01—Abstract
Summary
Summary of the 10-K filed February 4, 2011. Cited figures are marked; the original filing is the authoritative source.
Schlumberger's FY2010 10-K shows a company transformed by scale and acquisition.
Revenue rose 21% to $27.45 billiona, driven by the August 2010 merger with Smith International (about $3.3 billion of revenue contributed over four months) and the Geoservices acquisition, while Oilfield Services grew 8% organically to $22.08 billion. Net income attributable to Schlumberger was $4.27 billion, or $3.38 diluted EPS, up from $2.61 in 2009, but this figure was flattered by a $1.27 billion non-cash gain from remeasuring the previously held 40% stake in M-I SWACO. Net of charges and credits, underlying earnings were materially weaker in 2010 than the headline suggests, and gross margin fell to 21.7% from 24.0% on acquisition inventory write-ups and pricing pressure in Europe/CIS/Africa.
The balance sheet expanded significantly: total assets nearly doubled to $51.8 billion, goodwill rose to $13.95 billionb and intangibles to $5.16 billion, and net debt increased to $2.64 billion from $126 million. Cash flow from operations was $5.5 billion, capital expenditures were $2.9 billion, and the company returned roughly $2.8 billion to shareholders through dividends ($1.04 billion) and buybacks ($1.72 billion).
Management guided to a stronger 2011, with capex expected to approach $4.0 billionc and a 19% quarterly dividend increase to $0.25 announced in January 2011. Key risks flagged include oil and gas price volatility, the Deepwater Horizon moratorium and related US Gulf of Mexico regulation, roughly 76% of revenue from non-US operations, ongoing US grand jury and FCPA-related inquiries (including Panalpina and sanctioned-country matters), dilution from the Smith merger in the near term, and climate and hydraulic fracturing regulation.
02—Key points
Key Highlights
- Revenue grew 21% to $27.45B (2009: $22.70B), with Smith contributing $3.30B for four months post-merger and Oilfield Services up 8% to $22.08B.
- Diluted EPS from continuing operations was $3.38 (2009: $2.61), but includes a $1.27B pretax non-cash gain on remeasuring the 40% M-I SWACO stake; net charges and credits were a net credit of about $0.25 per share on a pro forma basis.
- Gross margin contracted to 21.7% from 24.0%, reflecting inventory fair-value write-ups from the Smith acquisition and pricing pressure in Europe/CIS/Africa.
- Total assets rose to $51.8B from $33.5B; goodwill reached $13.95B and net debt increased to $2.64B from $126M after assuming $1.8B of Smith net debt.
- Operating cash flow was $5.5B against $2.9B of capex; $2.8B was returned to shareholders via dividends and buybacks, with $3.15B of the $8B repurchase authorization used.
- Quarterly dividend raised 19% to $0.25 (announced January 2011); 2011 capex guided to approximately $4.0B.
- Legal exposure includes a DOJ FCPA inquiry tied to Panalpina, a grand jury investigation related to sanctioned countries (Iran, Syria, Sudan, Cuba), and Deepwater Horizon-related litigation at M-I SWACO, which management does not expect to be material.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, SLB kept $0.16.
- Revenue$26.67B100.0%
- Cost of revenue−$21.10B79.1%
- Gross profit$5.58B20.9%
- Operating costs−$1.32B4.9%
- Operating income$4.25B16.0%
- Interest, other & tax$12.0M0.0%
- Net income$4.27B16.0%
Where FY2010 revenue went
$26.67B- Cost of revenue: $21.10B, 79% of revenue
- Operating income: $4.25B, 16% of revenue
- R&D: $919.0M, 3.4% of revenue
- Other operating costs: $401.0M, 1.5% of revenue
Kept 16% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 4, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $26.67B$22.70B | +17.5% |
| Cost of Revenue | $21.10B$17.25B | +22.3% |
| Gross Profit | $5.58B$5.46B | +2.2% |
| R&D Expenses | $919.00M$802.00M | +14.6% |
| Operating Income | $4.25B$3.16B | +34.8% |
| Interest Expense | $207.00M$221.00M | −6.3% |
| Net Income | $4.27B$3.13B | +36.2% |
| EPS (Basic) | $3.41$2.62 | +30.2% |
| EPS (Diluted) | $3.38$2.59 | +30.5% |
| Shares Outstanding (Basic) | 1.25B1.20B | +4.3% |
| Shares Outstanding (Diluted) | 1.26B1.21B | +4.0% |
05—Questions
Frequently Asked Questions
Did Schlumberger's 2010 earnings growth reflect genuine operating improvement?
Only partly. The 2010 net income of $4.27B includes a $1.27B non-cash gain from remeasuring the M-I SWACO stake, plus $621M of net pretax credits, offset by $649M of restructuring and merger charges and a $153M inventory fair-value charge. Excluding these items, 2010 earnings were materially lower than headline EPS suggests, and gross margin declined year over year.
How did the Smith International acquisition change Schlumberger's profile?
The August 2010 merger issued 176 million shares valued at about $9.8B and added Smith's drilling and completion businesses, creating new segments (M-I SWACO, Smith Oilfield and Distribution). Goodwill and intangibles increased by roughly $9B, and management warns the deal will remain dilutive to EPS in the near term.
What are the main risks to Schlumberger's outlook for 2011?
Key risks include oil and gas price swings that drive customer spending, slow recovery in US Gulf of Mexico deepwater drilling after the Deepwater Horizon moratorium and new regulations, pricing pressure in North American gas, exposure to roughly 76% non-US revenue across about 80 countries, pending US investigations, and climate and hydraulic fracturing legislation that could reduce demand.
Is Schlumberger's balance sheet still strong after the acquisitions?
It remains solid but more levered. Net debt rose to $2.64B from $126M and total debt reached $8.1B, including $1.9B of commercial paper. Management reports about $5.0B of cash and short-term investments and $3.7B of undrawn committed facilities, and believes these are sufficient for at least twelve months. The company also issued $1.6B of new senior notes in January 2011.
What is the capital return policy after 2010?
Schlumberger paid $1.04B in dividends in 2010 and repurchased $1.72B of stock. The $8B buyback program authorized in April 2008 runs through December 2011, with about $4.85B remaining at year-end 2010. The quarterly dividend was raised to $0.25 in January 2011, a 19% increase.
06—Continue