# Halliburton Co: Form 10-Q for the period ended Mar 31, 2013

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2013-04-26
- Accepted by EDGAR: Apr 26, 2013, 15:05 ET
- Period: 2013-03-31
- Accession: 0000045012-13-000159
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501213000159/hal_3312013-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501213000159/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-01-01 to 2013-03-31 | $6.97bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2013-01-01 to 2013-03-31 | $1.39bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2013-01-01 to 2013-03-31 | −$98.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-01-01 to 2013-03-31 | −$172.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-01-01 to 2013-03-31 | −$18.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-01-01 to 2013-03-31 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-01-01 to 2013-03-31 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-01-01 to 2013-03-31 | 931,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2013-01-01 to 2013-03-31 | $349.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2013-01-01 to 2013-03-31 | $685.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2013-01-01 to 2013-03-31 | $116.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2013-01-01 to 2013-03-31 | $50.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-03-31 | $2.03bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-03-31 | $13.15bn | us-gaap:AssetsCurrent |
| Total assets | at 2013-03-31 | $27.68bn | us-gaap:Assets |
| Current liabilities | at 2013-03-31 | $4.67bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-03-31 | $11.95bn | us-gaap:Liabilities |
| Long-term debt | at 2013-03-31 | $4.82bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2013-03-31 | $15.71bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,739 characters.

### EXECUTIVE OVERVIEW

### Organization

We are a leading provider of services and products to the energy industry. We serve the upstream oil and natural gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field. Activity levels within our operations are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and natural gas companies. We report our results under two segments, the Completion and Production segment and the Drilling and Evaluation segment:

- our Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion services. The segment consists of Halliburton Production Enhancement, Cementing, Completion Tools, Boots & Coots, Multi-Chem, and Artificial Lift.
- our Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation, and precise wellbore placement solutions that enable customers to model, measure, and optimize their well construction activities. The segment consists of Halliburton Drill Bits and Services, Wireline and Perforating, Testing and Subsea, Baroid, Sperry Drilling, Landmark Software and Services, and Consulting and Project Management.

The business operations of our segments are organized around four primary geographic regions: North America, Latin America, Europe/Africa/CIS, and Middle East/Asia. We have significant manufacturing operations in various locations, including the United States, Canada, Malaysia, Mexico, Singapore, and the United Kingdom.

With over 73,000 employees, we operate in approximately 80 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

### Financial results

During the first quarter of 2013, we produced revenue of $7.0 billion and an operating loss of $98 million. Revenue increased $106 million, or 2%, from the first quarter of 2012 primarily due to increased activity in all of our international regions and the Gulf of Mexico. This was partially offset by lower activity levels and pricing pressure in the United States land market for production enhancement services. The operating loss we experienced in the first quarter of 2013 was attributable to a $1.0 billion, pre-tax, reserve related to the Macondo well incident. The first quarter of 2012 results were negatively impacted by a $300 million, pre-tax, reserve related to the Macondo well incident.

### Business outlook

We continue to believe in the strength of the long-term fundamentals of our business. Energy demand is expected to increase over the long term driven by economic growth in developing countries despite current underlying downside risks in the industry, such as sluggish growth in developed countries and supply uncertainties associated with geopolitical tensions in the Middle East. Furthermore, development of new resources is expected to be more complex, resulting in increasing service intensity.

In North America, the industry has experienced an activity shift from natural gas plays to oil and liquids-rich basins due to low natural gas prices resulting from continued strong natural gas production. As a result, operators have been optimizing their budgets by focusing on basins with better economics. We anticipate activity levels will improve over the course of the year through a combination of modest rig count growth and continued drilling efficiencies. However, we also expect weak natural gas activity and excess pressure pumping capacity, which may continue to put pressure on stimulation pricing. We currently intend to direct less capital toward the pressure pumping market in 2013.

Outside of North America, revenue and operating income increased in the first quarter of 2013 compared to the first quarter of 2012. We expect to see gradual activity and pricing improvements in those international markets where we anticipate the addition of deepwater rigs and those in which we have made strategic investments in capital and technologies. We also believe that new international unconventional oil and natural gas projects may contribute to activity improvements for the remainder of 2013.

We are continuing to execute several key initiatives in 2013. These initiatives include increasing manufacturing production in the Eastern Hemisphere and reinventing our service delivery platform to lower our delivery costs.

Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”

### Financial markets, liquidity, and capital resources

The global financial markets can potentially create additional risks for our business. We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations. For additional information, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”

### LIQUIDITY AND CAPITAL RESOURCES

We ended the first quarter of 2013 with cash and equivalents of $2.0 billion, compared to $2.5 billion at the end of 2012. As of March 31, 2013, approximately $455 million of the $2.0 billion of cash and equivalents was held by our foreign subsidiaries that would be subject to tax if repatriated. If these funds are needed for our operations in the United States, we would be required to accrue and pay United States taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate them to fund our United States operations. At March 31, 2013, we also held $418 million of investments in fixed income securities compared to $398 million at December 31, 2012. These securities are reflected in "Other current assets" and "Other assets" in our condensed consolidated balance sheets.

### Significant sources and uses of cash

Cash flows from operating activities were $349 million in the first quarter of 2013.

Capital expenditures were $685 million in the first quarter of 2013, and were predominantly made in our Production Enhancement, Boots and Coots, Wireline and Perforating, and Sperry Drilling product service lines. We have also invested additional working capital to support the growth of our business.

During the first quarter of 2013, our primary components of net working capital (receivables, inventories, and accounts payable) increased by $318 million, primarily due to increased business activity.

In January 2013, we made a $219 million payment under a guarantee we issued for the Barracuda-Caratinga project.

We paid $116 million in dividends to our shareholders in the first quarter of 2013.

We also repurchased 1.2 million shares of our common stock during the quarter under our share repurchase program at a cost of approximately $50 million and at an average price of $40.70 per share.

*Future uses of cash.* Capital spending for 2013 is expected to be approximately $3.0 billion. The capital expenditures plan for 2013 is primarily directed toward our Production Enhancement, Sperry Drilling, Cementing, Boots and Coots, and Wireline and Perforating product service lines with less capital to be directed toward the North America pressure pumping market.

We have been participating in settlement discussions with some of the parties involved in the Macondo Multi-District Litigation. These discussions are at an advanced stage and our most recent offer includes cash components payable over an extended period of time, of which approximately $278 million would be payable over the next year. See Note 6 to the condensed consolidated financial statements for further discussion of our Macondo reserve.

Subject to Board of Directors approval, we expect to pay dividends representing approximately 15% to 20% of our net income on an annual basis. Currently, our dividend rate is $0.125 per common share, or approximately $116 million per quarter. We also have approximately $1.7 billion remaining available under our share repurchase authorization program. We anticipate making additional purchases of our common stock under this program during the second quarter.

In April 2013, we made a $172 million earn-out payment related to a prior year acquisition due to significantly better than expected operating performance.

We are continuing to explore opportunities for acquisitions that will enhance or augment our current portfolio of services and products, including those with unique technologies or distribution networks in areas where we do not already have large operations.

### Other factors affecting liquidity

*Guarantee agreements.* In the normal course of business, we have agreements with financial institutions under which an aggregate of approximately $1.8 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of March 31, 2013. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

*Financial position in current market.* As of March 31, 2013, we had $2.0 billion of cash and equivalents, $418 million in fixed income investments, and a total of $2.0 billion of available committed bank credit under our revolving credit facility. Reflecting the growth of our company, in April 2013, we executed an amendment to our revolving credit facility, which increased the capacity from $2.0 billion to $3.0 billion and extended the maturity to 2018. Furthermore, we have no financial covenants or material adverse change provisions in our bank agreements, and our debt maturities extend over a long period of time. Although a portion of earnings from our foreign subsidiaries is reinvested outside the United States indefinitely, we do not consider this to have a significant impact on our liquidity. We currently believe that our capital expenditures, working capital investments, and dividends, if any, in 2013 can be fully funded through cash from operations.

As a result, we believe we have a reasonable amount of liquidity and, if necessary, additional financing flexibility given the current market environment to fund our potential contingent liabilities, if any. However, as discussed above in Note 6 to the condensed consolidated financial statements, there are numerous future developments that may arise as a result of the Macondo well incident that could have a material adverse effect on our liquidity.

*Credit ratings.* Credit ratings for our long-term debt remain A2 with Moody’s Investors Service and A with Standard & Poor’s. The credit ratings on our short-term debt remain P-1 with Moody’s Investors Service and A-1 with Standard & Poor’s.

*Customer receivables*. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets. For example, we continue to see delays in receiving payment on our receivables from one of our primary customers in Venezuela. Our total outstanding trade receivables in Venezuela at March 31, 2013 were $383 million, which represents approximately 6% of our gross trade receivables at that date. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition. See “Business Environment and Results of Operations – International Operations” for further discussion related to Venezuela.

### BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 80 countries to provide a comprehensive range of discrete and integrated services and products to the energy industry. The majority of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. We serve the upstream oil and natural gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field. Our two business segments are the Completion and Production segment and the Drilling and Evaluation segment. The industries we serve are highly competitive with many substantial competitors in each segment. In the first quarter of 2013, based upon the location of the services provided and products sold, 49% of our consolidated revenue was from the United States. In the first quarter of 2012, 56% of our consolidated revenue was from the United States. No other country accounted for more than 10% of our revenue during these periods.

Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, expropriation or other governmental actions, inflation, foreign currency exchange restrictions, and highly inflationary currencies. We believe the geographic diversification of our business activities reduces the risk that loss of operations in any one country, other than the United States, would be materially adverse to our consolidated results of operations.

Activity levels within our business segments are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and natural gas companies. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption.

Some of the more significant measures of current and future spending levels of oil and natural gas companies are oil and natural gas prices, the world economy, the availability of credit, government regulation, and global stability, which together drive worldwide drilling activity. Our financial performance is significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the following tables. Additionally, our financial performance is impacted by well count in the North America market as a result of improved drilling and completion efficiencies.

This table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:

| Average Oil Prices (dollars per barrel) | Three Months Ended March 31 2013 | 2012 | Year Ended December 31 2012 |
| --- | ---: | ---: | ---: |
| West Texas Intermediate | $94.34 | $102.88 | $94.15 |
| United Kingdom Brent | 112.49 | 118.49 | 111.60 |
| Average United States Natural Gas Prices (dollars per thousand cubic feet, or Mcf) |  |  |  |
| Henry Hub | $3.49 | $2.62 | $2.81 |

22

The quarterly and yearly average rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:

| Land vs. Offshore United States: | Three Months Ended March 31 2013 2012 | Year Ended December 31 2012 |
| --- | ---: | ---: |
| Land | 1,706 1,948 | 1,872 |
| Offshore (incl. Gulf of Mexico) | 52 42 | 47 |
| Total | 1,758 1,990 | 1,919 |
| Canada: |  |  |
| Land | 535 591 | 363 |
| Offshore | 1 — | 1 |
| Total | 536 591 | 364 |
| International (excluding Canada): |  |  |
| Land | 959 879 | 931 |
| Offshore | 315 310 | 303 |
| Total | 1,274 1,189 | 1,234 |
| Worldwide total | 3,568 3,770 | 3,517 |
| Land total | 3,200 3,418 | 3,166 |
| Offshore total | 368 352 | 351 |
|  | Three Months Ended March 31 | Year Ended December 31 |
| **Oil vs. Natural Gas** | 2013 2012 | 2012 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 1,332 1,262 | 1,359 |
| Natural gas | 426 728 | 560 |
| Total | 1,758 1,990 | 1,919 |
| Canada: |  |  |
| Oil | 398 423 | 261 |
| Natural gas | 138 168 | 103 |
| Total | 536 591 | 364 |
| International (excluding Canada): |  |  |
| Oil | 1,021 942 | 984 |
| Natural gas | 253 247 | 250 |
| Total | 1,274 1,189 | 1,234 |
| Worldwide total | 3,568 3,770 | 3,517 |
| Oil total | 2,751 2,627 | 2,604 |
| Natural gas total | 817 1,143 | 913 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended March 31 2013 | 2012 | Year Ended December 31 2012 |
| --- | ---: | ---: | ---: |
| Horizontal | 1,127 | 1,172 | 1,151 |
| Vertical | 441 | 601 | 552 |
| Directional | 190 | 217 | 216 |
| Total | 1,758 | 1,990 | 1,919 |

23

Our customers’ cash flows, in most instances, depend upon the revenue they generate from the sale of oil and natural gas. Lower oil and natural gas prices usually translate into lower exploration and production budgets, while the opposite is true for higher oil and natural gas prices.

WTI oil spot prices fluctuated throughout 2012 between a low of approximately $78 per barrel to a high of approximately $109 per barrel. Brent oil spot prices fluctuated between a low of approximately $89 per barrel to a high of approximately $128 per barrel during this same period. During the first quarter of 2013, WTI and Brent oil spot prices averaged approximately $94 and $112 per barrel, a slight decrease from prices experienced in the first quarter of 2012. Prices have remained somewhat volatile as geopolitical tension in the Middle East, global economic uncertainty surrounding the upheaval in European banks, and slower growth expectations in Asia have impacted demand. The outlook for world petroleum demand for the remainder of 2013 appears mixed, with the International Energy Agency’s April 2013 “Oil Market Report” continuing to forecast 2013 demand to increase approximately 0.9% over 2012 levels.

Natural gas prices in the United States have increased approximately 33% from the first quarter of 2012 due to an increase in storage withdrawals as a result of colder temperatures in conjunction with a 32% decline in natural gas inventories from the same period in 2012. The United States Energy Information Administration's April 2013 “Short Term Energy Outlook” forecasts a decline in natural gas used for electricity generation, and we foresee significant natural gas price constraints in the near-term as natural gas competes as a fuel source in the power generation market.

In spite of this tempered outlook, we believe that, over the long term, hydrocarbon demand will generally increase. Increased demand, combined with the underlying trends of smaller and more complex reservoirs, high depletion rates, and the need for continual reserve replacement, should drive the long-term need for our services and products.

### North America operations

Volatility in oil and natural gas prices can impact our customers’ drilling and production activities, particularly in North America. For the first quarter of 2013, the average natural gas directed rig count fell by 332 rigs, or 37%, from the first quarter of 2012. The curtailment of natural gas activity along with the influx of stimulation equipment into the industry have resulted in overcapacity and pricing pressure for hydraulic fracturing services, which we expect to persist throughout 2013. Activity levels in Canada have also yet to return fully to levels seen during the same period in prior years. In the long run, we believe the shift to unconventional oil, liquids-rich, and natural gas basins in North America will continue to drive increased service intensity and will require higher demand in fluid chemistry and other technologies required for these complex reservoirs which will benefit our operations.

In the Gulf of Mexico, deepwater drilling activity has returned to levels experienced before the Macondo incident. Improvement in the performance of many of our product service lines in this region is due to the 17% increase in the offshore rig count from the first quarter of 2012, in addition to the efficiencies and integrated solutions we offer that save our customers time and enhance productivity. Over the long term, the continued growth in the Gulf of Mexico is dependent on, among other things, governmental approvals for permits, our customers' actions, and new deepwater rigs entering the market.

### International operations

The industry experienced steady volume increases during 2012, with average international rig count improving by 6% over 2011. These volume increases have led to meaningful absorption of equipment supply and we are now seeing opportunities for price improvements in select geographies. We anticipate that activity increases will remain steady as we believe that operator spending outlook will be impacted by ongoing macroeconomic concerns. We also believe that international unconventional oil and natural gas and deepwater projects will contribute to activity improvements over the long term, and we plan to leverage our extensive experience in North America to optimize these opportunities. During the first quarter of 2013, revenue outside North America increased 21% and operating income outside of North America increased 22% from the first quarter of 2012, as a result of our growth in unconventional activity overseas. Consistent with our long-term strategy to grow our operations outside of North America, we also expect to continue to invest in capital equipment for our international operations.

*Venezuela.* As of March 31, 2013, our total net investment in Venezuela was approximately $333 million, including net monetary assets of $100 million denominated in Bolívar Fuerte. Our total outstanding trade receivables in Venezuela were $383 million, or approximately 6% of our gross trade receivables, as of March 31, 2013, compared to $491 million, or approximately 9% of our gross trade receivables, as of December 31, 2012. We continue to see delays in receiving payment on our receivables from our primary customer in Venezuela. In addition, at March 31, 2013 we had $191 million of surety bond guarantees outstanding relating to our Venezuelan operations.

In February 2013, the Venezuelan government announced a devaluation of the Bolívar Fuerte, from the preexisting exchange rate of 4.3 Bolívar Fuertes per United States dollar to 6.3 Bolívar Fuertes per United States dollar, resulting in us incurring a foreign currency loss. However, the net foreign currency impact of Bolívar Fuertes activity in the first quarter of 2013 was not material, though further devaluation of the Bolívar Fuerte could impact our operations. For additional information, see Part I, Item 1(a), “Risk Factors” in our 2012 Annual Report on Form 10-K.

### Initiatives

Following is a brief discussion of some of our recent and current initiatives:

- focusing on unconventional plays, mature fields, and deepwater markets by leveraging our broad technology offerings to provide value to our customers through integrated solutions and the ability to more efficiently drill and complete their wells;
- exploring opportunities for acquisitions that will enhance or augment our current portfolio of services and products, including those with unique technologies or distribution networks in areas where we do not already have large operations;
- making key investments in technology and capital to accelerate growth opportunities. To that end, we are continuing to push our technology and manufacturing development, as well as our supply chain, closer to our customers in the Eastern Hemisphere;
- improving working capital, and managing our balance sheet to maximize our financial flexibility. We are deploying a global project to improve service delivery that we expect to result in, among other things, additional investments in our systems and significant improvements to our current order-to-cash and purchase-to-pay processes;
- growing our international revenues and margins through achieving a better geographical balance in our business going forward, as well as improving our North America margins;
- continuing to seek ways to be one of the most cost efficient service providers in the industry by maintaining capital discipline and using our scale and breadth of operations; and
- expanding our business with national oil companies.

### RESULTS OF OPERATIONS IN 2013 COMPARED TO 2012

### Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012

| REVENUE: Millions of dollars | Three Months Ended March 31 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,100 | $4,290 | $(190) | (4)% |
| Drilling and Evaluation | 2,874 | 2,578 | 296 | 11 |
| Total revenue | $6,974 | $6,868 | $106 | 2% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $2,745 | $3,182 | $(437) | (14)% |
| Latin America | 355 | 306 | 49 | 16 |
| Europe/Africa/CIS | 532 | 456 | 76 | 17 |
| Middle East/Asia | 468 | 346 | 122 | 35 |
| Total | 4,100 | 4,290 | (190) | (4) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 961 | 986 | (25) | (3) |
| Latin America | 590 | 474 | 116 | 24 |
| Europe/Africa/CIS | 655 | 556 | 99 | 18 |
| Middle East/Asia | 668 | 562 | 106 | 19 |
| Total | 2,874 | 2,578 | 296 | 11 |
| Total revenue by region: |  |  |  |  |
| North America | 3,706 | 4,168 | (462) | (11) |
| Latin America | 945 | 780 | 165 | 21 |
| Europe/Africa/CIS | 1,187 | 1,012 | 175 | 17 |
| Middle East/Asia | 1,136 | 908 | 228 | 25 |

26

| OPERATING INCOME: Millions of dollars | Three Months Ended March 31 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $615 | $1,036 | $(421) | (41)% |
| Drilling and Evaluation | 407 | 368 | 39 | 11 |
| Corporate and other | (1,120) | (381) | (739) | 194 |
| Total operating income (loss) | $(98) | $1,023 | $(1,121) | (110)% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $432 | $871 | $(439) | (50)% |
| Latin America | 28 | 55 | (27) | (49) |
| Europe/Africa/CIS | 64 | 57 | 7 | 12 |
| Middle East/Asia | 91 | 53 | 38 | 72 |
| Total | 615 | 1,036 | (421) | (41) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 173 | 190 | (17) | (9) |
| Latin America | 81 | 67 | 14 | 21 |
| Europe/Africa/CIS | 57 | 40 | 17 | 43 |
| Middle East/Asia | 96 | 71 | 25 | 35 |
| Total | 407 | 368 | 39 | 11 |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 605 | 1,061 | (456) | (43) |
| Latin America | 109 | 122 | (13) | (11) |
| Europe/Africa/CIS | 121 | 97 | 24 | 25 |
| Middle East/Asia | 187 | 124 | 63 | 51 |

The 2% increase in consolidated revenue in the first quarter of 2013 compared to the first quarter of 2012 was a result of activity growth across all international regions. Revenue outside North America was 47% of consolidated revenue in the first quarter of 2013 and 39% of consolidated revenue in the first quarter of 2012.

The decrease of $1.1 billion, or 110%, in consolidated operating income in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to a $1.0 billion, pre-tax, loss contingency related to the Macondo well incident that was recorded in the first quarter of 2013, compared to a $300 million, pre-tax, Macondo-related loss contingency recorded in the first quarter of 2012. Additionally, we experienced reduced activity levels and pricing constraints in North America, which were partially offset by strong results in our international regions.

*Completion and Production* revenue decreased by 4% due to reduced stimulation activities in North America. North America revenue declined 14% from the first three months of 2012, as a result of the downturn in production enhancement services in the United States land market. Latin America revenue was up 16% due to increased completion tools sales in Brazil and higher unconventional stimulation activity in Mexico. Europe/Africa/CIS revenue increased 17%, with completions activity in Norway, the United Kingdom, and Angola driving the change. Middle East/Asia revenue improved 35% due to higher activity for all product lines in Australia and Saudi Arabia and increased completion tools sales in Malaysia. Revenue outside North America was 33% of total segment revenue in the first three months of 2013 and 26% of total segment revenue in the first three months of 2012.

Completion and Production operating income decreased 41% compared to the first quarter of 2012, as pricing pressure and reduced operator activities continued to impact production enhancement margins in North America. North America operating income declined 50% as a result of reduced profitability for stimulation activities in the United States land market. Latin America operating income fell 49% due to increased costs for cementing throughout the region and in the Boots & Coots product service line in Mexico. Europe/Africa/CIS operating income was up 12%, primarily due to increased completions activity in Angola and the United Kingdom, which was partially offset by a decline in Boots & Coots activity in the Congo. Middle East/Asia operating income improved 72% due to higher activity across most product lines in Australia and Saudi Arabia and increased completions activity in southeast Asia.

*Drilling and Evaluation* revenue was up 11% compared to the first quarter of 2012 on the strength of international drilling activity. North America revenue decreased 3%, as drilling and wireline activity declines in the United States land market were partially offset by a recovery of drilling activities in the Gulf of Mexico. Latin America revenue improved 24% as a result of heightened drilling activities throughout most of the region, particularly Mexico and Brazil. Europe/Africa/CIS revenue increased 18% due to higher drilling activities in Norway and Azerbaijan, which were partially offset by reduced activity in Algeria. Middle East/Asia revenue improved 19% due to higher activity levels in Saudi Arabia and Indonesia and increased direct sales in China. Revenue outside North America was 67% of total segment revenue in the first quarter of 2013 and 62% of total segment revenue in the first quarter of 2012.

Drilling and Evaluation operating income increased 11% compared to the first quarter of 2012, as strong growth in our international regions more than offset reductions in the North America. North America operating income decreased 9%, as lower demand for drilling and wireline service in the United States land market was partially offset by the recovery of deepwater activities in the Gulf of Mexico. Latin America operating income was up 21%, driven by market share growth and cost reductions for Baroid in Brazil and increased demand for drilling services in Mexico, which were partially offset by higher costs for offshore activities in Brazil. Europe/Africa/CIS region operating income increased 43%, as demand improved for drilling services in Azerbaijan and Russia and higher Baroid sales in Norway and Angola. These increases were partially offset by lower drilling activities in Tanzania. Middle East/Asia operating income improved 35% as a result of higher demand for drilling services in Australasia, Indonesia, the Middle East, and China and higher wireline sales and services in China and Malaysia.

*Corporate and other* expenses were $1.1 billion in the first quarter of 2013 compared to $381 million in the first quarter of 2012. The significant increase was due to a $1.0 billion, pre-tax, Macondo-related loss contingency that was recorded in the first quarter of 2013, compared to a $300 million, pre-tax, Macondo-related loss contingency recorded in the first quarter of 2012.

### NONOPERATING ITEMS

*Effective tax rate*. The effective tax rate on continuing operations in the first quarter of 2013 was positively impacted by federal tax benefits of approximately $50 million due to the reinstatement of certain tax benefits and credits related to the enactment during the quarter of the American Taxpayer Relief Act of 2012. However, our effective tax rate experienced an unusual alteration when we recorded a $1.0 billion, pre-tax, loss contingency related to the Macondo well incident in the first quarter of 2013 which shifted us into a loss from continuing operations for the period. Additionally, our effective tax rate was impacted by lower tax rates in certain foreign jurisdictions, as we continue to reposition our technology, supply chain, and manufacturing infrastructure to more effectively serve our customers' international operations.

### ENVIRONMENTAL MATTERS

We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide. For information related to environmental matters, see Note 6 to the condensed consolidated financial statements, Part II, Item 1, “Legal Proceedings” and Part II, Item 1(a), "Risk Factors."

### FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Forward-looking information is based on projections and estimates, not historical information. Some statements in this Form 10-Q are forward-looking and use words like “may,” “may not,” “believes,” “do not believe,” “plans,” “estimates,” “intends,” “expects,” “do not expect,” “anticipates,” “do not anticipate,” “should,” “likely,” and other expressions. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. Our results of operations can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. In addition, other factors may affect the accuracy of our forward-looking information. As a result, no forward-looking information can be guaranteed. Actual events and the results of our operations may vary materially.

We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events, or for any other reason. You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q, and 8-K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.

## Market risk

As filed, 269 characters.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2012 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2012.

## Controls and procedures

As filed, 1,435 characters.

In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2013 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Apr 26, 2013.
Source: SEC EDGAR, the filing index for accession 0000045012-13-000159. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.