# Halliburton Co: Form 10-Q for the period ended Mar 31, 2014

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2014-04-25
- Accepted by EDGAR: Apr 25, 2014, 14:41 ET
- Period: 2014-03-31
- Accession: 0000045012-14-000199
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501214000199/hal_03312014-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501214000199/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-01-01 to 2014-03-31 | $7.35bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2014-01-01 to 2014-03-31 | $1.54bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2014-01-01 to 2014-03-31 | $970.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-01-01 to 2014-03-31 | $229.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-01-01 to 2014-03-31 | $622.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-01-01 to 2014-03-31 | $0.73 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-01-01 to 2014-03-31 | $0.73 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-01-01 to 2014-03-31 | 853,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2014-01-01 to 2014-03-31 | $954.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2014-01-01 to 2014-03-31 | $643.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2014-01-01 to 2014-03-31 | $127.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2014-01-01 to 2014-03-31 | $500.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2014-03-31 | $2.12bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-03-31 | $13.49bn | us-gaap:AssetsCurrent |
| Total assets | at 2014-03-31 | $29.26bn | us-gaap:Assets |
| Current liabilities | at 2014-03-31 | $4.93bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2014-03-31 | $15.50bn | us-gaap:Liabilities |
| Long-term debt | at 2014-03-31 | $7.82bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2014-03-31 | $13.72bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,233 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 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, drill, and optimize their well construction activities. The segment consists of Baroid, Sperry Drilling, Wireline and Perforating, Drill Bits and Services, Landmark Software and Services, Testing and Subsea, 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 78,000 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 2014, we produced revenue of $7.3 billion and operating income of $1.0 billion. Revenue increased $374 million, or 5%, from the first quarter of 2013, mainly due to increased activity in the Eastern Hemisphere and higher production enhancement activity in the United States land market, partially offset by lower activity levels in Latin America. Revenue outside of North America comprised approximately 47% of consolidated revenue in the first quarters of both 2014 and 2013, and represents our ongoing strategy to grow our international business and balance our geographic mix.

The $1.1 billion increase in operating income during the first quarter of 2014, as compared to the first quarter of 2013, was primarily due to a $1.0 billion, pre-tax, increase in our loss contingency reserve related to the Macondo well incident recorded in the first quarter of 2013.

### 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 uncertainties associated with geopolitical tension in North Africa. Furthermore, development of new resources is expected to be more complex, resulting in higher service intensity as our customers move increasingly to horizontal drilling.

In North America, we continue to experience pricing pressures, which have impacted our margins. However, we believe the current environment and our focus on an efficient cost structure continues to favor us. As a result of the industry's activity shift from natural gas plays to oil and liquids-rich basins, operators have been allocating their budgets to 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 enable us to leverage our operational scale and expertise.

Outside of North America, both revenue and operating income increased in the first quarter of 2014 compared to the first quarter of 2013. We believe that international growth in 2014 will come from volume increases as we deploy resources on our recent contract wins and new projects, continued improvement in markets where we have made strategic investments, the introduction of new technology, and increased pricing and cost recovery on select contracts. We also believe that international unconventional oil and natural gas, mature field, and deepwater projects will contribute to activity improvements over the long term, and we plan to leverage our extensive experience in North America to capitalize on these opportunities. 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. In Latin America, we expect 2014 to be a challenging year due to a decline in existing integrated project management work in Mexico as we begin transitioning to newly-tendered projects, and due to reduced activity in Brazil. However, this does not change our long-term outlook for Latin America, which we expect to contribute significantly to our future growth and profitability.

We are continuing to execute several key initiatives in 2014, which include the following strategies:

- 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 enabling them 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 significant operations;
- making key investments in technology and infrastructure to maximize growth opportunities. To that end, we are continuing to push our technology and manufacturing capacity, 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 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 by continuing to invest capital and resources in these markets;
- improving our North America margins by leveraging technologies and reducing costs through more efficient operations; and
- continuing to seek ways to be one of the most cost efficient service providers in the industry by maintaining capital discipline and leveraging our scale and breadth of operations.

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 first quarter of 2014 with cash and equivalents of $2.1 billion, compared to $2.4 billion at the end of 2013. As of March 31, 2014, approximately $402 million of the $2.1 billion of cash and equivalents was held by our foreign subsidiaries and 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 March 31, 2014, we also held $378 million of investments in fixed income securities compared to $373 million at December 31, 2013. 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 $1.0 billion in the first quarter of 2014.

Capital expenditures were $643 million in the first quarter of 2014, and were predominantly made in our Production Enhancement, Sperry Drilling, Wireline and Perforating, Cementing, and Boots & Coots product service lines.

During the quarter ended March 31, 2014, we repurchased approximately 8.9 million shares of our common stock for a total cost of $500 million.

During the first quarter of 2014, we received a $155 million income tax refund, including interest, for agreed upon tax items for the tax years 2003 through 2006 and 2008 through 2009.

We paid $127 million in dividends to our shareholders in the first quarter of 2014.

During the first quarter of 2014, our primary components of working capital (receivables, inventories, and accounts payable) increased by a net $120 million, primarily due to increased business activity.

### Future sources and uses of cash

In 2013, we were awarded $105 million by an arbitrator regarding amounts owed by KBR under our Tax Sharing Agreement with KBR. KBR is contesting the award and, although the arbitrator recently issued a supplemental report that reaffirmed the original award, there is uncertainty as to the ultimate timing and amount of any payment. See Note 5 to the condensed consolidated financial statements for further information.

Capital spending for 2014 is currently expected to be approximately $3 billion. The capital expenditures plan for 2014 is primarily directed toward our Production Enhancement, Sperry Drilling, Cementing, Wireline and Perforating, and Boots & Coots product service lines, with an increasing amount dedicated to our international operations.

Subject to Board of Directors approval, our intention is to pay dividends representing at least 15% to 20% of our net income on an annual basis. Currently, our dividend rate is $0.15 per common share, or approximately $127 million per quarter. Additionally, we have approximately $1.2 billion available under our share repurchase authorization, which may be used for open market and other share purchases.

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 significant operations.

### Other factors affecting liquidity

*Financial position in current market.* As of March 31, 2014, we had $2.1 billion of cash and equivalents, $378 million in fixed income investments, and a total of $3.0 billion of available committed bank credit under our revolving credit facility. 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 2014 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 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.

*Guarantee agreements.* In the normal course of business, we have agreements with financial institutions under which approximately $2.1 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of March 31, 2014. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

*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. 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 – Venezuela” for further discussion related to Venezuela.

### BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 80 countries throughout the world to provide a comprehensive range of discrete and integrated services and products to the energy industry related to the exploration, development, and production of oil and natural gas. A significant amount of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. The industry we serve is highly competitive with many substantial competitors in each segment of our business. In the first quarter of 2014, based upon the location of the services provided and products sold, 50% of our consolidated revenue was from the United States, compared to 49% of consolidated revenue from the United States in the first quarter of 2013. 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, as well as other geopolitical factors. 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 determinants of current and future spending levels of our customers 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, due to improved drilling and completion efficiencies as

more of our customers move to multi-well pad drilling, our financial performance is impacted by well count in the North America market.

The following 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 March 31 2014 | 2013 | Year Ended December 31 2013 |
| --- | ---: | ---: | ---: |
| Oil price - WTI (1) | $98.80 | $94.34 | $97.99 |
| Oil price - Brent (1) | 107.81 | 112.49 | 108.71 |
| Natural gas price - Henry Hub (2) | 5.20 | 3.49 | 3.73 |
| (1) Oil price measured in dollars per barrel (2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu |  |  |  |

22

The historical 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 2014 2013 | Year Ended December 31 2013 |
| --- | ---: | ---: |
| Land | 1,725 1,706 | 1,705 |
| Offshore (incl. Gulf of Mexico) | 55 52 | 56 |
| Total | 1,780 1,758 | 1,761 |
| Canada: |  |  |
| Land | 526 535 | 352 |
| Offshore | 1 1 | 2 |
| Total | 527 536 | 354 |
| International (excluding Canada): |  |  |
| Land | 1,019 959 | 978 |
| Offshore | 318 315 | 318 |
| Total | 1,337 1,274 | 1,296 |
| Worldwide total | 3,644 3,568 | 3,411 |
| Land total | 3,270 3,200 | 3,035 |
| Offshore total | 374 368 | 376 |
|  | Three Months Ended March 31 | Year Ended December 31 |
| **Oil vs. Natural Gas** | 2014 2013 | 2013 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 1,433 1,332 | 1,375 |
| Natural gas | 347 426 | 386 |
| Total | 1,780 1,758 | 1,761 |
| Canada: |  |  |
| Oil | 338 398 | 234 |
| Natural gas | 189 138 | 120 |
| Total | 527 536 | 354 |
| International (excluding Canada): |  |  |
| Oil | 1,070 1,021 | 1,029 |
| Natural gas | 267 253 | 267 |
| Total | 1,337 1,274 | 1,296 |
| Worldwide total | 3,644 3,568 | 3,411 |
| Oil total | 2,841 2,751 | 2,638 |
| Natural gas total | 803 817 | 773 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended March 31 2014 | 2013 | Year Ended December 31 2013 |
| --- | ---: | ---: | ---: |
| Horizontal | 1,184 | 1,127 | 1,102 |
| Vertical | 387 | 441 | 435 |
| Directional | 209 | 190 | 224 |
| Total | 1,780 | 1,758 | 1,761 |

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.

During the first quarter of 2014, WTI and Brent crude oil spot prices averaged approximately $99 and $108 per barrel, respectively. Relative to first quarter averages in 2013, WTI crude oil spot prices experienced a slight increase from $94 per barrel, while Brent crude oil spot prices experienced a slight decrease from $112 per barrel. According to the United States Energy Information Administration (EIA), the WTI crude oil spot prices increased towards the latter part of the first quarter of 2014 as a result of strong midwestern refinery runs and the startup of the Marketlink pipeline moving crude from Cushing, Oklahoma to the Gulf Coast. In 2014, the EIA projects WTI and Brent crude oil spot prices to average $96 and $105 per barrel, respectively.

According to the International Energy Agency's (IEA) April 2014 "Oil Market Report," 2014 global oil demand is expected to average approximately 92.7 million barrels per day, which is up 1.5% from 2013. The IEA also forecasts overall demand momentum to accelerate modestly in 2014, supported by a strengthening global macroeconomic backdrop.

During the first quarter of 2014, average Henry Hub natural gas prices in the United States increased approximately 49% compared to the first quarter of 2013, primarily due to an unseasonably harsh winter, which caused natural gas storage levels to decline to the lowest they have been in eleven years. Although the average of natural gas prices was high in the first quarter, the spot price began to decline in March as the cold weather became less extreme. The EIA projects that Henry Hub natural gas spot prices will continue to decline in the spring and average $4.44 per MMBtu in 2014.

### 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 2014, the average natural gas directed rig count fell by 5% while the average oil directed rig count increased 2%, compared to the first quarter of 2013. Relative to the first quarter of 2013, in the first quarter of 2014 our North America revenue increased 5% while operating income was flat. The first quarter of 2014 was impacted by lower pressure pumping pricing, severe weather related disruptions, and higher logistics costs. We are optimistic about the potential of increased activity levels in the second half of the year and expect our North America margins to expand over the remainder of 2014.

In the United States land market, we have seen a moderate increase in rig count over the past year, which is primarily driven by an increase in horizontal rigs in the Permian Basin. We see service intensity expanding across many basins which is evidenced by longer laterals, increased stage density, and rising volumes per stage. This trend is beneficial to our overall business and should enable us to leverage our broad technology offerings.

In the Gulf of Mexico, our deepwater activity outlook remains positive as we are expecting additional rigs to arrive by the end of 2014. 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 in the first quarter of 2014, with average international rig count improving by 5% compared to the first quarter of 2013, and by 3% compared to levels at the end of 2013. In the Eastern Hemisphere, we continue to execute our growth strategy. Relative to the first quarter of 2013, we grew our Eastern Hemisphere revenue and operating income by 11% and 16%, respectively, as a result of growth in both the Middle East/Asia and Europe/Africa/CIS regions. We saw strong growth in our Saudi Arabia operations due to an increase in integrated project activity. We are seeing our Eastern Hemisphere activity expand at a steady rate and expect to continue this growth for the remainder of 2014.

We expect 2014 to be a transitional year for Latin America. Over the long term, however, we are optimistic about our position in Latin America and the future growth potential of this market. Constitutional changes in Mexico seem to be progressing as planned by the government, and we believe the opportunity for foreign investment in this market will be beneficial to our business.

*Venezuela.* As of March 31, 2014, our total net investment in Venezuela was approximately $457 million, including net monetary assets of $115 million denominated in Bolívares. Also, at March 31, 2014 we had $182 million of surety bond guarantees outstanding relating to our Venezuelan operations.

We continue to experience delays in collecting payment on our receivables from our primary customer in Venezuela. These receivables are not disputed, and we have not historically had material write-offs relating to this customer. Additionally, we routinely monitor the financial stability of our customers. Our total outstanding trade receivables in Venezuela were $577 million, or approximately 9% of our gross trade receivables, as of March 31, 2014, compared to $486 million, or approximately 8% of our gross trade receivables, as of December 31, 2013. Of the $577 million receivables in Venezuela as of March 31, 2014, $233 million has been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets.

In February 2013, the Venezuelan government devalued the Bolívar, from the preexisting exchange rate of 4.3 Bolívares per United States dollar to 6.3 Bolívares per United States dollar.

In recent months, the Venezuelan government has made available two new foreign exchange rate mechanisms through which a company may be able to legally convert Bolívares to United States dollars, in addition to the National Center of Foreign Commerce official rate of 6.3 Bolívares per United States dollar:

(1) a bid rate established via weekly auctions under the Complementary System of Foreign Currency Acquirement (SICAD I); and

(2) an auction rate which is intended to more closely resemble a market-driven exchange rate (SICAD II).

The availability of new currency mechanisms had no impact on our results of operations during the quarter ended March 31, 2014 as we continue to use the official exchange rate to remeasure net assets denominated in Bolívares. We believe that the current official exchange rate continues to reflect the economics of our business activity in the country, and we have not utilized nor do we intend at this time to utilize any of the newly available exchange mechanisms to transact business in Venezuela. Had we used the SICAD I rate of 10.8 Bolívares per United States dollar to remeasure our net monetary position as of March 31, 2014, we would have incurred a foreign currency loss of $48 million for the first quarter of 2014.

We will continue to monitor any future impact of these mechanisms on the exchange rate we use to remeasure our Venezuelan subsidiary’s financial statements.

For additional information, see Part I, Item 1(a), “Risk Factors” in our 2013 Annual Report on Form 10-K.

### RESULTS OF OPERATIONS IN 2014 COMPARED TO 2013

### Three Months Ended March 31, 2014 Compared with Three Months Ended March 31, 2013

| REVENUE: Millions of dollars | Three Months Ended March 31 2014 | 2013 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,420 | $4,100 | $320 | 8% |
| Drilling and Evaluation | 2,928 | 2,874 | 54 | 2 |
| Total revenue | $7,348 | $6,974 | $374 | 5% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $2,927 | $2,745 | $182 | 7% |
| Latin America | 355 | 355 | — | — |
| Europe/Africa/CIS | 607 | 532 | 75 | 14 |
| Middle East/Asia | 531 | 468 | 63 | 13 |
| Total | 4,420 | 4,100 | 320 | 8 |
| Drilling and Evaluation: |  |  |  |  |
| North America | 974 | 961 | 13 | 1 |
| Latin America | 504 | 590 | (86) | (15) |
| Europe/Africa/CIS | 692 | 655 | 37 | 6 |
| Middle East/Asia | 758 | 668 | 90 | 13 |
| Total | 2,928 | 2,874 | 54 | 2 |
| Total revenue by region: |  |  |  |  |
| North America | 3,901 | 3,706 | 195 | 5 |
| Latin America | 859 | 945 | (86) | (9) |
| Europe/Africa/CIS | 1,299 | 1,187 | 112 | 9 |
| Middle East/Asia | 1,289 | 1,136 | 153 | 13 |

| OPERATING INCOME: Millions of dollars | Three Months Ended March 31 2014 | 2013 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $661 | $615 | $46 | 7% |
| Drilling and Evaluation | 398 | 407 | (9) | (2) |
| Corporate and other | (89) | (1,120) | 1,031 | 92 |
| Total operating income (loss) | $970 | $(98) | $1,068 | 1,090% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $446 | $432 | $14 | 3% |
| Latin America | 48 | 28 | 20 | 71 |
| Europe/Africa/CIS | 78 | 64 | 14 | 22 |
| Middle East/Asia | 89 | 91 | (2) | (2) |
| Total | 661 | 615 | 46 | 7 |
| Drilling and Evaluation: |  |  |  |  |
| North America | 156 | 173 | (17) | (10) |
| Latin America | 52 | 81 | (29) | (36) |
| Europe/Africa/CIS | 68 | 57 | 11 | 19 |
| Middle East/Asia | 122 | 96 | 26 | 27 |
| Total | 398 | 407 | (9) | (2) |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 602 | 605 | (3) | — |
| Latin America | 100 | 109 | (9) | (8) |
| Europe/Africa/CIS | 146 | 121 | 25 | 21 |
| Middle East/Asia | 211 | 187 | 24 | 13 |

The 5% increase in consolidated revenue in the first quarter of 2014, as compared to the first quarter of 2013, was primarily attributable to increased drilling activity in the Eastern Hemisphere and higher production enhancement activity in the United States land market, partially offset by lower activity levels in Latin America. On a consolidated basis, over half of our product service lines experienced revenue growth from the first quarter of 2013. Revenue outside of North America was 47% of consolidated revenue in the first quarters of both 2014 and 2013.

The $1.1 billion increase in consolidated operating income during the first quarter of 2014, as compared to the first quarter of 2013, was primarily due to a $1.0 billion increase in our loss contingency reserve related to Macondo well incident recorded in the first quarter of 2013. Additionally, we experienced higher stimulation activity in United States land market and strong results in the Eastern Hemisphere.

*Completion and Production* consolidated revenue in the first quarter of 2014 rose 8%, as compared to the first quarter of 2013, primarily due to increased stimulation activity in the United States land market and higher completion tools sales in all of our regions. North America revenue increased 7% due to increased production enhancement services and higher completion tools sales in the United States, which more than offset reduced activity levels in Canada. Latin America revenue was flat, as increased stimulation and cementing activity in Argentina was offset by a decline in production enhancement services in Mexico. Europe/Africa/CIS revenue rose 14%, driven by higher completions tools sales in Angola and Norway, improved Boots & Coots activity in Algeria, and increased stimulation activity in the United Kingdom. These increases were partially offset by decreased stimulation activity in Denmark and reduced Boots & Coots activity in Norway. Middle East/Asia revenue grew 13% as a result of improved activity levels in Saudi Arabia, increased completion tools sales in China, and higher cementing activity in Thailand, which more than offset a decline in Boots & Coots activity in Australia and India and lower completion tools sales in Malaysia. Revenue outside of North America was 34% of total segment revenue in the first quarter of 2014 and 33% of total segment revenue in the first quarter of 2013.

Completion and Production operating income improved by 7% in the first quarter of 2014, as compared to the first quarter of 2013, due to stronger stimulation activity in the United States land market and higher completion tools sales in the Eastern Hemisphere. North America operating income increased 3% due to increased stimulation activity in the United States land market, which was partially offset by pricing pressures associated with pressure pumping services. Latin America operating income grew 71% as a result of improved profitability for pressure pumping in Argentina, which was partially offset by pricing pressures associated with completion tools sales in Brazil and activity reductions in Mexico. Europe/Africa/CIS operating income rose 22% due to higher completion tools sales in Angola and Norway, and increased Boots & Coots activity in Algeria. Middle East/Asia operating income was down 2% compared to first quarter of 2013, due to lower demand for completion tools sales in Malaysia and decreased Boots & Coots activity in Australia and India, which were partially offset by increased completion tools sales in Saudi Arabia and China.

*Drilling and Evaluation* revenue was up 2% in the first quarter of 2014, as compared to the first quarter of 2013, primarily driven by higher drilling activity in the Eastern Hemisphere and improved testing activity in all regions, which more than offset the decline in Latin America activity. North America revenue was essentially flat compared to the first quarter of 2013, as increased demand for fluid services in the United States land market was offset by a decline in activity levels in Canada. Latin America revenue declined by 15% as a result of a decline in drilling related activity in Brazil and activity reduction in Mexico. Europe/Africa/CIS revenue increased 6% led by increased drilling activity in the United Kingdom and Angola, which was partially offset by lower fluid services in Norway. Middle East/Asia revenue grew 13%, primarily due to higher activity levels in Saudi Arabia and Malaysia, as well as increased drilling activity in Thailand, which more than offset a decline in logging activity in China. Revenue outside of North America was 67% of total segment revenue in the first quarters of both 2014 and 2013.

Drilling and Evaluation operating income decreased 2% in the first quarter of 2014, as compared to the first quarter of 2013, primarily due to reduced activity in the Western Hemisphere, which was partially offset by growth in the Eastern Hemisphere. North America operating income declined 10% as a result of reduced activity levels in Canada and reduced logging services in the United States land market, which were partially offset by increased testing services in the Gulf of Mexico. Latin America operating income decreased 36%, primarily due to a decline in drilling activity in Brazil and activity reduction in Mexico. Europe/Africa/CIS operating income improved 19% as a result of increased drilling activity in the United Kingdom and Angola, which was partially offset by declines in fluid services in Norway and logging services in Nigeria. Middle East/Asia operating income grew 27% driven by increased drilling services in Thailand and Saudi Arabia, which more than offset lower demand for logging services in China.

*Corporate and other* expenses were $89 million in the first quarter of 2014 and $1.1 billion in the first quarter of 2013. The significant decrease was due to a $1.0 billion Macondo-related loss contingency recorded in the first quarter of 2013.

### NONOPERATING ITEMS

*Interest expense, net of interest income* increased $22 million in the first quarter of 2014 as compared to the first quarter of 2013, primarily due to higher interest expense as a result of the issuance of $3.0 billion aggregate principal amount of senior notes in August 2013.

*Other, net* increased $17 million as compared to the first quarter of 2013, primarily as a result of foreign currency exchange losses driven by currency devaluations in Argentina and Kazakhstan in the first quarter of 2014.

*Effective tax rate*. Our effective tax rate on continuing operations was 27.1% for the quarter ended March 31, 2014, and was positively impacted by a revised estimate of the tax basis of foreign leased assets as well as 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. Our effective tax rate on continuing operations in the first quarter of 2013 was also positively impacted by lower tax rates in certain foreign jurisdictions, as well as federal tax benefits of approximately $50 million due to the reinstatement of certain tax benefits and credits related to the first quarter of 2013 enactment of the American Taxpayer Relief Act of 2012. Also contributing to lower tax rate in the first quarter of 2013 was a $1.0 billion loss contingency related to the Macondo well incident, which was tax-effected at the United States statutory rate.

### 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.

### 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 2013 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2013.

## 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, 2014 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, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Apr 25, 2014.
Source: SEC EDGAR, the filing index for accession 0000045012-14-000199. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.