Edgar Filing: SCHLUMBERGER LIMITED/NV

slb-10q_20190331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2019

Commission file No.: 1-4601

SCHLUMBERGER N.V.

(SCHLUMBERGER LIMITED)

(Exact name of registrant as specified in its charter)

CURAÇAO		52-0684746
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

42 RUE SAINT-DOMINIQUE
PARIS, FRANCE		75007

5599 SAN FELIPE
HOUSTON, TEXAS, U.S.A.		77056

62 BUCKINGHAM GATE
LONDON, UNITED KINGDOM		SW1E 6AJ

PARKSTRAAT 83 THE HAGUE,
THE NETHERLANDS		2514 JG
(Addresses of principal executive offices)		(Zip Codes)

Registrant’s telephone number in the United States, including area code, is: (713) 513-2000

Indicate by check mark whether the 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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 March 31, 2019
COMMON STOCK, $0.01 PAR VALUE PER SHARE	1,385,122,272

SCHLUMBERGER LIMITED

First Quarter 2019 Form 10-Q

Table of Contents

		Page
PART I	Financial Information

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

Item 4.	Controls and Procedures	19

PART II	Other Information

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.	Defaults Upon Senior Securities	20

Item 4.	Mine Safety Disclosures	20

Item 5.	Other Information	21

Item 6.	Exhibits	22

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

	(Stated in millions, except per share amounts)

	Three Months Ended March 31,
	2019		2018
Revenue
Services	$	5,906	$	5,736
Product sales		1,973		2,093
Total Revenue		7,879		7,829
Interest & other income		14		42
Expenses
Cost of services		5,111		4,880
Cost of sales		1,841		1,922
Research & engineering		173		172
General & administrative		112		111
Interest		147		143
Income before taxes		509		643
Tax expense		79		113
Net income		430		530
Net income attributable to noncontrolling interests		9		5
Net income attributable to Schlumberger	$	421	$	525

Basic earnings per share of Schlumberger	$	0.30	$	0.38

Diluted earnings per share of Schlumberger	$	0.30	$	0.38

Average shares outstanding:
Basic		1,385		1,385
Assuming dilution		1,397		1,394

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

(Stated in millions)

	Three Months Ended March 31,
	2019			2018
Net income	$	430		$	530
Currency translation adjustments
Unrealized net change arising during the period		77			39
Marketable securities
Unrealized gain arising during the period		-			19
Cash flow hedges
Net gain (loss) on cash flow hedges		(5	)		5
Reclassification to net income of net realized (gain) loss		2			(3	)
Pension and other postretirement benefit plans
Amortization to net income of net actuarial loss		24			56
Amortization to net income of net prior service credit		(3	)		(1	)
Comprehensive income		525			645
Comprehensive income attributable to noncontrolling interests		9			5
Comprehensive income attributable to Schlumberger	$	516		$	640

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Stated in millions)

	Mar. 31,
	2019			Dec. 31,
	(Unaudited)			2018
ASSETS
Current Assets
Cash	$	1,230		$	1,433
Short-term investments		925			1,344
Receivables less allowance for doubtful accounts (2019 - $244; 2018 - $249)		8,171			7,881
Inventories		4,224			4,010
Other current assets		1,223			1,063
		15,773			15,731
Investments in Affiliated Companies		1,544			1,538
Fixed Assets less accumulated depreciation		11,533			11,679
Multiclient Seismic Data		584			601
Goodwill		24,945			24,931
Intangible Assets		8,611			8,727
Other Assets		7,331			7,300
	$	70,321		$	70,507
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	9,702		$	10,223
Estimated liability for taxes on income		1,194			1,155
Short-term borrowings and current portion of long-term debt		99			1,407
Dividends payable		702			701
		11,697			13,486
Long-term Debt		16,449			14,644
Postretirement Benefits		1,136			1,153
Deferred Taxes		1,375			1,441
Other Liabilities		3,140			3,197
		33,797			33,921
Equity
Common stock		13,000			13,132
Treasury stock		(3,756	)		(4,006	)
Retained earnings		31,386			31,658
Accumulated other comprehensive loss		(4,527	)		(4,622	)
Schlumberger stockholders' equity		36,103			36,162
Noncontrolling interests		421			424
		36,524			36,586
	$	70,321		$	70,507

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Stated in millions)

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	430		$	530
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ⁽¹⁾		903			874
Stock-based compensation expense		108			90
Earnings of equity method investments, less dividends received		3			(5	)
Change in assets and liabilities: ⁽²⁾
Increase in receivables		(280	)		(152	)
Increase in inventories		(197	)		(81	)
Increase in other current assets		(93	)		(48	)
Decrease (increase) in other assets		2			(70	)
Decrease in accounts payable and accrued liabilities		(483	)		(600	)
Increase in estimated liability for taxes on income		5			45
Decrease in other liabilities		(42	)		(7	)
Other		(30	)		(8	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		326			568
Cash flows from investing activities:
Capital expenditures		(413	)		(454	)
SPM investments		(151	)		(240	)
Multiclient seismic data costs capitalized		(45	)		(26	)
Business acquisitions and investments, net of cash acquired		(5	)		(13	)
Sale of investments, net		420			980
Other		(36	)		35
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(230	)		282
Cash flows from financing activities:
Dividends paid		(692	)		(692	)
Proceeds from employee stock purchase plan		85			107
Proceeds from exercise of stock options		22			20
Stock repurchase program		(98	)		(97	)
Proceeds from issuance of long-term debt		1,812			12
Repayment of long-term debt		(1,368	)		(51	)
Net decrease in short-term borrowings		(38	)		(105	)
Other		(20	)		19
NET CASH USED IN FINANCING ACTIVITIES		(297	)		(787	)
Net (decrease) increase in cash before translation effect		(201	)		63
Translation effect on cash		(2	)		3
Cash, beginning of period		1,433			1,799
Cash, end of period	$	1,230		$	1,865

⁽¹⁾ Includes depreciation of property, plant and equipment and amortization of intangible assets, multiclient seismic data costs and SPM investments.

⁽²⁾ Net of the effect of business acquisitions.

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

	(Stated in millions)

										Accumulated
										Other
	Common Stock						Retained			Comprehensive			Noncontrolling
January 1, 2019 – March 31, 2019	Issued			In Treasury			Earnings			Loss			Interests			Total
Balance, January 1, 2019	$	13,132		$	(4,006	)	$	31,658		$	(4,622	)	$	424		$	36,586
Net income								421						9			430
Currency translation adjustments											77						77
Changes in fair value of cash flow hedges											(3	)					(3	)
Pension and other postretirement benefit plans											21						21
Shares sold to optionees, less shares exchanged		(25	)		47												22
Vesting of restricted stock		(100	)		100												-
Shares issued under employee stock purchase plan		(115	)		200												85
Stock repurchase program					(98	)											(98	)
Stock-based compensation expense		108															108
Dividends declared ($0.50 per share)								(693	)								(693	)
Other					1									(12	)		(11	)
Balance, March 31, 2019	$	13,000		$	(3,756	)	$	31,386		$	(4,527	)	$	421		$	36,524

	(Stated in millions)

										Accumulated
										Other
	Common Stock						Retained			Comprehensive			Noncontrolling
January 1, 2018 – March 31, 2018	Issued			In Treasury			Earnings			Loss			Interests			Total
Balance, January 1, 2018	$	12,975		$	(4,049	)	$	32,190		$	(4,274	)	$	419		$	37,261
Net income								525						5			530
Currency translation adjustments											39						39
Changes in unrealized gain on marketable securities											19						19
Changes in fair value of cash flow hedges											2						2
Pension and other postretirement benefit plans											55						55
Shares sold to optionees, less shares exchanged		(20	)		40												20
Vesting of restricted stock		(29	)		29												-
Shares issued under employee stock purchase plan		(33	)		140												107
Stock repurchase program					(97	)											(97	)
Stock-based compensation expense		90															90
Dividends declared ($0.50 per share)								(693	)								(693	)
Other		15												(22	)		(7	)
Balance, March 31, 2018	$	12,998		$	(3,937	)	$	32,022		$	(4,159	)	$	402		$	37,326

SHARES OF COMMON STOCK

(Unaudited)

			(Stated in millions)

						Shares
	Issued		In Treasury			Outstanding
Balance, January 1, 2019		1,434		(51	)		1,383
Vesting of restricted stock		-		1			1
Shares issued under employee stock purchase plan		-		3			3
Stock repurchase program		-		(2	)		(2	)
Balance, March 31, 2019		1,434		(49	)		1,385

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Schlumberger Limited and its subsidiaries (“Schlumberger”) have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Schlumberger management, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements. All intercompany transactions and balances have been eliminated in consolidation. Operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019. The December 31, 2018 balance sheet information has been derived from the Schlumberger 2018 audited financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Schlumberger Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on January 23, 2019.

2. Earnings Per Share

The following is a reconciliation from basic earnings per share of Schlumberger to diluted earnings per share of Schlumberger:

(Stated in millions, except per share amounts)

	2019						2018
	Schlumberger Net Income		Average Shares Outstanding		Earnings per Share		Schlumberger Net Income		Average Shares Outstanding		Earnings per Share
First Quarter
Basic	$	421		1,385	$	0.30	$	525		1,385	$	0.38
Assumed exercise of stock options		-		-				-		1
Unvested restricted stock		-		12				-		8
Diluted	$	421		1,397	$	0.30	$	525		1,394	$	0.38

The number of outstanding options to purchase shares of Schlumberger common stock that were not included in the computation of diluted earnings per share, because to do so would have had an antidilutive effect, was as follows:

(Stated in millions)

	2019		2018
First Quarter		43		39

3. Inventories

A summary of inventories, which are stated at the lower of average cost or net realizable value, is as follows:

(Stated in millions)

	Mar. 31,		Dec. 31,
	2019		2018
Raw materials & field materials	$	1,877	$	1,803
Work in progress		549		519
Finished goods		1,798		1,688
	$	4,224	$	4,010

4. Fixed Assets

A summary of fixed assets follows:

(Stated in millions)

	Mar. 31,		Dec. 31,
	2019		2018
Property, plant & equipment	$	38,714	$	38,664
Less: Accumulated depreciation		27,181		26,985
	$	11,533	$	11,679

Depreciation expense relating to fixed assets was $512 million and $523 million in the first quarter of 2019 and 2018, respectively.

5. Multiclient Seismic Data

The change in the carrying amount of multiclient seismic data for the three months ended March 31, 2019 was as follows:

(Stated in millions)

Balance at December 31, 2018	$	601
Capitalized in period		45
Charged to expense		(62	)
Balance at March 31, 2019	$	584

6. Intangible Assets

The gross book value, accumulated amortization and net book value of intangible assets were as follows:

	(Stated in millions)

	Mar. 31, 2019						Dec. 31, 2018
	Gross		Accumulated		Net Book		Gross		Accumulated		Net Book
	Book Value		Amortization		Value		Book Value		Amortization		Value
Customer relationships	$	4,772	$	1,302	$	3,470	$	4,768	$	1,243	$	3,525
Technology/technical know-how		3,463		1,275		2,188		3,494		1,246		2,248
Tradenames		2,799		653		2,146		2,799		628		2,171
Other		1,428		621		807		1,404		621		783
	$	12,462	$	3,851	$	8,611	$	12,465	$	3,738	$	8,727

Amortization expense charged to income was $160 million during the first quarter of 2019 and $165 million during the first quarter of 2018.

Based on the net book value of intangible assets at March 31, 2019, amortization charged to income for the subsequent five years is estimated to be: remaining three quarters of 2019—$510 million; 2020—$657 million; 2021—$628 million; 2022—$622 million; 2023—$609 million; and 2024—$563 million.

7. Long-term Debt

A summary of Long-term Debt follows:

(Stated in millions)

	Mar. 31,	Dec. 31,
	2019	2018
4.00% Senior Notes due 2025