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SCHLUMBERGER LIMITED 10-Q 2014

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: June 30, 2014

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, 17th FLOOR

 

 

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: (713) 375-3400

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

x

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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 June 30, 2014

COMMON STOCK, $0.01 PAR VALUE PER SHARE

1,296,436,308

 

 

 


SCHLUMBERGER LIMITED

Second Quarter 2014 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

18

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

27

 

 

 

 

Item 4.

 

Controls and Procedures

27

 

 

 

 

 PART II

 

Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

29

 

 

 

 

Item 1A.

 

Risk Factors

29

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

29

 

 

 

 

Item 4.

 

Mine Safety Disclosures

29

 

 

 

 

Item 5.

 

Other Information

29

 

 

 

 

Item 6.

 

Exhibits

30

 

 

 

 

 

 

Certifications

 

 

 

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

(Stated in millions, except per share amounts)

 

 

Second Quarter

 

 

Six Months

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenue

$

12,054

 

 

$

11,182

 

 

$

23,294

 

 

$

21,752

 

Interest & other income

 

64

 

 

 

30

 

 

 

141

 

 

 

63

 

Gain on formation of OneSubsea

 

 

 

 

1,028

 

 

 

 

 

 

1,028

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

9,269

 

 

 

8,712

 

 

 

18,018

 

 

 

17,118

 

Research & engineering

 

309

 

 

 

293

 

 

 

593

 

 

 

585

 

General & administrative

 

123

 

 

 

100

 

 

 

228

 

 

 

196

 

Impairment & other

 

 

 

 

364

 

 

 

 

 

 

456

 

Interest

 

90

 

 

 

98

 

 

 

193

 

 

 

197

 

Income from continuing operations before taxes

 

2,327

 

 

 

2,673

 

 

 

4,403

 

 

 

4,291

 

Taxes on income

 

506

 

 

 

449

 

 

 

974

 

 

 

855

 

Income from continuing operations

 

1,821

 

 

 

2,224

 

 

 

3,429

 

 

 

3,436

 

Loss from discontinued operations

 

(205

)

 

 

(124

)

 

 

(205

)

 

 

(69

)

Net income

 

1,616

 

 

 

2,100

 

 

 

3,224

 

 

 

3,367

 

Net income attributable to noncontrolling interests

 

21

 

 

 

5

 

 

 

37

 

 

 

13

 

Net income attributable to Schlumberger

$

1,595

 

 

$

2,095

 

 

$

3,187

 

 

$

3,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schlumberger amounts attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1,800

 

 

$

2,219

 

 

$

3,392

 

 

$

3,423

 

Loss from discontinued operations

 

(205

)

 

 

(124

)

 

 

(205

)

 

 

(69

)

Net income

$

1,595

 

 

$

2,095

 

 

$

3,187

 

 

$

3,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share of Schlumberger:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1.38

 

 

$

1.67

 

 

$

2.60

 

 

$

2.58

 

Loss from discontinued operations

 

(0.16

)

 

 

(0.09

)

 

 

(0.16

)

 

 

(0.05

)

Net income (1)

$

1.23

 

 

$

1.58

 

 

$

2.45

 

 

$

2.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share of Schlumberger:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1.37

 

 

$

1.66

 

 

$

2.58

 

 

$

2.56

 

Loss from discontinued operations

 

(0.16

)

 

 

(0.09

)

 

 

(0.16

)

 

 

(0.05

)

Net income (1)

$

1.21

 

 

$

1.57

 

 

$

2.42

 

 

$

2.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

1,300

 

 

 

1,327

 

 

 

1,303

 

 

 

1,329

 

Assuming dilution

 

1,315

 

 

 

1,336

 

 

 

1,316

 

 

 

1,339

 

(1)  Amounts may not add due to rounding.

See Notes to Consolidated Financial Statements

 

 

 

3


SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

 

(Stated in millions)

 

 

Second Quarter

 

 

Six Months

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net income

$

1,616

 

 

$

2,100

 

 

$

3,224

 

 

$

3,367

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized net change arising during the period

 

58

 

 

 

(157

)

 

 

(30

)

 

 

(234

)

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain arising during the period

 

19

 

 

 

11

 

 

 

30

 

 

 

83

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net derivatives gain (loss) on hedge transactions

 

(3

)

 

 

49

 

 

 

13

 

 

 

(104

)

Reclassification to net income of net realized (gain) loss (see Note 11)

 

9

 

 

 

(34

)

 

 

6

 

 

 

45

 

Pension and other postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss arising during the period

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Amortization to net income of net actuarial loss (see Note 15)

 

59

 

 

 

76

 

 

 

100

 

 

 

152

 

Prior service cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization to net income of net prior service cost (see Note 15)

 

24

 

 

 

31

 

 

 

56

 

 

 

63

 

Income taxes on pension and other postretirement benefit plans

 

(10

)

 

 

(15

)

 

 

(20

)

 

 

(31

)

Comprehensive income

 

1,772

 

 

 

2,055

 

 

 

3,379

 

 

 

3,335

 

Comprehensive income attributable to noncontrolling interests

 

21

 

 

 

5

 

 

 

37

 

 

 

13

 

Comprehensive income attributable to Schlumberger

$

1,751

 

 

$

2,050

 

 

$

3,342

 

 

$

3,322

 

 

See Notes to Consolidated Financial Statements

 

 

 

4


SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

 

 

(Stated in millions)

 

 

Jun. 30, 2014

 

 

Dec. 31,

 

 

(Unaudited)

 

 

2013

 

ASSETS

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash

$

2,267

 

 

$

3,472

 

Short-term investments

 

4,432

 

 

 

4,898

 

Receivables less allowance for doubtful accounts (2014 - $407; 2013 - $384)

 

12,251

 

 

 

11,497

 

Inventories

 

4,770

 

 

 

4,603

 

Deferred taxes

 

235

 

 

 

288

 

Other current assets

 

1,459

 

 

 

1,467

 

 

 

25,414

 

 

 

26,225

 

Fixed Income Investments, held to maturity

 

480

 

 

 

363

 

Investments in Affiliated Companies

 

3,342

 

 

 

3,317

 

Fixed Assets less accumulated depreciation

 

15,743

 

 

 

15,096

 

Multiclient Seismic Data

 

727

 

 

 

667

 

Goodwill

 

15,220

 

 

 

14,706

 

Intangible Assets

 

4,738

 

 

 

4,709

 

Other Assets

 

2,422

 

 

 

2,017

 

 

$

68,086

 

 

$

67,100

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

8,692

 

 

$

8,837

 

Estimated liability for taxes on income

 

1,529

 

 

 

1,490

 

Long-term debt - current portion

 

837

 

 

 

1,819

 

Short-term borrowings

 

668

 

 

 

964

 

Dividends payable

 

525

 

 

 

415

 

 

 

12,251

 

 

 

13,525

 

Long-term Debt

 

11,740

 

 

 

10,393

 

Postretirement Benefits

 

699

 

 

 

670

 

Deferred Taxes

 

1,656

 

 

 

1,708

 

Other Liabilities

 

1,038

 

 

 

1,169

 

 

 

27,384

 

 

 

27,465

 

Equity

 

 

 

 

 

 

 

Common stock

 

12,338

 

 

 

12,192

 

Treasury stock

 

(9,514

)

 

 

(8,135

)

Retained earnings

 

40,111

 

 

 

37,966

 

Accumulated other comprehensive loss

 

(2,399

)

 

 

(2,554

)

Schlumberger stockholders' equity

 

40,536

 

 

 

39,469

 

Noncontrolling interests

 

166

 

 

 

166

 

 

 

40,702

 

 

 

39,635

 

 

$

68,086

 

 

$

67,100

 

See Notes to Consolidated Financial Statements

 

 

 

5


SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

(Stated in millions)

 

 

Six Months Ended Jun. 30,

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

3,224

 

 

$

3,367

 

Add: Loss from discontinued operations

 

205

 

 

 

69

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

Gain on formation of OneSubsea

 

 

 

 

(1,028

)

Impairment of equity method investments and currency devaluation loss in Venezuela

 

 

 

 

456

 

Depreciation and amortization (1)

 

1,997

 

 

 

1,903

 

Pension and other postretirement benefits expense

 

190

 

 

 

255

 

Stock-based compensation expense

 

162

 

 

 

168

 

Pension and other postretirement benefits funding

 

(127

)

 

 

(231

)

Earnings of companies carried at equity, less dividends received

 

(90

)

 

 

(26

)

Change in assets and liabilities: (2)

 

 

 

 

 

 

 

Increase in receivables

 

(590

)

 

 

(511

)

Increase in inventories

 

(90

)

 

 

(237

)

Decrease in other current assets

 

82

 

 

 

20

 

Increase in other assets

 

(60

)

 

 

(75

)

Decrease in accounts payable and accrued liabilities

 

(515

)

 

 

(389

)

Increase (decrease) in liability for taxes on income

 

23

 

 

 

(96

)

(Decrease) increase in other liabilities

 

(204

)

 

 

19

 

Other

 

12

 

 

 

131

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

4,219

 

 

 

3,795

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(1,786

)

 

 

(1,800

)

SPM investments

 

(377

)

 

 

(367

)

Multiclient seismic data capitalized

 

(154

)

 

 

(222

)

Business acquisitions and investments, net of cash acquired

 

(471

)

 

 

(717

)

Sale of investments, net

 

349

 

 

 

850

 

Other

 

3

 

 

 

91

 

NET CASH USED IN INVESTING ACTIVITIES

 

(2,436

)

 

 

(2,165

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Dividends paid

 

(932

)

 

 

(781

)

Proceeds from employee stock purchase plan

 

134

 

 

 

126

 

Proceeds from exercise of stock options

 

358

 

 

 

63

 

Stock repurchase program

 

(2,074

)

 

 

(692

)

Proceeds from issuance of long-term debt

 

1,979

 

 

 

1,013

 

Repayment of long-term debt

 

(2,104

)

 

 

(453

)

Net decrease in short-term borrowings

 

(302

)

 

 

(152

)

Other

 

(32)

 

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

 

(2,973

)

 

 

(876

)

Cash flows used in discontinued operations - operating activities

 

 

 

 

(33

)

Cash flows used in discontinued operations - investing activities

 

 

 

 

(28

)

Cash flows used in discontinued operations

 

 

 

 

(61

)

Net (decrease) increase in cash before translation effect

 

(1,190

)

 

 

693

 

Translation effect on cash

 

(15

)

 

 

(12

)

Cash, beginning of period

 

3,472

 

 

 

1,905

 

Cash, end of period

$

2,267

 

 

$

2,586

 

 

(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 and divestitures.

See Notes to Consolidated Financial Statements

 

6


SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

 

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Retained

 

 

Comprehensive

 

 

Noncontrolling

 

 

 

 

 

January 1, 2014 - June 30, 2014

 

Issued

 

 

In Treasury

 

 

Earnings

 

 

Loss

 

 

Interests

 

 

Total

 

Balance, January 1, 2014

 

$

12,192

 

 

$

(8,135

)

 

$

37,966

 

 

$

(2,554

)

 

$

166

 

 

$

39,635

 

Net income

 

 

 

 

 

 

 

 

 

 

3,187

 

 

 

 

 

 

 

37

 

 

 

3,224

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

 

(30

)

Changes in unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

30

 

Changes in fair value of derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

19

 

Pension and other postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

 

136

 

Shares sold to optionees, less shares exchanged

 

 

(12

)

 

 

370

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

358

 

Vesting of restricted stock

 

 

(54

)

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued under employee stock purchase plan

 

 

6

 

 

 

128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134

 

Stock repurchase program

 

 

 

 

 

 

(2,074

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,074

)

Stock-based compensation expense

 

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162

 

Dividends declared ($0.80 per share)

 

 

 

 

 

 

 

 

 

 

(1,042

)

 

 

 

 

 

 

 

 

 

 

(1,042

)

Shares issued for acquisition

 

 

72

 

 

 

141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

213

 

Other

 

 

(28

)

 

 

2

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

(63

)

Balance, June 30, 2014

 

$

12,338

 

 

$

(9,514

)

 

$

40,111

 

 

$

(2,399

)

 

$

166

 

 

$

40,702

 

 

 

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Retained

 

 

Comprehensive

 

 

Noncontrolling

 

 

 

 

 

January 1, 2013 - June 30, 2013

 

Issued

 

 

In Treasury

 

 

Earnings

 

 

Loss

 

 

Interests

 

 

Total

 

Balance, January 1, 2013

 

$

11,912

 

 

$

(6,160

)

 

$

32,887

 

 

$

(3,888

)

 

$

107

 

 

$

34,858

 

Net income

 

 

 

 

 

 

 

 

 

 

3,354

 

 

 

 

 

 

 

13

 

 

 

3,367

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(234

)

 

 

 

 

 

 

(234

)

Changes in unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83

 

 

 

 

 

 

 

83

 

Changes in fair value of derivatives.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59

)

 

 

 

 

 

 

(59

)

Pension and other postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

178

 

 

 

 

 

 

 

178

 

Shares sold to optionees, less shares exchanged

 

 

(18

)

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63

 

Vesting of restricted stock

 

 

(43

)

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued under employee stock purchase plan

 

 

5

 

 

 

122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

127

 

Stock repurchase program

 

 

 

 

 

 

(692

)