Edgar Filing: SCHLUMBERGER LIMITED/NV

slb-10q_20170930.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: September 30, 2017

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 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 ☒ 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	☐ (Do not check if a smaller reporting company)	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 September 30, 2017
COMMON STOCK, $0.01 PAR VALUE PER SHARE	1,385,261,690

SCHLUMBERGER LIMITED

Third Quarter 2017 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	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

PART II	Other Information

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	30

	Certifications

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (LOSS)

(Unaudited)

	(Stated in millions, except per share amounts)

	Third Quarter				Nine Months
	2017		2016		2017		2016
Revenue
Services	$	5,895	$	5,023	$	16,308	$	15,741
Product sales		2,010		1,996		5,953		4,962
Total Revenue		7,905		7,019		22,261		20,703
Interest & other income		64		54		172		153
Expenses
Cost of services		4,939		4,355		13,816		13,482
Cost of sales		1,858		1,936		5,527		4,734
Research & engineering		189		253		595		750
General & administrative		115		92		323		305
Impairments & other		-		-		510		2,573
Merger & integration		49		88		213		272
Interest		142		149		422		431
Income (loss) before taxes		677		200		1,027		(1,691	)
Taxes on income (loss)		121		10		269		(259	)
Net income (loss)		556		190		758		(1,432	)
Net income attributable to noncontrolling interests		11		14		9		50
Net income (loss) attributable to Schlumberger	$	545	$	176	$	749	$	(1,482	)

Basic earnings (loss) per share of Schlumberger	$	0.39	$	0.13	$	0.54	$	(1.10	)

Diluted earnings (loss) per share of Schlumberger	$	0.39	$	0.13	$	0.54	$	(1.10	)

Average shares outstanding:
Basic		1,385		1,392		1,388		1,345
Assuming dilution		1,392		1,401		1,395		1,345

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Stated in millions)

	Third Quarter						Nine Months
	2017			2016			2017			2016
Net income (loss)	$	556		$	190		$	758		$	(1,432	)
Currency translation adjustments
Unrealized net change arising during the period		75			27			49			(26	)
Marketable securities
Unrealized loss arising during the period		(41	)		(5	)		(66	)		(2	)
Cash flow hedges
Net gain (loss) on cash flow hedges		8			(18	)		19			(86	)
Reclassification to net income (loss) of net realized loss (gain)		(4	)		29			4			109
Pension and other postretirement benefit plans
Actuarial loss
Amortization to net income (loss) of net actuarial loss		40			40			119			119
Prior service cost
Amortization to net income (loss) of net prior service cost		20			25			60			76
Income taxes on pension and other postretirement benefit plans		-			(6	)		(2	)		(20	)
Comprehensive income (loss)		654			282			941			(1,262	)
Comprehensive income attributable to noncontrolling interests		11			14			9			50
Comprehensive income (loss) attributable to Schlumberger	$	643		$	268		$	932		$	(1,312	)

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Stated in millions)

	Sept. 30,
	2017			Dec. 31,
	(Unaudited)			2016
ASSETS
Current Assets
Cash	$	1,690		$	2,929
Short-term investments		3,262			6,328
Receivables less allowance for doubtful accounts (2017 - $321; 2016 - $397)		9,436			9,387
Inventories		4,308			4,225
Other current assets		1,218			1,058
		19,914			23,927
Fixed Income Investments, held to maturity		-			238
Investments in Affiliated Companies		1,481			1,243
Fixed Assets less accumulated depreciation		12,338			12,821
Multiclient Seismic Data		992			1,073
Goodwill		25,113			24,990
Intangible Assets		9,540			9,855
Other Assets		4,191			3,809
	$	73,569		$	77,956
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	9,715		$	10,016
Estimated liability for taxes on income		1,310			1,188
Short-term borrowings and current portion of long-term debt		1,289			3,153
Dividends payable		700			702
		13,014			15,059
Long-term Debt		15,871			16,463
Postretirement Benefits		1,340			1,495
Deferred Taxes		1,893			1,880
Other Liabilities		1,441			1,530
		33,559			36,427
Equity
Common stock		12,863			12,801
Treasury stock		(3,966	)		(3,550	)
Retained earnings		35,136			36,470
Accumulated other comprehensive loss		(4,460	)		(4,643	)
Schlumberger stockholders' equity		39,573			41,078
Noncontrolling interests		437			451
		40,010			41,529
	$	73,569		$	77,956

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Stated in millions)

	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	758		$	(1,432	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Impairments and other charges		723			3,144
Depreciation and amortization ⁽¹⁾		2,931			3,078
Pension and other postretirement benefits expense		79			139
Stock-based compensation expense		261			210
Pension and other postretirement benefits funding		(107	)		(127	)
Earnings of equity method investments, less dividends received		(52	)		(51	)
Change in assets and liabilities: ⁽²⁾
(Increase) decrease in receivables		(1,049	)		851
Decrease in inventories		14			556
(Increase) decrease in other current assets		(86	)		241
Decrease (increase) in other assets		202			(335	)
Decrease in accounts payable and accrued liabilities		(533	)		(1,684	)
Increase (decrease) in estimated liability for taxes on income		181			(187	)
(Decrease) increase in other liabilities		(74	)		40
Other		164			(195	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,412			4,248
Cash flows from investing activities:
Capital expenditures		(1,482	)		(1,401	)
SPM investments		(492	)		(869	)
Multiclient seismic data costs capitalized		(223	)		(497	)
Business acquisitions and investments, net of cash acquired		(382	)		(2,251	)
Sale of investments, net		3,310			4,439
Other		(92	)		(13	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		639			(592	)
Cash flows from financing activities:
Dividends paid		(2,086	)		(1,951	)
Proceeds from employee stock purchase plan		212			231
Proceeds from exercise of stock options		49			113
Stock repurchase program		(868	)		(662	)
Proceeds from issuance of long-term debt		681			3,586
Repayment of long-term debt		(2,206	)		(4,749	)
Net (decrease) increase in short-term borrowings		(1,110	)		401
Other		17			(8	)
NET CASH USED IN FINANCING ACTIVITIES		(5,311	)		(3,039	)
Net (decrease) increase in cash before translation effect		(1,260	)		617
Translation effect on cash		21			31
Cash, beginning of period		2,929			2,793
Cash, end of period	$	1,690		$	3,441

⁽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, 2017 – September 30, 2017	Issued			In Treasury			Earnings			Loss			Interests			Total
Balance, January 1, 2017	$	12,801		$	(3,550	)	$	36,470		$	(4,643	)	$	451		$	41,529
Net income								749						9			758
Currency translation adjustments											49						49
Changes in unrealized gain on marketable securities											(66	)					(66	)
Changes in fair value of cash flow hedges											23						23
Pension and other postretirement benefit plans											177						177
Shares sold to optionees, less shares exchanged		(39	)		88												49
Vesting of restricted stock		(98	)		98												-
Shares issued under employee stock purchase plan		(52	)		264												212
Stock repurchase program					(868	)											(868	)
Stock-based compensation expense		261															261
Dividends declared ($1.50 per share)								(2,083	)								(2,083	)
Other		(10	)		2									(23	)		(31	)
Balance, September 30, 2017	$	12,863		$	(3,966	)	$	35,136		$	(4,460	)	$	437		$	40,010

	(Stated in millions)

										Accumulated
										Other
	Common Stock						Retained			Comprehensive			Noncontrolling
January 1, 2016 – September 30, 2016	Issued			In Treasury			Earnings			Loss			Interests			Total
Balance, January 1, 2016	$	12,693		$	(13,372	)	$	40,870		$	(4,558	)	$	272		$	35,905
Net loss								(1,482	)					50			(1,432	)
Currency translation adjustments											(26	)					(26	)
Changes in unrealized gain on marketable securities											(2	)					(2	)
Changes in fair value of cash flow hedges											23						23
Pension and other postretirement benefit plans											175						175
Shares sold to optionees, less shares exchanged		(52	)		165												113
Vesting of restricted stock		(84	)		84												-
Shares issued under employee stock purchase plan		(55	)		286												231
Stock repurchase program					(662	)											(662	)
Stock-based compensation expense		210															210
Dividends declared ($1.50 per share)								(2,018	)								(2,018	)
Acquisition of Cameron International Corporation		103			9,924									57			10,084
Other		8			4									(39	)		(27	)
Balance, September 30, 2016	$	12,823		$	(3,571	)	$	37,370		$	(4,388	)	$	340		$	42,574

SHARES OF COMMON STOCK

(Unaudited)

			(Stated in millions)

						Shares
	Issued		In Treasury			Outstanding
Balance, January 1, 2017		1,434		(43	)		1,391
Shares sold to optionees, less shares exchanged		-		1			1
Vesting of restricted stock		-		1			1
Shares issued under employee stock purchase plan		-		4			4
Stock repurchase program		-		(12	)		(12	)
Balance, September 30, 2017		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 nine-month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017. The December 31, 2016 balance sheet information has been derived from the Schlumberger 2016 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, 2016, filed with the Securities and Exchange Commission on January 25, 2017.

New Accounting Pronouncements

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 will adopt this ASU on January 1, 2018. Schlumberger has concluded that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. Schlumberger will adopt this ASU on January 1, 2019. Based on its current lease portfolio, Schlumberger estimates that the adoption of this ASU will result in approximately $1.3 billion of additional assets and liabilities being reflected on its Consolidated Balance Sheet.

2. Charges and Credits

Schlumberger recorded the following charges and credits during the first nine months of 2017:

Third quarter 2017:

•

In connection with Schlumberger’s 2016 acquisition of Cameron International Corporation (“Cameron”) (See Note 4 – Acquisition of Cameron), Schlumberger recorded $49 million of charges relating to employee benefits, facility closures and other merger and integration-related costs. These charges are classified in Merger & integration in the Consolidated Statement of Income (Loss).

Second quarter 2017:

•

During the second quarter of 2017, Schlumberger entered into a financing agreement with its primary customer in Venezuela. This agreement resulted in the exchange of $700 million of outstanding accounts receivable for a promissory note with a three-year term that bears interest at the rate of 6.50% per annum. Schlumberger recorded this note at its estimated fair value on the date of the exchange, which resulted in a charge of $460 million. Schlumberger is accounting for the promissory note as an available-for-sale security reported at fair value in Other Assets, with unrealized gains and losses included as a component of Accumulated other comprehensive loss. The fair value of the promissory notes, which was $184 million as of September 30, 2017, is based on management’s estimate of pricing assumptions that market participants would use.

During the second quarter of 2017, Schlumberger also entered into discussions with another customer relating to certain of its outstanding accounts receivable. As a result of these ongoing discussions, Schlumberger recorded a charge of $50 million to adjust these receivables to their estimated net realizable value.

These charges are classified in Impairments & other in the Consolidated Statement of Income (Loss).

•