on stock options 40,000
Shares sold to optionees 57,237 93,272
Employee Stock Purchase Plan 42,495 26,594
---------- ----------- ---------- --------- --------
Balance, September 30, 2000 $1,959,918 $(1,758,746) $8,092,938 $(161,550) $472,287
========== =========== ========== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
<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. All such adjustments are of a normal
recurring nature. 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
nine month period ended September 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 third quarter and the first nine months of 2000:
(Stated in thousands except per share amounts)
<TABLE>
<CAPTION>
Average
Net Shares Earnings
Third Quarter Income Outstanding per Share
------------- ------------ --------------- -----------
<S> <C> <C> <C>
Basic $204,598 571,351 $ 0.36
Dilution effect of options 10,386 (0.01)
-------- -------- ------
$204,598 581,737 $ 0.35
======== ======== ======
Average
Net Shares Earnings
Nine Months Income Outstanding per Share
----------- ------------ --------------- ------------
Basic $496,679 569,177 $ 0.87
Dilution effect of options 10,151 (0.01)
-------- -------- ------
$496,679 579,328 $ 0.86
======== ======== ======
</TABLE>
1999 CHARGES-CONTINUING OPERATIONS
----------------------------------
In the first quarter of 1999, Schlumberger recorded 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 Resource
Management Systems (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.
In the fourth quarter of 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 September 30, 2000,
substantially all costs had been paid.
<PAGE>
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 nine
months ended September 30, 1999 is as follows:
Operating revenue $ 514 million
Income before taxes $ 85 million
Income after taxes $ 85 million
The nine months 1999 results include an after-tax charge of $33 million ($0.06
per share - diluted) for severance costs ($13 million) and legal claims.
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
$442 million in the MI Drilling Fluids joint venture.
<PAGE>
SEGMENT INFORMATION
-------------------
<TABLE>
<CAPTION>
North Latin Europe/CIS Other Elims/ Total Elims/
Nine Months 2000 America America /W. Afr. Eastern Other OFS RMS T&T Other Consolidated
---------------- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,691 $810 $1,145 $1,210 $165 $5,021 $ 951 $1,008 $(57) $6,923
==============================================================================================================
Segment Income $ 147 $ 41 $ 92 $ 203 $(16) $ 467 $ 11 $ 21 $(26) $ 473
Income Tax Expense 89 15 38 29 28 199 2 (10) (46) $ 145
--------------------------------------------------------------------------------------------------------------
Pretax Segment Income $ 236 $ 56 $ 130 $ 232 $ 12 $ 666 $ 13 $ 11 $(72) $ 618
--------------------------------------------------------------------------------------------------
Interest Income 223
Interest Expense $ (2) (199)
----------
Pretax Income $ 642
-----------------------------------------------------------------------------------------------------===========
</TABLE>
<TABLE>
<CAPTION>
North Latin Europe/CIS Other Elims/ Total Elims/
Nine Months 1999 America America /W. Afr. Eastern Other OFS RMS T&T Other Consolidated
---------------- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,162 $689 $1,184 $1,179 $141 $4,355 $1,018 $ 859 $(16) $6,216
=============================================================================================================
Segment Income $ 48 $ 8 $ 65 $ 171 $ (6) $ 286 $ (2) $ 21 $(18) $ 287
Income Tax Expense (1) 22 14 32 45 12 125 6 - (32) $ 99
-------------------------------------------------------------------------------------------------------------
Pretax Segment Income $ 70 $ 22 $ 97 $ 216 $ 6 $ 411 $ 4 $ 21 $(50) $ 386
----------------------------------------------------------------------------------------------
Interest Income 167
Interest Expense $ (6) $ (1) (126)
Sale of Financial Inst. 103
Charge (147)
----------
Pretax Income $ 383
---------------------------------------------------------------------------------------------------==========
</TABLE>
(1) Income tax expense excludes a net charge of $14 million related to the
Sale of Financial Instruments and the Charge.
Nonoperating expenses, such as certain intersegment charges and interest
expenses (except as shown above), are not included in segment operating income.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations.
--------------
<TABLE>
<CAPTION>
(Stated in millions)
Resource
Oilfield Management Test &
Services Services Transactions
------------------------------- ----------------------------- ---------------------------
Third Quarter 2000 1999 % chg 2000 1999 % chg 2000 1999 % chg
------------- ----- ----- ----- ---- ----- ----- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 1,808 $ 1,442 25% $ 306 $ 330 (7)% $ 351 $ 332 6 %
Pretax Operating
Income (1) $ 275 $ 138 100% $ (3) $ 6 - % $ 1 $ 11 (89)%
<CAPTION>
Resource
Oilfield Management Test &
Services Services Transactions (2)
------------------------------- ----------------------------- ---------------------------
Nine Months 2000 1999 % chg 2000 1999 % chg 2000 1999 % chg
----------- ----- ----- ----- ---- ----- ----- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 5,021 $ 4,355 15% $ 951 $1,018 (7)% $1,008 $ 859 17 %
Pretax Operating
Income (1) $ 666 $ 411 62% $ 13 $ 4 221 % $ 11 $ 21 (48)%
</TABLE>
(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.
Third Quarter 2000
------------------
Third quarter operating revenue of $2.45 billion was 17% higher than the same
period last year. Income from continuing operations increased 85% to $205
million compared with $111 million last year. Per share income from continuing
operations increased to $0.35 (diluted) versus $0.20 (diluted).
Income from continuing operations, excluding goodwill amortization, was $0.39
per share (diluted) compared with $0.23 per share (diluted) for the same period
last year.
Oilfield Services operating revenue increased 7% versus the second quarter while
the worldwide M-I rig count increased by 13%. Compared with the same period last
year, revenue increased 25% as the worldwide M-I rig count grew 34%.
Resource Management Services (RMS) operating revenue was 7% lower than in the
third quarter of 1999. Excluding the adverse effects of currency exchange rates,
revenue was flat. Test & Transactions operating revenue increased 6% compared
with the same quarter last year.
OILFIELD SERVICES
Oilfield Services operating revenue in the third quarter increased 25% compared
with the same quarter last year with North America recording the strongest
growth, and all four geographical Areas experiencing double-digit growth.
Revenue increased 7% versus the second quarter, as strong revenue growth in
North America, Latin America and Europe/CIS/West Africa Areas more than offset a
slight sequential decline in the Other Eastern Hemisphere Area. The worldwide
M-I rig count increased 34% year-over-year and 13% sequentially. Pretax
operating income in the third quarter grew 100% compared to the same period last
year and 26% sequentially. Increased demand for advanced oilfield services for
reservoir optimization, resulting from firm oil and gas prices and growth in oil
and gas company production targets, led to an overall improvement in pricing
levels, particularly in North America.
<PAGE>
North America
-------------
In North America, third quarter revenue of $625 million increased 49% compared
with the same quarter last year and 13% sequentially. The M-I rig count
increased 46% year-over-year and 17% sequentially. Pretax operating income of
$108 million was 165% higher than the third quarter last year and increased 61%
sequentially. Compared to last year, the Reservoir Development Product Group
showed the largest year-over-year increase. Sequentially, revenue increased in
all North American GeoMarkets, and Product Group revenue growth was led by
Reservoir Development and Reservoir Evaluation Wireline.
Latin America
-------------
In Latin America, third quarter revenue of $299 million increased 26% year-over-
year and 14% sequentially. The M-I rig count increased 40% year-over-year and
18% sequentially. Revenue growth year-over-year was less than the growth in M-I
rig count due to a lower revenue growth rate for Reservoir Evaluation Seismic.
Pretax operating income of $32 million was 397% higher than last year and
increased 111% sequentially. Revenue increased in all GeoMarkets, both year-
over-year and sequentially, with the Venezuela, Trinidad and Tobago GeoMarket
posting the largest increase. Compared to the same quarter last year and the
second quarter this year, all Product Groups recorded revenue gains with
Reservoir Management and Reservoir Development showing major increases.
Europe/CIS/West Africa
----------------------
Third quarter revenue of $422 million in the Europe/CIS/West Africa Area
increased 14% compared with the same quarter last year and 10% sequentially. The
M-I rig count, excluding the CIS, was up 15% over the same period last year and
7% sequentially. Pretax operating income of $64 million increased 114% year-
over-year and 56% sequentially. Except for the UK North Sea, which was
essentially flat, all GeoMarkets posted significant revenue growth year-over-
year. Compared to the same period last year, revenue grew in all product
groups. Revenue grew sequentially in all the GeoMarkets with the strongest
growth being recorded in Nigeria and in the CIS.
Third quarter revenue of $406 million in the Other Eastern Hemisphere Area
increased 11% compared with the same quarter last year, and decreased 4%
sequentially. The M-I rig count increased 13% year-over-year and 2%
sequentially. Pretax operating income of $79 million increased 34% compared with
last year and decreased 12% sequentially. Compared to the same period last
year, revenue growth was led by the Reservoir Evaluation Seismic and Reservoir
Development Product Groups, and by growth in activity in the Middle East. The
moderate revenue decline compared to the second quarter was mainly due to lower
Reservoir Development activity in Asia.
RESOURCE MANAGEMENT SERVICES
Resource Management Services (RMS) operating revenue decreased 7% compared with
the third quarter of 1999. When restated for the adverse effect of currency
exchange rate fluctuations in Europe, revenue in the third quarter was flat
compared with the same period last year. Orders decreased 16% (down 10% in
national currencies) versus the same period last year. Revenue growth in the
North American solutions market partially offset the continuing weakness in
orders from the European meter market. Excluding the impact of CellNet and
exchange rate fluctuations in Europe, third quarter pretax operating income
increased $8.7 million over the same period in 1999.
In North America, third quarter revenue increased by 24% versus the same period
last year, primarily due to the PECO Energy Company automated meter reading
project, sales of UtiliNet radios, and continued strong sales of the CENTRON*
static electricity meter. Revenue was also realized from meters in revenue
service, which increased 9% over the previous quarter.
In Europe, third quarter revenue declined 20% (down 10% in national currencies)
versus the third quarter of 1999 while orders decreased 19% (down 8% in national
currencies). However, gas revenue in the UK increased significantly due to
strong residential meter demand.
South America revenue declined 6% versus the third quarter of 1999 due primarily
to decreased orders in Colombia. Higher orders were received in Chile and
Brazil, both of which reported increased revenue over 1999.
In Asia, third quarter revenue increased 3% and orders were up 9% versus the
same period in 1999. A significant sale of electricity meters to China, and a
large order from the Republic of Kyrgyzstan for the recently launched Gallus*
<PAGE>
1000 gas meters contributed to the upturn. Significant deliveries of electricity
meters in India coupled with improved water meter activity in Australia also
bolstered the Asia region performance for the quarter.
TEST & TRANSACTIONS
Test & Transactions operating revenue in the third quarter increased 6% compared
with the same quarter last year and was flat sequentially. Orders were flat
compared with the same quarter last year and decreased 4% sequentially. In local
currency, operating revenue increased 13% and orders increased 9% compared to
the same quarter last year.
Despite increased growth and profitability in the Cards business, Test &
Transactions pretax operating income decreased 89% compared with last year and
decreased 88% versus the previous quarter due to lower revenue at Semiconductor
Solutions and investment in the Network Solutions technical and security
consulting business.
Cards revenue increased 26% year-over-year and increased 7% versus the previous
quarter due to increased shipments of SIM (Subscriber Identity Module) cards for
the GSM (Global Systems for Mobile Communications) market that more than doubled
in volume compared to the previous year. Orders increased 42% compared to the
same quarter last year and increased 19% sequentially.
Network Solutions revenue was flat sequentially and increased 14% compared to
the same quarter last year due to increased activity in managed network services
in Europe, South America and West Africa, and on increased demand for secure
wireless applications for mobile GSM operators. Orders decreased 34% compared to
the same quarter last year.
eTransactions Solutions revenue decreased 5% year-over-year and increased 8%
versus the previous quarter. Orders decreased 20% compared with the same quarter
last year, primarily due to delays in orders for pay and display terminals in
Europe.
Semiconductor Solutions revenue decreased 15% year-over-year and decreased 10%
versus the previous quarter primarily due to reduced activity for the memory,
probe and verification product offerings and an industry-wide components
shortage resulting in delays shipping products at the end of the quarter. Year-
over-year orders decreased 16% primarily due to a decline in demand for
RDRAM(TM) memory-test systems.
INCOME STATEMENT
Interest and other income includes Interest income of $79 million and Equity in
Net Earnings of Affiliated Companies of $11 million, $9 million of this is
related to the drilling fluids joint venture with Smith International. Interest
income increased by $20 million over last year due to higher returns on
investment from 5.2% to 6.6%. Gross margin was 24% compared to 22% over the same
period last year. Research and engineering expenses increased by 2%, and
marketing expense fell by 6%. General expense as a percentage of operating
revenue was 4.6% the same as last year. Interest expense increased by $27
million as borrowing rates increased from 5.2% to 7.1% and average debt balances
was down slightly. The effective tax rate decreased by 3 percentage points to
20% reflecting higher earnings in low tax rate jurisdictions.
First Nine Months 2000
----------------------
Operating revenue of $6.92 billion was 11% higher than the same period last
year. Income from continuing operations before 1999 first quarter charges, of
$497 million and diluted earnings per share of $0.86 were 83% and 79% higher,
respectively, than last year.
Income from continuing operations, excluding goodwill amortization, was $0.97
per share (diluted) compared with $0.65 per share (diluted) for the same period
last year excluding the 1999 first quarter charges.
OILFIELD SERVICES
Operating revenue increased by 15% with all areas showing increases except
Europe/CIS/W. Africa. Pretax operating income and the M-I rig count increased by
62% and 32% respectively over last year.
<PAGE>
North America
-------------
North America revenue increased by $529 million, a 46% increase compared with
the same period in 1999, pretax operating income increased by 238%. The M-I rig
count increased by 56%. Revenue increased in all regions with US Land recording
the largest increase of 82% over the same period last year. The increased demand
for advanced oilfield services for reservoir optimization, as a result of firm
oil and gas prices and growth in oil and gas company production targets, has led
to an overall improvement in pricing levels.
Latin America
-------------
Latin America revenue increased by $121 million, a 18% increase. The pretax
operating income increased by $35 million, a 166% compared with the same period
last year. The M-I rig count increased by 20%. Revenue increased in all regions
with Venezuela, Trinidad & Tobago having a 33% increase.
Europe/CIS/West Africa
----------------------
Revenue decreased by 3% compared to prior year. Pretax operating income
increased by 33% and the M-I rig count increased by 10%. Increases in CIS and
West Africa did not offset the losses in the other regions.
Other Eastern Hemisphere
------------------------
Revenue increased by 3% to $1.2 billion. Compared to the same period last year
pretax operating income was up 7% and the M-I rig count increased 3%. Middle
East revenue increased by 6% while Asia decreased by 2%.
RESOURCE MANAGEMENT SERVICES
Resources Management Services revenue was down 7%. Pretax operating income
increased by 221%. This was due mainly to the significant increases in UK &
Southern Africa, CIS and South American regions, partially offset by the loss at
CellNet.
Revenue in North America was up 13% including CellNet; excluding CellNet revenue
grew by 6%. Orders grew by 18%, this increase was led by higher demand for
CENTRON* static electricity meters and by new CellNet business.
In Europe revenue and orders were down by 17% and 20%, respectively. The
continued pressure on prices affected electricity revenue, while gas revenue has
increased significantly in the UK.
In South America revenue and orders grew by 2% and 7%, respectively. Brazil and
Chile showed improvement over last year mainly in electricity. In Asia revenue
and orders grew by 11% and 6%, respectively.
TEST & TRANSACTIONS
Revenue including Omnes grew by 17% over last year and pretax operating income
fell by 48%. Orders grew by 25% compared to last year.
The growth in Cards continued with an increase in revenue of 25% and orders of
37%, reflecting strong activity in the mobile communications market especially
in Asia. Semiconductor revenue decreased by 1% and orders increased by 16% over
last year. Revenue for eTransactions fell by 13% and orders grew by 4%.
Network Solutions including Omnes increased by 72% and orders by 36%.
INCOME STATEMENT
Interest and other income includes Interest income of $225 million and Equity in
Net Earnings of Affiliated Companies of $24 million. Interest income increased
by $56 million due to the higher average returns on investment, from 4.9% to
6.2%. Equity in Net Earnings of Affiliated Companies was $21 million higher than
last year 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 20% to 24% as 1999 included $147 million of charges. Excluding
these charges gross margin in 1999 was 22%. Research and engineering expenses
increased by 2%, and marketing expenses decreased by 1%. General expenses as a
percentage of operating revenue increased from 4.7% to 4.8%. Interest expense
increased by $68 million as average borrowing rates increased from 5.3% to 6.8%.
The effective tax rate was 23% for both the current year and prior year nine
month periods.
<PAGE>
ACQUISITIONS
------------
In the first quarter of 2000, Schlumberger acquired Telweb, Inc. for $25
million. Telweb, a Canadian company, pioneered Internet accessibility with its
WebPayphone Network(TM). The acquisition was accounted for using the purchase
method of accounting, and cost of net assets acquired is being amortized on a
straight-line basis over 10 years.
In the second quarter of 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.
In the second quarter of 2000, 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. In the third quarter of
2000, Schlumberger and Baker Hughes signed a definitive agreement with respect
to 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
expected to be completed in the fourth quarter of 2000.
On October 16, 2000, Schlumberger and Convergent Group Corporation announced the
execution of a definitive merger agreement whereby Schlumberger agreed to
acquire a majority interest in Convergent Group for a cash consideration of
approximately $276 million. The merger is expected to be completed in the fourth
quarter of 2000.
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.
<PAGE>
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
UtiliNet is a registered trademark of Metricom, Inc.
RDRAM is a registered trademark of Rambus Inc.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6: Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K: None
<PAGE>
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 13, 2000 /s/ Jack Liu
----------------- --------------
Jack Liu
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
