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Thursday July 22, 9:38 am Eastern Time
Company Press Release
Schlumberger 1999 Second Quarter Results
NEW YORK--(BUSINESS WIRE)--July 22, 1999--Schlumberger Limited reported today that 1999 second quarter operating revenue of $2.17 billion was 29% below second quarter 1998. Net income and diluted earnings per share were $127 million and $0.23, both 67% lower than the same period last year.
Oilfield Services revenue decreased 32%, while the rig count fell 34%. Revenue fell in all the geographic regions and across all Oilfield Services activities.
Resource Management Services revenue was down 6%. Test & Transactions revenue was 22% lower than in the second quarter of 1998 as Smart Cards & Terminals and Automated Test Equipment (ATE) revenue decreased.
Chairman and Chief Executive Officer Euan Baird commented: ''The recently announced transaction between Sedco Forex Offshore and Transocean Offshore gives our shareholders premium investments in reservoir optimization and offshore drilling, the two oilfield service sectors with the highest growth potential in the next upturn. For Schlumberger this transaction as well as the closing of the drilling fluids joint venture with Smith International are in line with our long-term strategy to focus on extending our leadership in value-added services to optimize reservoir performance.''
CONSOLIDATED STATEMENT OF INCOME (Unaudited)(1)
(Stated in thousands except per share amounts)
Second Quarter Six Months
For Periods Ended June 30 1999 1998 1999 1998
Revenue
Operating $ 2,174,263 $ 3,083,905 $ 4,480,725 $ 6,107,606
Interest and
other income 57,473 37,252 224,560 72,427
2,231,736 3,121,157 4,705,285 6,180,033
Expenses
Cost of goods sold
and services 1,697,326 2,213,644 3,637,975 4,375,543
Research & engineering 129,249 149,792 264,514 293,492
Marketing 107,176 117,443 210,754 229,115
General 98,750 112,796 201,839 228,657
Interest 46,691 25,685 94,739 51,189
2,079,192 2,619,360 4,409,821 5,177,996
Income before taxes 152,544 501,797 295,464 1,002,037
Taxes on income 25,257 114,296 79,010 236,209
Net Income(2) $ 127,287 $ 387,501 $ 216,454 $ 765,828
Basic Earnings
Per Share(2) $ 0.23 $ 0.71 $ 0.39 $ 1.41
Diluted Earnings
Per Share(2) $ 0.23 $ 0.69 $ 0.39 $ 1.36
Average shares outstanding 547,112 543,560 546,744 543,145
Average shares outstanding
assuming dilution 563,529 564,784 563,569 564,319
Depreciation and
amortization included
in expenses $ 279,974 $ 283,591 $ 563,682 $ 556,609
(1) All prior periods have been restated to reflect the 1998
acquisition of Camco International Inc., which was accounted for
as a pooling of interests.
(2) The 1999 first quarter results included an after-tax charge of $90
million ($0.16 per share) consisting of the following:
A charge of $150 million related to Oilfield Services, including severance costs of $121 million, seismic vessel lay-up costs and provisions for possible legal claims.
A charge of $20 million related to RMS and Test & Transactions consisting principally of severance costs at several RMS facilities.
A credit of $80 million from the gain on sale of financial instruments received in connection with the 1998 sale of Retail Petroleum Systems.
The pretax charge of $189 million was classified in cost of goods sold and services. The pretax credit of $103 million resulting from the gain on sale of financial instruments was classified in interest and other income.
CONDENSED BALANCE SHEET (Unaudited)
(Stated in thousands)
Assets June 30, 1999 Dec. 31, 1998
Current Assets
Cash and short-term investments $ 4,022,846 $ 3,956,694
Other current assets 4,544,057 4,848,530
8,566,903 8,805,224
Long-term investments,
held to maturity 652,573 855,172
Fixed assets 4,822,351 4,694,465
Excess of investment over
net assets of companies purchased 1,269,463 1,302,678
Deferred taxes on income,
and other assets 431,397 420,390
$ 15,742,687 $ 16,077,929
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and
accrued liabilities $ 2,494,610 $ 2,539,954
Estimated liability for
taxes on income 409,845 480,123
Bank loans and current
portion of long-term debt 622,427 795,700
Dividend payable 103,165 102,891
3,630,047 3,918,668
Long-term debt 3,207,040 3,285,444
Postretirement benefits 444,924 432,791
Other liabilities 315,886 321,951
7,597,897 7,958,854
Stockholders' Equity 8,144,790 8,119,075
$ 15,742,687 $ 16,077,929
Business Review
(Stated in millions)
Resource
Oilfield Management Test &
Services Services Transactions(2)
Second Quarter 1999 1998 %chg 1999 1998 %chg 1999 1998 % chg
Operating Revenue $1,574 $2,306 (32)% $ 342 $ 364 (6)% $ 256 $ 329 (22)%
Pretax Operating
Income(1) $ 160 $ 479 (67)% $ (7)$ 16 - % $ 2 $ 30 (93)%
Six Months
Operating Revenue $3,268 $4,600 (29)% $ 687 $ 725 (5)% $ 526 $ 639 (18)%
Pretax Operating
Income(1) $ 372 $ 956 (61)% $ (2)$ 31 - % $ 10 $ 61 (84)%
(1) Pretax operating income represents income before taxes, excluding
interest expense, interest and other income and the first quarter
1999 charge.
(2) All periods exclude the Retail Petroleum Services business sold on
October 1, 1998.
OILFIELD SERVICES
Oilfield Services operating revenue declined 32% during the second quarter of 1999 as the rig count decreased 34%. Revenue decreased in all major geographic regions and across all oilfield services. Pretax operating income fell 67%. Geographical comments exclude Camco, which is reported separately.
On July 12, Schlumberger and Transocean Offshore Inc. announced the signing of a definitive merger agreement under which the offshore contract drilling business of Schlumberger (Sedco Forex Offshore) will be spun off and promptly combined with Transocean Offshore in a merger of equals. The resulting company, Transocean Sedco Forex, will be the world's largest offshore drilling company and is projected to become the fourth largest oilfield service company in terms of market capitalization. This strategic move will permit Schlumberger Oilfield Services GeoMarkets to increase their concentration on value-added reservoir optimization services.
On July 14, Schlumberger and Smith International announced the completion of a restructured transaction related to the combination of their drilling fluids operations under a joint venture agreement. The joint venture will form the largest drilling and completion fluids business in the world.
Further demonstrating the Schlumberger focus on reservoir optimization, Schlumberger signed a letter of intent on July 8, to acquire Calgary-based Merak, a market leader in petroleum software solutions for economic evaluation, decision and risk analysis, field optimization and data visualization. In addition, on June 30, Schlumberger acquired substantially all of the assets of Calgary-based Panther Software Corporation, a provider of hardware and software products and services for managing, indexing, loading and cataloging large volumes of seismic data throughout the seismic data lifecycle.
North America
In North America, quarterly revenue of $320 million declined 43%, as the rig count fell 40%. Pretax operating income fell 92%. All parts of North America experienced weakness except Eastern Canada. Recently introduced technologies such as ClearFrac(a) fracturing fluid and PowerJet(a) perforating services, whose revenue is growing due to premium pricing, are having a positive impact on results linked to the improvement of customers' reservoir productivity.
Latin America
In Latin America, quarterly revenue of $227 million declined 31% over the same quarter last year as the rig count dropped 29%. Pretax operating income decreased 79%. All areas were affected by the downturn, although relatively stable deepwater drilling contracts and data management revenue growth softened the impact of reduced activity.
The new Schlumberger seismic vessel, Geco Eagle, has broken several world records during its first acquisition job in Brazil. The vessel took fewer than seven days between deploying the first streamer section and recording the first commercial 10-streamer production. Now in full production, Geco Eagle is the first vessel in the world to deploy 60 km (37.3 mi) of streamer. Geco Eagle has also achieved the biggest single-vessel tow, ten 6000-m (3.73-mi) streamers, as well as the largest footprint ever recorded.
Schlumberger also recently helped advance the industry record for extended-reach drilling beyond 10,585 m (34,728 ft) in Argentina. The well was drilled and cased in 128 days and reached a total depth of 11,184 m (36,693 ft), a world record in itself for slim holes.
Europe/CIS/West Africa
Quarterly revenue of $416 million declined 33% as the rig count fell 32% (rig count changes exclude the CIS). Pretax operating income decreased 82%. On June 30, Schlumberger acquired a majority interest in Caspian Geophysical, the leading provider of marine seismic acquisition services in the Caspian Sea. This company will now offer a substantially expanded array of seismic services, including the immediate addition to its fleet of the world-class marine seismic vessel Geco Gamma.
Other Eastern Hemisphere
Quarterly revenue of $423 million declined 25% as the rig count declined 20%. Pretax operating income decreased 42%. Activity fell across the region with the exception of data management, which continued to grow in Asia. Activity in East Asia benefited from strong growth in MAXPRO(a) production services. Revolutionary CHFR(a) cased hole formation resistivity technology was successfully used to log a well in the Middle East. This breakthrough technology allows formation measurements to be made in wells that have already been cased in order to evaluate production performance and increase ultimate reservoir recovery.
Camco
Quarterly revenue of $177 million declined 19%, and pretax operating income decreased 51%. Activity decreased in all regions, except in the Middle East-Africa region for Reed-Hycalog, in Europe for Camco Products & Services and in the US and Venezuela for Production Operators, Inc.
Production Operators' revenue increased significantly over second quarter 1998 levels, reflecting continued expansion of its services in the US and Latin America. This growth is driven by customers' increased outsourcing of their gas compression requirements as they seek flexibility in gas compression assets and improved performance to reduce overall costs.
In Venezuela, Production Operators was awarded a $75-million gas compression contract for the 7000-hp expansion of a customer's existing compression facilities. The scope of work includes a 15-year operation and maintenance contract for the existing facility plus the expansion. Production Operators also signed an alliance agreement for compression services in South Texas. The agreement term is three years, and revenue should exceed $10 million. Reda received its first performance-based contract in Indonesia for installing submersible pumps in up to 45 wells. This project is based on a technically challenging and innovative application of submersible pumps.
Contract Drilling Activity
The offshore rig utilization rate was 76%, compared with 94% over the same period last year. The semisubmersible utilization rate decreased from 97% to 74%, while jackup utilization declined from 100% to 83%. The industry offshore rig utilization continued to fall during the second quarter of 1999, dropping from 95% in the second quarter last year to 69% this year. At the end of June 1999, the Schlumberger offshore fleet comprised 49 rigs, which included 24 semisubmersibles, 16 jackups, 2 drillships, 4 tenders and 3 lake barges. Sedco Forex Offshore revenue and net income in the quarter were $165 million and $34 million, respectively, compared with $278 million and $104 million, respectively, last year.
Onshore utilization fell to 44% from 97% a year ago. At June 30, the land fleet consisted of 35 rigs, which included 6 swamp barges and 29 land rigs.
RESOURCE MANAGEMENT SERVICES
Resource Management Services (RMS) recorded a 6% decline in revenue in the second quarter compared with last year. Orders increased 2%. Pretax operating income included a charge of $15 million ($11 million after tax) due to the write-off of certain assets, including a provision for the divestiture of a small business.
Revenue was up 1% in North America. Electricity and water meter factories continued to work at record levels, due mainly to a strong new housing market in the US and Canada, as well as to new and substantial meter replacement programs initiated by utilities. Orders in North America were up 13% compared with last year. Supporting the trend toward integrated solutions contracting, a leading utility in the US selected RMS as preferred vendor to provide automatic meter reading (AMR) services for more than two million electric and gas meters. In addition, RMS won an important universal water meter system contract to supply residential and industrial meters to the City of Niagara Falls. There was also strong market interest for our newly introduced R900(a) radio-frequency water meter system, used to provide drive-by reading services.
In Europe, revenue was down 5%, due to a negative currency effect from a stronger US dollar, to poor business conditions in the CIS, and to a decline in activity for services in the UK and for electricity and gas businesses in Germany. However, UK gas and water activity grew, as did the electricity business in France and Spain. Orders were down 6% overall, due to currency erosion, economic conditions in the CIS, softness in Germany and postponement to the third quarter of a large electricity contract in Italy, but were higher in the electricity markets in France, Spain and The Netherlands. RMS won a major contract to supply 20,000 Gallus(a) 2000 meters equipped with radio communication modules developed jointly with Itron. The contract is the largest remote meter reading project for natural gas in France.
South American second quarter revenue fell 18% compared with last year, while orders increased 6%. The drop in revenue reflected a significant falloff in Brazil's domestic activity due to wide-scale public spending cuts and the devaluation of the national currency. RMS received a significant order for AMR service to monitor electricity transmissions at border points in Brazil.
In Asia, second quarter revenue was up 27%, reflecting both a return of some investment to the region after the economic downturn last year and continued growth in export deliveries. Shipments of water meters commenced from a new factory in South Australia. Orders were 106% higer than in the second quarter of 1998.
TEST & TRANSACTIONS
Test & Transactions orders, including customer solutions activities, were up 11% compared with the same quarter last year and up 2% over last quarter. Revenue decreased 22% versus last year and 5% versus the first quarter of 1999.
Smart Cards & Terminals orders decreased 2% versus last year and increased 4% over last quarter. Orders for cards were up significantly year over year, with strong bookings in Europe for our recently introduced Cyberflex Simera(a) high-capacity, multiapplication smart card. Financial banking card orders grew strongly due to groundbreaking orders.
Smart Cards & Terminals revenue was 5% below last year and 2% above last quarter, mainly due to lower payphone sales in Europe. Smart cards revenue in the second quarter was even with last year as an increase in Europe was offset by a decrease in North America. Revenue in Asia was flat compared with last year as an increase in unit volumes was offset by a decline in pricing.
Prepaid phone card sales grew in China, Mexico and South America. Smart card revenue improvement in Europe was led by higher GSM-SIM (subscriber identity module) card sales. Asian smart card volumes increased as several Chinese banks standardized on the Qianflex(a) banking smart card. A major financial cards issuer in the US placed a significant first order as part of a new branded smart card loyalty program. The program takes advantage of the smart card's ability to deliver more information about cardholders' transactions. A total of 1.5 million cards will be delivered in the initial rollout.
Compared with last year, Municipalities (Parking and Mass Transit) showed solid revenue growth. The Municipalities business provides city councils and local governments throughout the world with integrated smart card-based solutions for mass transit, parking and telecommunications. During the quarter, projects were awarded by Belgium Railways and the Parisian Regional Transport Authority. In addition, a new integrated fare ticketing system was successfully installed in London.
Automated Test Equipment (ATE) orders were up 39% over the same period last year and down 2% compared with last quarter. Orders for all major product lines grew compared with year-ago levels. Several new products in each business segment were commercially launched. Investments made to broaden our product portfolio produced incremental orders across the front-end and back-end semiconductor manufacturing chain. System-On-Chip (SOC) (mixed signal) Testers, Verification Systems and Automated Systems all showed increased orders due to new product introductions. Test systems experienced the highest order rate since the first quarter of 1998, resulting from increased demand by our two largest customers. Multiple system orders for the new RDX2200(a) series of RDRAM® memory test systems were received from memory manufacturers in Korea, Japan and North America. The RDX2200 series is the most cost-effective RDRAM test solution available and provides the industry's highest level of yield-producing accuracy and throughput performance. Schlumberger is well positioned to lead this new memory test technology market.
ATE revenue for the second quarter declined 50% year over year and 19% sequentially, primarily due to the decreased backlog entering 1999.
SABER(a) (Schlumberger Advanced Business Engineering Resources), the semiconductor customer solutions business, continued to grow substantially. To meet customer requirements for reducing time-to-market, eight SABER Technology Centers will open during 1999. The second facility, the Silicon Valley Technology Center in California, opened in the second quarter. This Technology Center offers Rambus® characterization and fabless supply chain services related to the manufacture of RDRAM, ASIC and SOC devices.
CHANGE IN LIQUIDITY
Liquidity represents cash plus short-term and long-term investments less debt. A summary of the major components of the change in liquidity follows:
(Stated in millions)
Six Months 1999 1998(1)
Funds provided by:
Net income $ 216 $ 766
First-quarter charge 90 -
Depreciation and amortization 564 557
Employee stock option plan 39 41
Employee stock purchase plan 52 50
Sale of financial instruments 204 -
Funds used for:
Fixed asset additions (667) (835)
Businesses acquired / divested (55) (30)
Dividends paid (205) (190)
Working capital and other (123) (469)
Change in liquidity 115 (110)
Liquidity, beginning of period 731 527
Liquidity, end of period $ 846 $ 417
(1) Restated to reflect the 1998 acquisition of Camco International
Inc., which was accounted for as a pooling of interests.
(a) Mark of Schlumberger
Rambus and RDRAM are registered trademarks of Rambus, Inc.
This press release is on the Schlumberger website at slb.com
--------------------------------------------------------------------------------
Contact:
Schlumberger Limited
Simone Crook, (212) 350-9432
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