Edgar Filing: SCHLUMBERGER LTD /NV/

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, 2015

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 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 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 March 31, 2015
COMMON STOCK, $0.01 PAR VALUE PER SHARE	1,269,726,824

SCHLUMBERGER LIMITED

First Quarter 2015 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	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

PART II	Other Information

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Mine Safety Disclosures	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

	Certifications

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,
	2015			2014
Revenue	$	10,248	$		11,239
Interest & other income		49			76
Expenses
Cost of revenue		8,096			8,745
Research & engineering		267			284
General & administrative		119			106
Restructuring & other		439			—
Interest		82			103
Income before taxes		1,294			2,077
Taxes on income		306			469
Net income		988			1,608
Net income attributable to noncontrolling interests		13			16
Net income attributable to Schlumberger	$	975	$		1,592

Basic earnings per share of Schlumberger	$	0.76	$		1.22

Diluted earnings per share of Schlumberger	$	0.76	$		1.21

Average shares outstanding:
Basic		1,276			1,306
Assuming dilution		1,285			1,318

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

(Stated in millions)
	Three Months
	Ended March 31,
	2015			2014
Net income	$	988		$	1,608
Currency translation adjustments
Unrealized net change arising during the period		(113	)		(88	)
Marketable securities
Unrealized (loss) gain arising during the period		(18	)		11
Cash flow hedges
Net (loss) gain on cash flow hedges		(152	)		16
Reclassification to net income of net realized loss (gain)		118			(3	)
Pension and other postretirement benefit plans
Actuarial loss
Amortization to net income of net actuarial loss		74			41
Prior service cost
Amortization to net income of net prior service cost		27			32
Income taxes on pension and other postretirement benefit plans		(15	)		(10	)
Comprehensive income		909			1,607
Comprehensive income attributable to noncontrolling interests		13			16
Comprehensive income attributable to Schlumberger	$	896		$	1,591

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Stated in millions)
	Mar. 31,
	2015			Dec. 31,
	(Unaudited)			2014
ASSETS
Current Assets
Cash	$	2,121		$	3,130
Short-term investments		4,682			4,371
Receivables less allowance for doubtful accounts (2015 - $292; 2014 - $275)		10,443			11,171
Inventories		4,666			4,628
Deferred taxes		156			144
Other current assets		1,326			1,250
		23,394			24,694
Fixed Income Investments, held to maturity		436			442
Investments in Affiliated Companies		3,272			3,235
Fixed Assets less accumulated depreciation		15,135			15,396
Multiclient Seismic Data		850			793
Goodwill		15,512			15,487
Intangible Assets		4,575			4,654
Other Assets		2,237			2,203
	$	65,411		$	66,904
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	8,469		$	9,246
Estimated liability for taxes on income		1,631			1,647
Long-term debt - current portion		3,180			1,244
Short-term borrowings		648			1,521
Dividends payable		644			518
		14,572			14,176
Long-term Debt		8,898			10,565
Postretirement Benefits		1,419			1,501
Deferred Taxes		1,363			1,296
Other Liabilities		1,293			1,317
		27,545			28,855
Equity
Common stock		12,535			12,495
Treasury stock		(12,263	)		(11,772	)
Retained earnings		41,669			41,333
Accumulated other comprehensive loss		(4,285	)		(4,206	)
Schlumberger stockholders' equity		37,656			37,850
Noncontrolling interests		210			199
		37,866			38,049
	$	65,411		$	66,904

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Stated in millions)
	Three Months Ended Mar. 31,
	2015			2014
Cash flows from operating activities:
Net income	$	988			$	1,608
Adjustments to reconcile net income to cash provided by operating activities:
Restructuring and other charges		439				—
Depreciation and amortization ⁽¹⁾		1,042				1,001
Pension and other postretirement benefits expense		114				86
Stock-based compensation expense		80				77
Pension and other postretirement benefits funding		(120	)			(72	)
Earnings of equity method investments, less dividends received		(35	)			(61	)
Change in assets and liabilities: ⁽²⁾
Decrease (increase) in receivables		793				(202	)
Increase in inventories		(52	)			(137	)
Increase in other current assets		(97	)			(181	)
Increase in other assets		(60	)			(31		)
Decrease in accounts payable and accrued liabilities		(1,348	)			(592		)
(Decrease) increase in estimated liability for taxes on income		(66	)			242
Decrease in other liabilities		(57	)			(20		)
Other		149				119
NET CASH PROVIDED BY OPERATING ACTIVITIES		1,770				1,837
Cash flows from investing activities:
Capital expenditures		(606	)			(864		)
SPM investments		(109	)			(202		)
Multiclient seismic data capitalized		(101	)			(82		)
Business acquisitions and investments, net of cash acquired		(44	)			(239		)
(Purchase) sale of investments, net		(307	)			1,576
Other		(70	)			(17		)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(1,237	)			172
Cash flows from financing activities:
Dividends paid		(512	)			(410		)
Proceeds from employee stock purchase plan		144				134
Proceeds from exercise of stock options		38				146
Stock repurchase program		(719	)			(899		)
Proceeds from issuance of long-term debt		1,572				1,110
Repayment of long-term debt		(1,144	)			(1,574		)
Net decrease in short-term borrowings		(902	)			(222		)
Other		(2	)			7
NET CASH USED IN FINANCING ACTIVITIES		(1,525	)			(1,708		)
Net (decrease) increase in cash before translation effect		(992	)			301
Translation effect on cash		(17	)			(21		)
Cash, beginning of period		3,130				3,472
Cash, end of period	$	2,121			$	3,752

⁽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 EQUITY

(Unaudited)

	(Stated in millions)
										Accumulated
										Other
	Common Stock						Retained			Comprehensive			Noncontrolling
January 1, 2015 – March 31, 2015	Issued			In Treasury			Earnings			Loss			Interests			Total
Balance, January 1, 2015	$	12,495		$	(11,772	)	$	41,333		$	(4,206	)	$	199		$	38,049
Net income								975						13			988
Currency translation adjustments											(113	)					(113	)
Changes in unrealized gain on marketable securities											(18	)					(18	)
Changes in fair value of cash flow hedges											(34	)					(34	)
Pension and other postretirement benefit plans											86						86
Shares sold to optionees, less shares exchanged		(16	)		54												38
Vesting of restricted stock		(39	)		39												—
Shares issued under employee stock purchase plan		9			135												144
Stock repurchase program					(719	)											(719	)
Stock-based compensation expense		80															80
Dividends declared ($0.50 per share)								(639	)								(639	)
Other		6												(2	)		4
Balance, March 31, 2015	$	12,535		$	(12,263	)	$	41,669		$	(4,285	)	$	210		$	37,866

	(Stated in millions)
										Accumulated
										Other
	Common Stock						Retained			Comprehensive			Noncontrolling
January 1, 2014 – March 31, 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								1,592						16			1,608
Currency translation adjustments											(88	)					(88	)
Changes in unrealized gain on marketable securities											11						11
Changes in fair value of cash flow hedges.											13						13
Pension and other postretirement benefit plans											63						63
Shares sold to optionees, less shares exchanged		(7	)		153												146
Vesting of restricted stock		(30	)		30												—
Shares issued under employee stock purchase plan		6			128												134
Stock repurchase program					(899	)											(899	)
Stock-based compensation expense		77															77
Dividends declared ($0.40 per share)								(522	)								(522	)
Other		8												(6	)		2
Balance, March 31, 2014	$	12,246		$	(8,723	)	$	39,036		$	(2,555	)	$	176		$	40,180

SHARES OF COMMON STOCK

(Unaudited)

			(Stated in millions)
						Shares
	Issued		In Treasury			Outstanding
Balance, January 1, 2015		1,434		(159	)		1,275
Shares sold to optionees, less shares exchanged		—		1			1
Vesting of restricted stock		—		1			1
Shares issued under employee stock purchase plan		—		2			2
Stock repurchase program		—		(9	)		(9	)
Balance, March 31, 2015		1,434		(164	)		1,270

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, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015. The December 31, 2014 balance sheet information has been derived from the Schlumberger 2014 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, 2014, filed with the Securities and Exchange Commission on January 29, 2015.

New Accounting Pronouncement

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This ASU amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. Schlumberger is required to adopt this ASU on January 1, 2017 and does not expect this ASU to have a material impact on its consolidated financial statements.

2. Charges and Credits

Schlumberger recorded the following charges and credits in continuing operations during the first quarter of 2015:

As a result of the severe fall in activity in North America combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices, Schlumberger decided to further reduce its headcount during the first quarter of 2015. Schlumberger recorded a $390 million charge during the first quarter associated with this headcount reduction as well as an incentivized leave of absence program.

During 2014, Venezuela enacted certain changes to its foreign exchange system such that, in addition to the official rate of 6.3 Venezuelan Bolivares per US dollar, there were two other legal exchange rates that could be obtained via different exchange rate mechanisms. These changes included the expansion of the SICAD I auction rate and the introduction of what was known as the SICAD II auction process. The SICAD I and SICAD II exchange rates were approximately 11 and 50 Venezuelan Bolivares to the US dollar, respectively, at December 31, 2014.

Although the functional currency of Schlumberger’s operations in Venezuela is the US dollar, a portion of the transactions are denominated in local currency. Prior to December 31, 2014, Schlumberger had historically applied the official exchange rate to remeasure local currency transactions and balances into US dollars.

Effective December 31, 2014, Schlumberger concluded that it was appropriate to apply the SICAD II exchange rate as it believed this rate best represented the economics of Schlumberger’s business activity in Venezuela. As a result, Schlumberger recorded a $472 million devaluation charge during the fourth quarter of 2014.

In February 2015, the Venezuelan government replaced SICAD II with a new foreign exchange market system known as SIMADI. The SIMADI exchange rate was approximately 192 Venezuela Bolivares to the US dollar as of March 31, 2015. As a result, Schlumberger recorded a $49 million devaluation charge during the first quarter of 2015, reflecting the adoption of the SIMADI exchange rate.

These changes result in a reduction in the US dollar reported amount of local currency denominated revenues, expenses and, consequently, income before taxes and net income in Venezuela. For example, if Schlumberger had applied an exchange rate of 192 Venezuelan Bolivares to the US dollar throughout 2014, it would have reduced Schlumberger earnings by approximately $0.09 per share.

The following is a summary of these charges:

	(Stated in millions)
	Pretax		Tax		Net		Classification
Workforce reduction	$	390		56	$	334	Restructuring & other
Currency devaluation loss in Venezuela		49		—		49	Restructuring & other
	$	439	$	56	$	383

There were no charges or credits recorded during the first quarter of 2014.

3. 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)
	2015						2014
	Schlumberger Net Income		Average Shares Outstanding		Earnings per Share		Schlumberger Net Income		Average Shares Outstanding		Earnings per Share
First Quarter
Basic	$	975		1,276	$	0.76	$	1,592		1,306	$	1.22
Assumed exercise of stock options		—		5				—		8
Unvested restricted stock		—		4				—		4
Diluted	$	975		1,285	$	0.76	$	1,592		1,318	$	1.21

The number of outstanding options to purchase shares of Schlumberger common stock which 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)
	2015		2014
First Quarter		16		1

4. Inventories

A summary of inventories follows:

(Stated in millions)
	Mar. 31,		Dec. 31,
	2015		2014
Raw materials & field materials	$	2,835	$	2,666
Work in process		240		273
Finished goods		1,591		1,689
	$	4,666	$	4,628

5. Fixed Assets

A summary of fixed assets follows:

(Stated in millions)
	Mar. 31,		Dec. 31,
	2015		2014
Property, plant & equipment	$	37,174	$	36,964
Less: Accumulated depreciation		22,039		21,568
	$	15,135	$	15,396

Depreciation expense relating to fixed assets was $827 million and $793 million in the first quarter of 2015 and 2014, respectively.

6. Multiclient Seismic Data

The change in the carrying amount of multiclient seismic data for the three months ended March 31, 2015 was as follows:

(Stated in millions)

Balance at December 31, 2014	$	793
Capitalized in period		101
Charged to expense		(44	)
Balance at March 31, 2015	$	850

7. Goodwill

The changes in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2015 were as follows:

	(Stated in millions)
	Reservoir
	Characterization			Drilling			Production			Total
Balance at December 31, 2014	$	3,812		$	8,488		$	3,187		$	15,487
Acquisitions		—			31			20			51
Impact of changes in exchange rates		(11	)		(7	)		(8	)		(26	)
Balance at March 31, 2015	$	3,801		$	8,512		$	3,199		$	15,512

8. Intangible Assets

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

	(Stated in millions)
	Mar. 31, 2015						Dec. 31, 2014
	Gross		Accumulated		Net Book		Gross		Accumulated		Net Book
	Book Value		Amortization		Value		Book Value		Amortization		Value
Technology/Technical Know-How	$	1,744	$	568	$	1,176	$	1,747	$	535	$	1,212
Tradenames		1,640		335		1,305		1,641		319		1,322
Customer Relationships		2,530		555		1,975		2,531		523		2,008
Other		377		258		119		380