# Halliburton Co: Form 10-Q for the period ended Sep 30, 2013

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2013-10-25
- Accepted by EDGAR: Oct 25, 2013, 14:46 ET
- Period: 2013-09-30
- Accession: 0000045012-13-000356
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501213000356/hal_9302013-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501213000356/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-07-01 to 2013-09-30 | $7.47bn | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2013-01-01 to 2013-09-30 | $21.76bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2013-07-01 to 2013-09-30 | $1.52bn | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2013-01-01 to 2013-09-30 | $4.39bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2013-07-01 to 2013-09-30 | $1.11bn | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2013-01-01 to 2013-09-30 | $1.99bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-07-01 to 2013-09-30 | $296.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2013-01-01 to 2013-09-30 | $380.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-07-01 to 2013-09-30 | $706.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2013-01-01 to 2013-09-30 | $1.33bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-07-01 to 2013-09-30 | $0.79 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2013-01-01 to 2013-09-30 | $1.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-07-01 to 2013-09-30 | $0.79 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2013-01-01 to 2013-09-30 | $1.46 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-07-01 to 2013-09-30 | 894,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2013-01-01 to 2013-09-30 | 919,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2013-01-01 to 2013-09-30 | $2.55bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2013-01-01 to 2013-09-30 | $2.08bn | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2013-01-01 to 2013-09-30 | $337.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2013-01-01 to 2013-09-30 | $4.36bn | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-09-30 | $1.49bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-09-30 | $12.89bn | us-gaap:AssetsCurrent |
| Total assets | at 2013-09-30 | $27.95bn | us-gaap:Assets |
| Current liabilities | at 2013-09-30 | $4.76bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-09-30 | $15.13bn | us-gaap:Liabilities |
| Long-term debt | at 2013-09-30 | $7.82bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2013-09-30 | $12.79bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 47,742 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 75,000 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

Our consolidated revenue for the third quarter of 2013 was $7.5 billion, a quarterly record for us. We also achieved record revenues within our Cementing, Completion Tools, Boots & Coots, Drill Bits, Testing and Subsea, and Multi-Chem product service lines. Additionally, during the third quarter of 2013, our international revenue comprised approximately 48% of our total company revenues. The percentage of our revenue that relates to our international operations has been steadily increasing and is representative of our ongoing strategy to grow our international business and balance our geographic mix.

During the first nine months of 2013, we produced revenue of $21.8 billion and operating income of $2.0 billion. Revenue increased $550 million from the first nine months 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, primarily for production enhancement services. Operating income in the first nine months of 2013 was negatively impacted by a $1.0 billion, pre-tax, reserve related to the Macondo well incident, a $55 million, pre-tax, charge related to a charitable contribution to the National Fish and Wildlife Foundation, and $54 million, pre-tax, of restructuring charges related to severance and asset write-offs. Operating income in the first nine months of 2012 was negatively impacted by a $300 million, pre-tax, reserve related to the Macondo well incident, along with a $48 million, pre-tax, charge related to an earn-out adjustment due to significantly better than expected performance of a past acquisition, partially offset by a $20 million, pre-tax, gain related to the settlement of a patent infringement lawsuit.

### 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 and North Africa. Furthermore, development of new resources is expected to be more complex, resulting in increasing service intensity with our customers making higher investments on a per-well basis.

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. In addition, we are observing a meaningful switch to multi-well pad activity among our customer base, which is resulting in increased drilling and completion service efficiency. We believe the incremental efficiency gains provided by multi-well pad drilling will provide for higher service intensity.

Outside of North America, both revenue and operating income increased by 16% in the first nine months of 2013 compared to the first nine months of 2012. We expect to see gradual activity and pricing improvements in those international markets where 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 and into 2014. In Latin America, we are anticipating lower fourth quarter activity levels due to a decline in existing integrated project management work in Mexico as we begin transitioning to newly-tendered projects and due to reduced ongoing activity in Brazil.

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

We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. For additional information, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”

### LIQUIDITY AND CAPITAL RESOURCES

We ended the third quarter of 2013 with cash and equivalents of $1.5 billion, compared to $2.5 billion at the end of 2012. As of September 30, 2013, approximately $350 million of the $1.5 billion of cash and equivalents was held by our foreign subsidiaries that would be subject to United States tax if repatriated. However, our intent is to permanently reinvest these funds outside of the United States and our current plans do not suggest a need to repatriate them to fund our United States operations. At September 30, 2013, we also held $273 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 $2.5 billion in the first nine months of 2013.

In August 2013, we issued $3.0 billion aggregate principal amount of senior notes and used the net proceeds, along with cash on hand, to fund the repurchase of approximately 68 million shares of our common stock at an aggregate cost of $3.3 billion pursuant to a modified Dutch auction cash tender offer. Through the first nine months of 2013, we have repurchased approximately 93 million shares of our common stock under our share repurchase program at a cost of approximately $4.4 billion.

Capital expenditures were $2.1 billion in the first nine months of 2013, and were predominantly made in our Production Enhancement, Boots & Coots, Sperry Drilling, Wireline and Perforating, and Cementing product service lines.

During the first nine months of 2013, our primary components of working capital (receivables, inventories, and accounts payable) increased by a net $823 million, primarily due to increased business activity.

We paid $337 million in dividends to our shareholders in the first nine months of 2013.

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

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.

During the first nine months of 2013, we sold $126 million of investment securities, net of investment securities purchased.

*Future sources of cash.* We were recently awarded $105 million by an accounting referee regarding amounts owed by KBR related to the Tax Sharing Agreement. KBR is reviewing our claims and there is uncertainty as to the ultimate timing and amount of any payment. See Note 6 for further information.

*Future uses of cash.* Capital spending for the fourth quarter of 2013 is expected to be approximately $800 million. The capital expenditures plan for the fourth quarter of 2013 is primarily directed toward our Boots & Coots, Sperry Drilling, Production Enhancement, Wireline and Perforating, and Cementing product service lines with less capital to be directed toward the North America pressure pumping market.

Subject to Board of Directors approval, our intention going forward is to pay dividends representing at least 15% to 20% of our net income on an annual basis. Currently, our dividend rate is $0.125 per common share, or approximately $107 million per quarter.

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 $2.0 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of September 30, 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 September 30, 2013, we had $1.5 billion of cash and equivalents, $273 million in fixed income investments, and a total of $3.0 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, during the remainder of 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 in Note 7 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, as well as unsettled political conditions. For example, we continue to experience delays in collecting payment on our receivables from one of our primary customers in Venezuela. Our total outstanding trade receivables in Venezuela at September 30, 2013 were $536 million, which represents approximately 8% 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 industry we serve is highly competitive with many substantial competitors in each segment. In the first nine months 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 nine months of 2012, 55% 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 our customers. 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:

|  | Three Months Ended September 30 2013 | 2012 | Year Ended December 31 2012 |
| --- | ---: | ---: | ---: |
| Oil price - WTI (1) | $104.74 | $91.49 | $94.15 |
| Oil price - Brent (1) | 109.28 | 108.80 | 111.60 |
| Natural gas price - Henry Hub (2) | 3.56 | 2.85 | 2.81 |
| (1) Oil price measured in dollars per barrel (2) Natural gas price measured in dollars per thousand cubic feet, or Mcf |  |  |  |

23

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 September 30 2013 2012 | Nine Months Ended September 30 2013 2012 |
| --- | ---: | ---: |
| Land | 1,708 1,855 | 1,708 1,909 |
| Offshore (incl. Gulf of Mexico) | 61 50 | 55 46 |
| Total | 1,769 1,905 | 1,763 1,955 |
| Canada: |  |  |
| Land | 345 324 | 344 362 |
| Offshore | 4 1 | 2 1 |
| Total | 349 325 | 346 363 |
| International (excluding Canada): |  |  |
| Land | 971 966 | 969 923 |
| Offshore | 314 293 | 320 303 |
| Total | 1,285 1,259 | 1,289 1,226 |
| Worldwide total | 3,403 3,489 | 3,398 3,544 |
| Land total | 3,024 3,145 | 3,021 3,194 |
| Offshore total | 379 344 | 377 350 |
|  | Three Months Ended September 30 | Nine Months Ended September 30 |
| **Oil vs. Natural Gas** | 2013 2012 | 2013 2012 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 1,386 1,419 | 1,372 1,351 |
| Natural gas | 383 486 | 391 604 |
| Total | 1,769 1,905 | 1,763 1,955 |
| Canada: |  |  |
| Oil | 225 241 | 240 261 |
| Natural gas | 124 84 | 106 102 |
| Total | 349 325 | 346 363 |
| International (excluding Canada): |  |  |
| Oil | 1,015 1,006 | 1,021 976 |
| Natural gas | 270 253 | 268 250 |
| Total | 1,285 1,259 | 1,289 1,226 |
| Worldwide total | 3,403 3,489 | 3,398 3,544 |
| Oil total | 2,626 2,666 | 2,633 2,588 |
| Natural gas total | 777 823 | 765 956 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended September 30 2013 | 2012 | Nine Months Ended September 30 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Horizontal | 1,073 | 1,153 | 1,096 | 1,164 |
| Vertical | 435 | 531 | 444 | 567 |
| Directional | 261 | 221 | 223 | 224 |
| Total | 1,769 | 1,905 | 1,763 | 1,955 |

24

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 $78 per barrel to a high of $109 per barrel. Brent oil spot prices fluctuated between a low of $89 per barrel to a high of $128 per barrel during this same period. During the first nine months of 2013, WTI oil spot prices ranged between $87 per barrel and $111 per barrel, while Brent oil spot prices ranged between $97 per barrel and $119 per barrel. Oil prices were affected by the curtailment of production by most OPEC countries which was partially offset by the increased levels of production in Saudi Arabia and North America. Since September 2013, oil supply increased steadily due to the easing of the civil unrest in Libya. As a result, Brent crude oil prices fell from a recent peak of $117 per barrel to $108 per barrel towards the end of the month. The outlook for world petroleum demand for the remainder of 2013 has improved due to higher than expected demand in July and August for United States, Russia, and China. The International Energy Agency’s October 2013 “Oil Market Report” is forecasting 2013 demand to increase approximately 1% over 2012 levels.

Natural gas prices in the United States have increased approximately 43% from the first nine months of 2012 due to an increase in storage withdrawals due to colder temperatures in the early part of 2013, as well as higher natural gas demand for industrial purposes. The United States Energy Information Administration's October 2013 “Short Term Energy and Winter Fuels Outlook” forecasts an increase of natural gas consumption for residential and commercial space heating, but also forecasts a decline in natural gas demand for electricity generation.

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 nine months of 2013, the average natural gas directed rig count fell by 209 rigs, or 30%, from the first nine months of 2012. The curtailment of natural gas drilling activity along with an influx of stimulation equipment into the industry have resulted in overcapacity and pricing pressure for hydraulic fracturing services, which we expect to persist for the remainder of 2013. Despite the decrease of rig count in the United States as compared to the first nine months of 2012, drilling efficiencies and the trend toward multi-well pads are driving a more robust well count. Although drilling efficiencies continue to improve, the United States land rig count remains sluggish and we expect it to decrease in the fourth quarter due to the normal seasonality experienced at the end of the year from both the holidays and weather disruptions. Additionally, based on recent customer conversations, we now believe there could be increased risk of lower activity late in the fourth quarter, as some operators opt to extend downtime around the holidays. However, we believe the shift to unconventional oil and liquids-rich basins in North America, as well as increased stage counts and fluid volumes per well, will continue to drive increased service intensity and will require advanced fluid chemistries and other technologies which will ultimately benefit our operations.

In the Gulf of Mexico, improvements in the performance of many of our product service lines were due to a 20% increase in the offshore rig count from the first nine months of 2012, in addition to the efficiencies and integrated solutions we offer that save our customers time and enhance productivity. We anticipate improvements in revenue and profit for the fourth quarter as additional deepwater rigs arrive and more rigs move to the completions cycle. Over the long term, 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

We anticipate that industry activity will continue to remain steady as the macroeconomic backdrop improves and impacts operator spending outlook. 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 nine months of 2013, both revenue and operating income outside of North America increased 16% from the first nine months of 2012.

We will continue to focus on expanding our global portfolio in deepwater, mature fields, and unconventionals and expect stronger revenues and margins for the fourth quarter of 2013. 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 September 30, 2013, our total net investment in Venezuela was approximately $396 million, including net monetary assets of $85 million denominated in Bolívar Fuertes. Our total outstanding trade receivables in Venezuela were $536 million, or approximately 8% of our gross trade receivables, as of September 30, 2013, compared to $491 million, or approximately 9% of our gross trade receivables, as of December 31, 2012. We continue to experience delays in collecting payment on our receivables from our primary customer in Venezuela. Of the $536 million receivables in Venezuela as of September 30, 2013, $94 million were outstanding for more than one year. In addition, at September 30, 2013 we had $184 million of surety bond guarantees outstanding relating to our Venezuelan operations.

In February 2013, the Venezuelan government devalued 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. The net foreign currency impact of Bolívar Fuertes activity in the first quarter of 2013 was not material, although 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 September 30, 2013 Compared with Three Months Ended September 30, 2012

| REVENUE: Millions of dollars | Three Months Ended September 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,501 | $4,293 | $208 | 5% |
| Drilling and Evaluation | 2,971 | 2,818 | 153 | 5 |
| Total revenue | $7,472 | $7,111 | $361 | 5% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $2,925 | $2,978 | $(53) | (2)% |
| Latin America | 412 | 373 | 39 | 10 |
| Europe/Africa/CIS | 636 | 523 | 113 | 22 |
| Middle East/Asia | 528 | 419 | 109 | 26 |
| Total | 4,501 | 4,293 | 208 | 5 |
| Drilling and Evaluation: |  |  |  |  |
| North America | 956 | 965 | (9) | (1) |
| Latin America | 590 | 579 | 11 | 2 |
| Europe/Africa/CIS | 704 | 605 | 99 | 16 |
| Middle East/Asia | 721 | 669 | 52 | 8 |
| Total | 2,971 | 2,818 | 153 | 5 |
| Total revenue by region: |  |  |  |  |
| North America | 3,881 | 3,943 | (62) | (2) |
| Latin America | 1,002 | 952 | 50 | 5 |
| Europe/Africa/CIS | 1,340 | 1,128 | 212 | 19 |
| Middle East/Asia | 1,249 | 1,088 | 161 | 15 |

| OPERATING INCOME: Millions of dollars | Three Months Ended September 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $763 | $591 | $172 | 29% |
| Drilling and Evaluation | 450 | 430 | 20 | 5 |
| Corporate and other | (105) | (67) | (38) | 57 |
| Total operating income | $1,108 | $954 | $154 | 16% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $489 | $383 | $106 | 28% |
| Latin America | 63 | 40 | 23 | 58 |
| Europe/Africa/CIS | 119 | 88 | 31 | 35 |
| Middle East/Asia | 92 | 80 | 12 | 15 |
| Total | 763 | 591 | 172 | 29 |
| Drilling and Evaluation: |  |  |  |  |
| North America | 168 | 174 | (6) | (3) |
| Latin America | 92 | 106 | (14) | (13) |
| Europe/Africa/CIS | 82 | 63 | 19 | 30 |
| Middle East/Asia | 108 | 87 | 21 | 24 |
| Total | 450 | 430 | 20 | 5 |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 657 | 557 | 100 | 18 |
| Latin America | 155 | 146 | 9 | 6 |
| Europe/Africa/CIS | 201 | 151 | 50 | 33 |
| Middle East/Asia | 200 | 167 | 33 | 20 |

The 5% increase in consolidated revenue in the third quarter of 2013, as compared to the third quarter of 2012, was primarily attributable to increased revenue in all three of our international regions, with Europe/Africa/CIS setting a record for the region. On a consolidated basis, over half of our product service lines experienced revenue growth from the third quarter of 2012. Revenue outside of North America was 48% of consolidated revenue in the third quarter of 2013 and 45% of consolidated revenue in the third quarter of 2012.

The 16% increase in consolidated operating income during the third quarter of 2013, as compared to the third quarter of 2012, was primarily due to higher drilling efficiencies and improved profitability in North America, as well as strong results in the Eastern Hemisphere. Operating income in the third quarter of 2013 was adversely impacted by $54 million of restructuring charges related to severance and asset write-offs. Operating income in the third quarter of 2012 was negatively impacted by a $48 million charge related to an earn-out adjustment due to significantly better than expected performance of a past acquisition. Additionally, a $20 million gain was recorded in the third quarter of 2012 in Corporate and other expense related to the settlement of a patent infringement lawsuit.

*Completion and Production* consolidated revenue in the third quarter of 2013 rose 5%, as compared to the third quarter of 2012, primarily due to improved international results, which more than offset pricing pressure and lower activity levels in the United States land market. North America revenue fell 2%, as increased stimulation demand in Canada and higher completion tools sales in the Gulf of Mexico were more than offset by continued pricing pressure for production enhancement services in the United States. Latin America revenue improved 10% due to increased completions and stimulation activity in Argentina, higher completion tools sales in Brazil, and increased Boots & Coots activity in Mexico. Europe/Africa/CIS revenue rose 22% driven by increased completions activity in Norway and higher completion tools sales in Angola and Kazakhstan, partially offset by decreased Boots & Coots activity in Norway. Middle East/Asia revenue grew 26% as a result of higher activity levels in Saudi Arabia and increased completion tools sales in Malaysia, China, and Indonesia, which more than offset a decline in Boots & Coots activity in Brunei and India. Revenue outside of North America was 35% of total segment revenue in the third quarter of 2013 and 31% of total segment revenue in the third quarter of 2012.

Completion and Production operating income improved by 29% in the third quarter of 2013, as compared to the third quarter of 2012, due to higher drilling efficiencies and improved profitability in North America. The third quarter of 2013 results were negatively impacted by $40 million of restructuring charges related to severance and asset write-offs. The third quarter of 2012 results were adversely impacted by a $48 million charge related to an earn-out adjustment due to significantly better than expected performance of a past acquisition in the Western Hemisphere. North America operating income increased 28% due to higher drilling efficiencies, continued cost controls and lower guar costs for production enhancement services in the United States land market. Latin America operating income grew 58% as a result of improved profitability in Argentina and higher stimulation activity in Mexico. Europe/Africa/CIS operating income rose 35% due to higher completions activity in Angola and Norway, which more than offset lower Boots & Coots activity in Norway. Middle East/Asia operating income rose 15%, led by increased activity levels in Saudi Arabia and higher completion tools in Malaysia and China, which were partially offset by lower production enhancement activity in Australia.

*Drilling and Evaluation* revenue was up 5% in the third quarter of 2013, as compared to the third quarter of 2012, with revenue growth across over half of our product service lines. North America revenue was essentially flat year over year, as increased demand for fluid services was offset by a decline in drilling and wireline activities in the United States land market. Latin America revenue was also relatively flat, as higher activity levels in Mexico and Ecuador were partially offset by lower demand for drilling services in Brazil and Colombia. Europe/Africa/CIS revenue increased 16% led by higher activity levels in Angola and increased drilling activity in the North Sea, Azerbaijan, and Russia. Middle East/Asia revenue grew 8% primarily due to higher activity levels in Saudi Arabia and Indonesia, as well as increased demand for wireline services in Malaysia, which more than offset lower activity levels in Iraq. Revenue outside of North America was 68% of total segment revenue in the third quarter of 2013 and 66% of total segment revenue in the third quarter of 2012.

Drilling and Evaluation operating income improved 5% in the third quarter of 2013, as compared to the third quarter of 2012, due to strong growth in the Eastern Hemisphere which more than offset a reduction of activity in the Western Hemisphere. The third quarter of 2013 results were adversely impacted by $11 million of restructuring charges related to severance. North America operating income declined 3% as improved profitability for fluid services in the United States land market was more than offset by reduced activity for wireline and drilling services in the United States. Latin America operating income decreased 13% primarily due to a decline in the demand for drilling services in Brazil and Colombia, which was partially offset by higher demand for wireline and fluid services in Mexico. Europe/Africa/CIS operating income improved 30% as a result of increased demand for fluids in Angola, increased demand for drilling services in Norway, and higher testing activity in Equatorial Guinea. These increases more than offset lower demand for drilling and wireline services in Nigeria and Tanzania. Middle East/Asia operating income grew 24% driven by increased demand for wireline services in Malaysia and China, as well as higher drilling activity in Indonesia, which more than offset lower demand for drilling services in China.

*Corporate and other* expenses increased $38 million in the third quarter of 2013, as compared to the third quarter of 2012, partially due to additional expenses associated with strategic investments in our operating model and creating competitive advantage by repositioning our technology, supply chain, and manufacturing infrastructure. A $20 million gain was recorded in the third quarter of 2012 related to the settlement of a patent infringement lawsuit.

### NONOPERATING ITEMS

*Effective tax rate*. Our effective tax rate was 29.5% for the three months ended September 30, 2013 and 30.4% for the three months ended September 30, 2012. The effective tax rate on continuing operations for the three months ended September 30, 2013 was positively 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 international customers, partially offset by unfavorable adjustments related to the finalization of prior-year tax returns.

### Nine Months Ended September 30, 2013 Compared with Nine Months Ended September 30, 2012

| REVENUE: Millions of dollars | Nine Months Ended September 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $12,964 | $13,043 | $(79) | (1)% |
| Drilling and Evaluation | 8,799 | 8,170 | 629 | 8 |
| Total revenue | $21,763 | $21,213 | $550 | 3% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $8,546 | $9,327 | $(781) | (8)% |
| Latin America | 1,158 | 1,019 | 139 | 14 |
| Europe/Africa/CIS | 1,744 | 1,530 | 214 | 14 |
| Middle East/Asia | 1,516 | 1,167 | 349 | 30 |
| Total | 12,964 | 13,043 | (79) | (1) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 2,843 | 2,924 | (81) | (3) |
| Latin America | 1,733 | 1,592 | 141 | 9 |
| Europe/Africa/CIS | 2,082 | 1,766 | 316 | 18 |
| Middle East/Asia | 2,141 | 1,888 | 253 | 13 |
| Total | 8,799 | 8,170 | 629 | 8 |
| Total revenue by region: |  |  |  |  |
| North America | 11,389 | 12,251 | (862) | (7) |
| Latin America | 2,891 | 2,611 | 280 | 11 |
| Europe/Africa/CIS | 3,826 | 3,296 | 530 | 16 |
| Middle East/Asia | 3,657 | 3,055 | 602 | 20 |

28

| OPERATING INCOME: Millions of dollars | Nine Months Ended September 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $2,110 | $2,541 | $(431) | (17)% |
| Drilling and Evaluation | 1,272 | 1,191 | 81 | 7 |
| Corporate and other | (1,388) | (554) | (834) | 151 |
| Total operating income | $1,994 | $3,178 | $(1,184) | (37)% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $1,438 | $1,945 | $(507) | (26)% |
| Latin America | 139 | 149 | (10) | (7) |
| Europe/Africa/CIS | 257 | 240 | 17 | 7 |
| Middle East/Asia | 276 | 207 | 69 | 33 |
| Total | 2,110 | 2,541 | (431) | (17) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 490 | 530 | (40) | (8) |
| Latin America | 226 | 257 | (31) | (12) |
| Europe/Africa/CIS | 226 | 167 | 59 | 35 |
| Middle East/Asia | 330 | 237 | 93 | 39 |
| Total | 1,272 | 1,191 | 81 | 7 |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 1,928 | 2,475 | (547) | (22) |
| Latin America | 365 | 406 | (41) | (10) |
| Europe/Africa/CIS | 483 | 407 | 76 | 19 |
| Middle East/Asia | 606 | 444 | 162 | 36 |

Consolidated revenue in the first nine months of 2013 was essentially flat compared to the first nine months of 2012, as activity growth across all international regions was partially offset by pricing pressure and lower demand in North America, particularly for production enhancement services. Revenue outside of North America was 48% of consolidated revenue in the first nine months of 2013 and 42% of consolidated revenue in the first nine months of 2012.

The $1.2 billion decrease in consolidated operating income in the first nine months of 2013 compared to the first nine months of 2012 was primarily related to Macondo-related charges. We recorded a $1.0 billion loss contingency related to the Macondo well incident in the first quarter of 2013 compared to a $300 million 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 was flat compared to the first nine months of 2012 due to reduced stimulation and cementing demand in North America, which was partially offset by strong international revenue. North America revenue decreased 8% as a result of the downturn in the United States hydraulic fracturing market. Latin America revenue improved 14% due to increased completion tools sales in Brazil, higher stimulation activity in Argentina, and higher activity in most product lines in Mexico. Europe/Africa/CIS revenue increased 14% driven by higher cementing activity in Norway, Nigeria, and Russia and increased completion tools sales in Angola, the United Kingdom, and Kazakhstan. Middle East/Asia revenue increased 30% due to higher activity in most product lines in Saudi Arabia, Indonesia, and Australia and increased completion tools sales in Malaysia. Revenue outside of North America was 34% of total segment revenue in the first nine months of 2013 and 28% of total segment revenue in the first nine months of 2012.

Completion and Production operating income decreased 17% compared to the first nine months of 2012, as pricing pressure and reduced operator activities continued to impact production enhancement margins in North America. North America operating income decreased 26% as a result of reduced profitability for stimulation activities in the United States land market. Latin America operating income declined 7% due to increased costs in Mexico and reduced profitability for artificial lift operations in Venezuela. Europe/Africa/CIS operating income improved 7% as completion tools sales in Angola and higher demand for cementing services in Nigeria were partially offset by higher costs for Boots & Coots in Africa, Norway, and Kazakhstan. Middle East/Asia operating income increased 33% due to higher completion tools sales in Malaysia, improved activity for production enhancement services and completion tools in Saudi Arabia, improved activity across most product service lines in Australia, and higher cementing activity in Indonesia.

*Drilling and Evaluation* revenue increased 8% compared to the first nine months 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 higher testing, drilling services, and wireline activity in the Gulf of Mexico. Latin America revenue increased 9% as a result of higher demand for all product lines in Mexico. Europe/Africa/CIS revenue increased 18%, primarily due to higher demand for fluids in Norway and Angola and improved drilling activity in Azerbaijan, Norway, and Russia, which were partially offset by reduced overall activity in Algeria and Tanzania. Middle East/Asia revenue increased 13% due to higher activity levels in Saudi Arabia and Indonesia, increased wireline demand in Malaysia, and improved fluid sales throughout most of the region. Revenue outside of North America was 68% of total segment revenue in the first nine months of 2013 and 64% of total segment revenue in the first nine months of 2012.

Drilling and Evaluation operating income increased 7% compared to the first nine months of 2012, as strong growth in the Eastern Hemisphere more than offset lower profitability in the Western Hemisphere. North America operating income decreased 8% as lower demand for wireline and perforating and drilling services in the United States land market more than offset higher profitability in the Gulf of Mexico. Latin America operating income decreased 12% due to higher costs in Brazil and Argentina and lower drilling activity in Colombia, which more than offset higher drilling activity in Mexico. Europe/Africa/CIS operating income increased 35% as increased fluid sales in Angola and Norway and higher demand for drilling services in Azerbaijan and Egypt more than offset lower drilling and wireline activity in Tanzania. Middle East/Asia operating income increased 39% as a result of improved profitability in Iraq, higher wireline profitability and activity in Malaysia, and higher drilling activity in Indonesia and China.

*Corporate and other* expenses were $1.4 billion in the first nine months of 2013 compared to $554 million in the first nine months of 2012. The significant increase was due to a $1.0 billion Macondo-related loss contingency that was recorded in the first quarter of 2013, compared to a $300 million Macondo-related loss contingency recorded in the first quarter of 2012. Additionally, a $55 million charitable contribution to the National Fish and Wildlife Foundation was expensed in the second quarter of 2013, reflecting our commitment to making a positive environmental impact and a strong commitment to our local communities.

### NONOPERATING ITEMS

*Effective tax rate*. Our effective tax rate was 22.0% for the nine months ended September 30, 2013 and 31.7% for the nine months ended September 30, 2012. The effective tax rate on continuing operations for the nine months ended September 30, 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 first quarter of the American Taxpayer Relief Act of 2012. Our effective tax rate experienced an unusual positive alteration when we recorded a $1.0 billion loss contingency related to the Macondo well incident in the first quarter of 2013. Additionally, our effective tax rate was positively 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 international customers, partially offset by unfavorable adjustments related to the finalization of prior-year tax returns recorded in the third quarter of 2013.

### 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 7 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, 1,443 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 September 30, 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 September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Oct 25, 2013.
Source: SEC EDGAR, the filing index for accession 0000045012-13-000356. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.