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
|
|
8
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.
9
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
|
$
|
1,743
|
|
|
$
|
1,742
|
|
3.30% Senior Notes due 2021
|
|
1,597
|
|
|
|
1,596
|
|
3.00% Senior Notes due 2020
|
|
1,596
|
|
|
|
1,596
|
|
3.65% Senior Notes due 2023
|
|
1,494
|
|
|
|
1,493
|
|
4.20% Senior Notes due 2021
|
|
1,100
|
|
|
|
1,100
|
|
2.40% Senior Notes due 2022
|
|
997
|
|
|
|
997
|
|
3.63% Senior Notes due 2022
|
|
847
|
|
|
|
847
|
|
3.75% Senior Notes due 2024
|
|
745
|
|
|
|
-
|
|
4.30% Senior Notes due 2029
|
|
844
|
|
|
|
-
|
|
1.00% Guaranteed Notes due 2026
|
|
671
|
|
|
|
678
|
|
2.65% Senior Notes due 2022
|
|
598
|
|
|
|
598
|
|
2.20% Senior Notes due 2020
|
|
499
|
|
|
|
499
|
|
7.00% Notes due 2038
|
|
209
|
|
|
|
210
|
|
4.50% Notes due 2021
|
|
132
|
|
|
|
132
|
|
5.95% Notes due 2041
|
|
115
|
|
|
|
115
|
|
3.60% Notes due 2022
|
|
109
|
|
|
|
109
|
|
5.13% Notes due 2043
|
|
99
|
|
|
|
99
|
|
4.00% Notes due 2023
|
|
81
|
|
|
|
82
|
|
3.70% Notes due 2024
|
|
55
|
|
|
|
55
|
|
Commercial paper borrowings
|
|
2,655
|
|
|
|
2,433
|
|
Other
|
|
263
|
|
|
|
263
|
|
|
$
|
16,449
|
|
|
$
|
14,644
|
|
The estimated fair value of Schlumberger’s
Long-term Debt,
based on quoted market prices at March 31, 2019 and December 31, 2018, was $16.7 billion and $14.6 billion, respectively.
At March 31, 2019, Schlumberger had separate committed credit facility agreements aggregating $6.5 billion with commercial banks, of which $3.8 billion was available and unused. These committed facilities support commercial paper programs in the United States and Europe, of which $1.0 billion matures in February 2020, $1.5 billion matures in November 2020, $2.0 billion matures in February 2023 and $2.0 billion matures in February 2024. Interest rates and other terms of borrowing under these lines of credit vary by facility.
Borrowings under Schlumberger’s commercial paper programs at March 31, 2019 and December 31, 2018 were $2.7 billion and $2.4 billion, respectively, all of which were classified in
Long-term Debt
in the
Consolidated Balance Sheet
.
In April 2019, Schlumberger completed a debt exchange offer, pursuant to which it issued $1.500 billion in principal of 3.90% Senior Notes due 2028 (the “New Notes”) in exchange for $401 million of 3.00% Senior Notes due 2020, $234 million of 3.63% Senior Notes due 2022 and $817 million of 4.00% Senior Notes due 2025. In connection with the exchange of principal, Schlumberger paid a premium of $48 million, substantially all of which was in the form of New Notes. This premium will be amortized as additional interest expense over the term of the New Notes.
8.
Derivative Instruments and Hedging Activities
Schlumberger is exposed to market risks related to fluctuations in foreign currency exchange rates and interest rates. To mitigate these risks, Schlumberger utilizes derivative instruments. Schlumberger does not enter into derivative transactions for speculative purposes.
Interest Rate Risk
Schlumberger is subject to interest rate risk on its debt and its investment portfolio. Schlumberger maintains an interest rate risk management strategy that uses a mix of variable and fixed rate debt combined with its investment portfolio, and occasionally interest rate swaps, to mitigate the exposure to changes in interest rates.
10
During 2017, a Canadian
-
dollar functional currency subsidiary of Schlumberger issued $1.
1 billion of US
-
dollar denominated debt. Schlumberger entered into cross-currency swaps for an aggregate notional amount of $1.1 billion in order to hedge changes in the fair value of its $0.5 billion 2.20% Senior Notes due 2020 and its $0.6 billion 2.65%
Senior Notes due 2022. These cross-currency swaps effectively convert the US
-
dollar notes to Canadian
-
dollar denominated debt with fixed annual interest rates of 1.97% and 2.52%, respectively.
These cross-currency swaps are designated as cash flow hedges. The changes in the fair values of the hedges are recorded on the
Consolidated Balance Sheet
and in
Accumulated Other Comprehensive Loss.
Amounts recorded in
Accumulated Other Comprehensive Loss
are reclassified to earnings in the same periods that the underlying hedged item is recognized in earnings.
At March 31, 2019, Schlumberger had fixed rate debt aggregating $13.5 billion and variable rate debt aggregating $3.0 billion, after taking into account the effect of interest rate swaps.
Foreign Currency Exchange Rate Risk
As a multinational company, Schlumberger generates revenue in more than 120 countries. Schlumberger’s functional currency is primarily the US dollar. However, outside the United States, a significant portion of Schlumberger’s expenses is incurred in foreign currencies. Therefore, when the US dollar weakens (strengthens) in relation to the foreign currencies of the countries in which Schlumberger conducts business, the US dollar-reported expenses will increase (decrease).
Schlumberger is exposed to risks on future cash flows to the extent that the local currency is not the functional currency and expenses denominated in local currency are not equal to revenues denominated in local currency. Schlumberger is also exposed to risks on future cash flows relating to certain of its fixed rate debt denominated in currencies other than the functional currency. Schlumberger uses foreign currency forward contracts to provide a hedge against a portion of these cash flow risks. These contracts are accounted for as cash flow hedges, with the changes in the fair value of the hedge recorded on the
Consolidated Balance Sheet
and in
Accumulated Other Comprehensive Loss.
Amounts recorded in
Accumulated Other Comprehensive Loss
are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings.
At March 31, 2019, Schlumberger recognized a cumulative net $16 million loss in
Accumulated Other Comprehensive Loss
relating to revaluation of foreign currency forward contracts designated as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next 12 months.
Schlumberger is exposed to changes in the fair value of assets and liabilities that are denominated in currencies other than the functional currency. While Schlumberger uses foreign currency forward contracts and foreign currency options to economically hedge this exposure as it relates to certain currencies, these contracts are not designated as hedges for accounting purposes. Instead, the fair value of the contracts is recorded on the
Consolidated Balance Sheet,
and changes in the fair value are recognized in the
Consolidated Statement of Income
as are changes in fair value of the hedged item.
At March 31, 2019, contracts were outstanding for the US dollar equivalent of $4.0 billion in various foreign currencies, of which $1.1 billion relates to hedges of debt denominated in currencies other than the functional currency.
11
The effect of derivative instruments designated as fair value
and cash flow
hedges
,
and those not designated as hedges
,
on the
Consolidated Statement of Income
was as follows:
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income
|
|
|
|
|
First Quarter
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Consolidated Statement of Income Classification
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
|
|
Cross currency swaps
|
$
|
-
|
|
|
$
|
27
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
(2
|
)
|
|
$
|
4
|
|
|
Cost of services/sales
|
Cross currency swaps
|
|
(16
|
)
|
|
|
19
|
|
|
Interest expense
|
|
$
|
(18
|
)
|
|
$
|
23
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
6
|
|
|
$
|
28
|
|
|
Cost of services/sales
|
9.
Contingencies
Schlumberger is party to various legal proceedings from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. Management believes that the probability of a material loss with respect to any currently pending legal proceeding is remote. However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of any of these proceedings.
10.
Segment Information
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2019
|
|
|
First Quarter 2018
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
Before
|
|
|
Revenue
|
|
|
Taxes
|
|
|
Revenue
|
|
|
Taxes
|
|
Reservoir Characterization
|
$
|
1,543
|
|
|
$
|
293
|
|
|
$
|
1,559
|
|
|
$
|
306
|
|
Drilling
|
|
2,387
|
|
|
|
307
|
|
|
|
2,126
|
|
|
|
293
|
|
Production
|
|
2,890
|
|
|
|
217
|
|
|
|
2,956
|
|
|
|
217
|
|
Cameron
|
|
1,174
|
|
|
|
137
|
|
|
|
1,310
|
|
|
|
166
|
|
Eliminations & other
|
|
(115
|
)
|
|
|
(46
|
)
|
|
|
(122
|
)
|
|
|
(8
|
)
|
Pretax operating income
|
|
|
|
|
|
908
|
|
|
|
|
|
|
|
974
|
|
Corporate & other
(1)
|
|
|
|
|
|
(273
|
)
|
|
|
|
|
|
|
(225
|
)
|
Interest income
(2)
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
25
|
|
Interest expense
(3)
|
|
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
(131
|
)
|
|
$
|
7,879
|
|
|
$
|
509
|
|
|
$
|
7,829
|
|
|
$
|
643
|
|
(1)
Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items.
(2)
Interest income excludes amounts which are included in the segments’ income ($1 million in 2019; $3 million in 2018).
(3)
Interest expense excludes amounts which are included in the segments’ income ($11 million in 2019; $12 million in 2018).
12
Revenue by geographic area was as follows:
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
2019
|
|
|
2018
|
|
North America
|
$
|
2,738
|
|
|
$
|
2,835
|
|
Latin America
|
|
992
|
|
|
|
870
|
|
Europe/CIS/Africa
|
|
1,707
|
|
|
|
1,713
|
|
Middle East & Asia
|
|
2,338
|
|
|
|
2,300
|
|
Eliminations & other
|
|
104
|
|
|
|
111
|
|
|
$
|
7,879
|
|
|
$
|
7,829
|
|
North America and International revenue disaggregated by segment was as follows:
|
|
|
|
|
|
|
|
|
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2019
|
|
|
North
|
|
|
|
|
|
|
Eliminations
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
& other
|
|
|
Total
|
|
Reservoir Characterization
|
$
|
216
|
|
|
$
|
1,252
|
|
|
$
|
75
|
|
|
$
|
1,543
|
|
Drilling
|
|
578
|
|
|
|
1,755
|
|
|
|
54
|
|
|
|
2,387
|
|
Production
|
|
1,373
|
|
|
|
1,516
|
|
|
|
1
|
|
|
|
2,890
|
|
Cameron
|
|
560
|
|
|
|
568
|
|
|
|
46
|
|
|
|
1,174
|
|
Other
|
|
11
|
|
|
|
(54
|
)
|
|
|
(72
|
)
|
|
|
(115
|
)
|
|
$
|
2,738
|
|
|
$
|
5,037
|
|
|
$
|
104
|
|
|
$
|
7,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2018
|
|
|
North
|
|
|
|
|
|
|
Eliminations
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
& other
|
|
|
Total
|
|
Reservoir Characterization
|
$
|
222
|
|
|
$
|
1,200
|
|
|
$
|
137
|
|
|
$
|
1,559
|
|
Drilling
|
|
564
|
|
|
|
1,513
|
|
|
|
49
|
|
|
|
2,126
|
|
Production
|
|
1,500
|
|
|
|
1,455
|
|
|
|
1
|
|
|
|
2,956
|
|
Cameron
|
|
550
|
|
|
|
736
|
|
|
|
24
|
|
|
|
1,310
|
|
Other
|
|
(1
|
)
|
|
|
(21
|
)
|
|
|
(100
|
)
|
|
|
(122
|
)
|
|
$
|
2,835
|
|
|
$
|
4,883
|
|
|
$
|
111
|
|
|
$
|
7,829
|
|
Revenue in excess of billings related to contracts where revenue is recognized over time was $0.2 billion at March 31, 2019 and December 31, 2018. Such amounts are included within
Receivables less allowance for doubtful accounts
in the
Consolidated Balance Sheet
.
Due to the nature of its business, Schlumberger does not have significant backlog. Total backlog was $2.9 billion at March 31, 2019, of which approximately 49% is expected to be recognized as revenue over the next 12 months.
Billings and cash collections in excess of revenue was $1.0 billion at March 31, 2019 and $0.9 billion at December 31, 2018. Such amounts are included within
Accounts payable and accrued liabilities
in the
Consolidated Balance Sheet
.
13
1
1
.
Pension and Other Postretirement Benefit Plans
Net pension cost (credit) for the Schlumberger pension plans included the following components:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
2019
|
|
|
2018
|
|
|
|
US
|
|
|
Int'l
|
|
|
US
|
|
|
Int'l
|
|
|
Service cost
|
$
|
14
|
|
|
$
|
32
|
|
|
$
|
16
|
|
|
$
|
32
|
|
|
Interest cost
|
|
45
|
|
|
|
83
|
|
|
|
43
|
|
|
|
77
|
|
|
Expected return on plan assets
|
|
(58
|
)
|
|
|
(150
|
)
|
|
|
(62
|
)
|
|
|
(147
|
)
|
|
Amortization of prior service cost
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
|
Amortization of net loss
|
|
8
|
|
|
|
16
|
|
|
|
12
|
|
|
|
44
|
|
|
|
$
|
11
|
|
|
$
|
(17
|
)
|
|
$
|
12
|
|
|
$
|
9
|
|
|
The net periodic benefit credit for the Schlumberger US postretirement medical plan included the following components:
(Stated in millions)
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
2019
|
|
|
2018
|
|
Service cost
|
$
|
8
|
|
|
$
|
8
|
|
Interest cost
|
|
12
|
|
|
|
11
|
|
Expected return on plan assets
|
|
(16
|
)
|
|
|
(15
|
)
|
Amortization of prior service credit
|
|
(7
|
)
|
|
|
(7
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
14