# Halliburton Co: Form 10-Q for the period ended Mar 31, 2015

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2015-04-23
- Accepted by EDGAR: Apr 23, 2015, 21:04 ET
- Period: 2015-03-31
- Accession: 0000045012-15-000079
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501215000079/hal_3312015-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501215000079/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-01-01 to 2015-03-31 | $7.05bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-01-01 to 2015-03-31 | $1.31bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2015-01-01 to 2015-03-31 | −$548.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-01-01 to 2015-03-31 | −$241.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-01-01 to 2015-03-31 | −$643.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-01-01 to 2015-03-31 | −$0.76 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-01-01 to 2015-03-31 | −$0.76 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-01-01 to 2015-03-31 | 850,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2015-01-01 to 2015-03-31 | $812.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2015-01-01 to 2015-03-31 | $704.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2015-01-01 to 2015-03-31 | $153.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2015-01-01 to 2015-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2015-03-31 | $2.29bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-03-31 | $13.82bn | us-gaap:AssetsCurrent |
| Total assets | at 2015-03-31 | $30.59bn | us-gaap:Assets |
| Current liabilities | at 2015-03-31 | $5.02bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-03-31 | $14.96bn | us-gaap:Liabilities |
| Long-term debt | at 2015-03-31 | $7.84bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2015-03-31 | $15.59bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,572 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, well intervention, pressure control services, well control and prevention services, pipeline and process services, specialty chemicals, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions (formerly 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, China, Malaysia, 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.

### Pending acquisition of Baker Hughes

On November 16, 2014, we and Baker Hughes entered into a merger agreement under which, subject to the conditions set forth in the merger agreement, we will acquire all the outstanding shares of Baker Hughes in a stock and cash transaction. The acquisition is expected to create a leading global oilfield services company and combine the companies’ product and service capabilities to deliver exceptional depth and breadth of solutions to our customers. The closing of the transaction is expected to occur late in the second half of 2015. See Note 2 to the condensed consolidated financial statements for further information about the pending acquisition.

### Financial results

We experienced a decline in revenue and margins in the first quarter of 2015, as compared to the first quarter of 2014, due to the depressed crude oil pricing environment. Our consolidated revenue for the first quarter of 2015 was $7.1 billion, a decrease of $298 million, or 4%, from the first quarter of 2014, attributable to reduced activity levels and pricing concessions in both North America and Europe/Africa/CIS regions. The industry experienced an unprecedented decline in North America drilling activity during the first quarter of 2015, which significantly impacted our financial results. Since November 2014, the United States experienced an approximately 50% decrease in rig count, which in turn has resulted in pricing pressure across the services industry.

During the first three months of 2015, we had a total operating loss of $548 million, a decrease of $1.5 billion from the $970 million of operating income in the first three months of 2014. The decrease in the first quarter of 2015 was mainly due to approximately $1.2 billion of impairments and other charges recorded during the quarter. These charges were recorded primarily as a result of the recent downturn in the energy market, and consisted of asset impairments and write-offs, impairments of intangible assets, inventory write-downs, severance costs, country and facility closures, and other items. We reduced our global headcount during the first quarter of 2015 in order to address current market conditions. We anticipate that these collective actions will result in cost savings beginning in the second quarter of 2015. See Note 3 to the condensed consolidated financial statements for further information about these first quarter charges. Additionally, our operating results were negatively impacted by reduced activity and profitability in most of our product services lines, particularly production enhancement services, in the United States land market.

### Business outlook

We anticipate the remainder of 2015 will be challenging for us, as our customers continue to respond to the impact of reduced commodity prices by making downward revisions to their operating budgets, creating widespread pricing pressure on a global basis. As such, we expect continued near-term declines in activity levels and further pricing pressures, with corresponding reductions in revenue and operating margins in the second quarter of 2015. We are continuing to evaluate the impact of these conditions on our business and expect that further cost reducing actions may be required in the second quarter of 2015, although we anticipate that any resulting charges from such actions would be significantly less than the amounts we recorded in the first quarter. We continue to believe in the strength of the long-term fundamentals of our business. Despite the expected worldwide activity declines in 2015, energy demand is still anticipated to increase over the long term.

In North America, we continue to experience pricing pressures, which have impacted our margins. Lower commodity prices have translated into unprecedented reductions in rig count throughout the first quarter, which translated into competitive pricing pressure across all of our product service lines. We will likely continue to observe pricing pressure until we see stabilization in the rig count.

We took actions during the quarter reducing our headcount and cost structure to help mitigate the current market conditions that we are experiencing. We also believe that our focus on asset utilization and the efficiencies we expect to realize from our low cost service delivery model will benefit us during these market conditions.

Internationally, we expect the remainder of 2015 to be challenging across all of our international regions, as our customers continue to respond to current market conditions. Our Middle East/Asia region is expected to benefit from recent project awards in Saudi Arabia, Iraq, UAE, and Kuwait, partially offset by activity declines in Malaysia and Australia. Europe/Africa/CIS is experiencing significant activity declines across the entire region, with the most susceptible areas being the North Sea, Russia, and Angola. Lower activity levels are expected in Latin America, primarily in Mexico and Colombia, coupled with lower revenue and profitability in Venezuela as we utilize the new SIMADI exchange rate mechanism. See "Business Environment and Results of Operations" for further information about recent changes to exchange rates we are using in Venezuela.

While the intensity and duration of the current market downturn is uncertain, we intend to remain focused and look beyond the down cycle by continuing to invest in capital and strategic programs, and we will make necessary adjustments as activity dictates. We plan to continue executing the following strategies in 2015:

\- directing capital and resources into strategic growth markets, including unconventional plays, mature fields, and deepwater;

- 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 additional 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;
- investing in technology that will help our customers reduce reservoir uncertainty and increase operational efficiency;
- improving working capital, and managing our balance sheet to maximize our financial flexibility; 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. In addition, we have committed financing available to finance the cash portion of the consideration for the pending Baker Hughes acquisition. For additional information, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”

### LIQUIDITY AND CAPITAL RESOURCES

We had $2.3 billion of cash and equivalents at both March 31, 2015 and December 31, 2014. Additionally, at March 31, 2015, we held $105 million of investments in fixed income securities compared to $103 million at December 31, 2014. These securities are reflected in "Other current assets" and "Other assets" in our condensed consolidated balance sheets. As of March 31, 2015, approximately $808 million of the $2.3 billion of cash and equivalents was held by our foreign subsidiaries, of which $313 million 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.

### Significant sources and uses of cash

Cash flows from operating activities were $812 million in the first three months of 2015.

Capital expenditures were $704 million in the first three months of 2015, and were predominantly made in our Production Enhancement, Sperry Drilling, Cementing, Production Solutions, and Wireline and Perforating product service lines.

During the first three months of 2015, our primary components of working capital (receivables, inventories, and accounts payable) decreased by a net $313 million, primarily due to decreased business activity driven by current market conditions.

We paid $153 million in dividends to our shareholders during the first three months of 2015.

### Future sources and uses of cash

Subject to the conditions set forth in the merger agreement, the closing of the acquisition of Baker Hughes is expected to occur late in the second half of 2015. We intend to finance the cash portion of the acquisition through a combination of cash on hand and debt financing. We have obtained a commitment letter for an $8.6 billion senior unsecured bridge facility, which is greater than the expected cash consideration required upon closing of the Baker Hughes acquisition. We have not drawn any amounts under this commitment as of March 31, 2015. We may issue debt securities, obtain bank loans or pursue other debt financings, or use cash on hand in lieu of utilizing all or a portion of the bridge facility. See Note 2 to the condensed consolidated financial statements for further information about the pending acquisition.

We manufacture our own equipment which gives us flexibility to assist in mitigating the impact of market conditions.

Capital spending for 2015 is currently expected to be approximately $2.8 billion, a reduction from the $3.3 billion of capital expenditures in 2014, primarily due to the current market environment. We intend to remain focused and look beyond the down cycle by continuing to invest in capital and strategic programs. The capital expenditures plan for 2015 is primarily directed toward our Production Enhancement, Cementing, Sperry Drilling, Production Solutions, and Wireline and Perforating product service lines.

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 $0.18 per common share, or approximately $153 million per quarter.

Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.7 billion remains authorized for repurchases as of March 31, 2015 and may be used for open market and other share purchases.

### Other factors affecting liquidity

*Financial position in current market.* As of March 31, 2015, we had $2.3 billion of cash and equivalents, $105 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 2015 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 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 $2.0 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of March 31, 2015. 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. After the announcement of the pending Baker Hughes acquisition, Standard & Poor’s placed all of our ratings on negative watch.

*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. During the first three months of 2015, based upon the location of the services provided and products sold, 48% of our consolidated revenue was from the United States, compared to 50% of consolidated revenue from the United States in the first three months of 2014. 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, sanctions, 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 within our business segments is 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, global oil supply, 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 2015 | 2014 | Year Ended December 31 2014 |
| --- | ---: | ---: | ---: |
| Oil price - WTI (1) | $48.54 | $98.80 | $93.37 |
| Oil price - Brent (1) | 53.95 | 107.81 | 99.04 |
| Natural gas price - Henry Hub (2) | 2.90 | 5.20 | 4.39 |
| (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 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 2015 2014 | Year Ended December 31 2014 |
| --- | ---: | ---: |
| Land | 1,331 1,725 | 1,804 |
| Offshore (incl. Gulf of Mexico) | 49 55 | 57 |
| Total | 1,380 1,780 | 1,861 |
| Canada: |  |  |
| Land | 306 526 | 378 |
| Offshore | 3 1 | 2 |
| Total | 309 527 | 380 |
| International (excluding Canada): |  |  |
| Land | 943 1,019 | 1,011 |
| Offshore | 318 318 | 326 |
| Total | 1,261 1,337 | 1,337 |
| Worldwide total | 2,950 3,644 | 3,578 |
| Land total | 2,580 3,270 | 3,193 |
| Offshore total | 370 374 | 385 |
|  | Three Months Ended March 31 | Year Ended December 31 |
| **Oil vs. Natural Gas** | 2015 2014 | 2014 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 1,091 1,433 | 1,528 |
| Natural gas | 289 347 | 333 |
| Total | 1,380 1,780 | 1,861 |
| Canada: |  |  |
| Oil | 145 338 | 218 |
| Natural gas | 164 189 | 162 |
| Total | 309 527 | 380 |
| International (excluding Canada): |  |  |
| Oil | 1,002 1,070 | 1,070 |
| Natural gas | 259 267 | 267 |
| Total | 1,261 1,337 | 1,337 |
| Worldwide total | 2,950 3,644 | 3,578 |
| Oil total | 2,238 2,841 | 2,816 |
| Natural gas total | 712 803 | 762 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended March 31 2015 | 2014 | Year Ended December 31 2014 |
| --- | ---: | ---: | ---: |
| Horizontal | 1,038 | 1,184 | 1,274 |
| Vertical | 213 | 387 | 376 |
| Directional | 129 | 209 | 211 |
| Total | 1,380 | 1,780 | 1,861 |

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.

During the first quarter of 2015, WTI and Brent crude oil spot prices averaged approximately $49 and $54 per barrel, respectively, as compared to $99 and $108 per barrel, respectively, during the first quarter of 2014. Crude oil prices were negatively affected by a combination of factors, including weakening demand in Europe and Asia and increased production in the United States. Additionally, stronger economic performance in the United States has led to a strengthening in the U.S. dollar relative to most other currencies, contributing further to the fall in the U.S. dollar value of crude oil. WTI crude oil spot prices decreased to a monthly average of approximately $48 per barrel in March, down nearly $3 per barrel from February, mainly due to increasing commercial crude oil inventories in Cushing, Oklahoma. Brent crude oil spot prices averaged approximately $56 per barrel in March, a decrease of $2 per barrel from the February average, as the combination of robust world crude oil supply growth and weak global demand contributed to an increase in the rate of global inventory builds.

According to the United States Energy Information Administration (EIA) April 2015 "Short Term Energy Outlook," Brent prices are projected to average $59 per barrel in 2015, with prices rising from an average of $56 per barrel in the second quarter to an average of $67 per barrel in the fourth quarter. WTI prices in 2015 are expected to average $7 per barrel below Brent prices. The EIA also noted that strong global oil inventory builds are expected to continue in the coming months, but are projected to moderate later in the year and provide stability to crude oil prices. Although there are no signs that point to an immediate rebalancing of the market, the International Energy Agency's (IEA) April 2015 "Oil Market Report" forecasts the 2015 global demand to average approximately 93.6 million barrels per day, which is up 1% from 2014, driven by an increase in all regions except for Europe and the Commonwealth of Independent States.

For the first quarter of 2015, the average Henry Hub natural gas price in the United States decreased by 44% compared to the first quarter of 2014, due to a decrease in natural gas storage withdrawals as a result of a this year's winter heating season being warmer than last year's historically cold winter. The Henry Hub natural gas spot price averaged $2.83 per MMBtu in March, a decline of $0.04 per MMBtu from February. The EIA's April 2015 "Short Term Energy Outlook" projects that monthly average spot prices will remain at less than $3 per MMBtu through May, and less than $4 per MMBtu through the remainder of the forecast. Over the long term, the EIA expects that increases in drilling efficiency and growth in oil production will continue to support growing natural gas production in the forecast.

### 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 2015, the average oil directed rig count decreased 30%, while the average natural gas directed rig count decreased 15%, compared to the first quarter of 2014.

The United States rig count has dropped approximately 50% from the peak in late November 2014 and activity is still decreasing, although the pace of decline has slowed. Current market conditions aside, in the long run, we believe the shift to unconventional oil and liquids-rich basins in the United States land market will continue to drive increased service intensity and will require higher demand in fluid chemistry and other technologies required for these complex reservoirs which will have beneficial implications for our operations.

In the Gulf of Mexico, the average offshore rig count for first quarter 2015 was down 11% compared to the first quarter of 2014. Activity 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 average international rig count for the first quarter of 2015 decreased by 6% compared to the first quarter of 2014. Declining crude oil prices have caused several of our customers to reduce their budgets and defer several new projects. We expect that 2015 will be a challenging year for all of our international regions, primarily in our Europe/Africa/CIS region, with our Middle East/Asia region likely being the most resilient.

Despite the current market environment, we 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 optimize 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.

*Venezuela.* In February 2015, the Venezuelan government created a new foreign exchange rate mechanism, called the Marginal Currency System, or SIMADI. The new mechanism, which is the third system in a three-tier exchange control mechanism, is a floating market rate for the conversion of Bolívares to United States dollars based on supply and demand. The three-tier exchange rate mechanisms are as follows: (i) the National Center of Foreign Commerce official rate of 6.3 Bolívares per United States dollar, which remains unchanged; (ii) the SICAD I, which will continue to hold periodic auctions for specific sectors of the economy with a rate of 12 Bolívares per United States dollar at March 31, 2015; and (iii) the Marginal Currency System, which replaces the SICAD II system with a market rate of 192 Bolívares per United States dollar at March 31, 2015.

We intend to utilize the new SIMADI mechanism for liquidity purposes in our Venezuelan operations. During the first quarter of 2015, we began utilizing the SIMADI mechanism to remeasure our net monetary assets denominated in Bolívares, which resulted in us recording a foreign currency loss of $199 million during the first quarter of 2015.

As of March 31, 2015, our total net investment in Venezuela was approximately $556 million, including net monetary assets of $8 million denominated in Bolívares. Also, at March 31, 2015 we had $24 million of surety bond guarantees outstanding relating to our Venezuelan operations. The United States dollar value of our net monetary assets and surety bond guarantees have significantly declined from December 31, 2014 primarily as a result of the currency devaluation in Venezuela.

We are continuing to collect 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 $437 million, or approximately 7% of our gross trade receivables, as of March 31, 2015, compared to $670 million, or approximately 9% of our gross trade receivables, as of December 31, 2014. This significant decline is primarily driven by the currency devaluation in Venezuela, which more than offset increased activity during the quarter. Of the $437 million receivables in Venezuela as of March 31, 2015, $130 million has been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets.

For additional information, see Part I, Item 1(a), “Risk Factors” in our 2014 Annual Report on Form 10-K.

### RESULTS OF OPERATIONS IN 2015 COMPARED TO 2014

### Three Months Ended March 31, 2015 Compared with Three Months Ended March 31, 2014

| REVENUE: Millions of dollars | Three Months Ended March 31 2015 | 2014 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,246 | $4,420 | $(174) | (4)% |
| Drilling and Evaluation | 2,804 | 2,928 | (124) | (4) |
| Total revenue | $7,050 | $7,348 | $(298) | (4)% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $2,777 | $2,927 | $(150) | (5)% |
| Latin America | 394 | 355 | 39 | 11 |
| Europe/Africa/CIS | 528 | 607 | (79) | (13) |
| Middle East/Asia | 547 | 531 | 16 | 3 |
| Total | 4,246 | 4,420 | (174) | (4) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 765 | 974 | (209) | (21) |
| Latin America | 555 | 504 | 51 | 10 |
| Europe/Africa/CIS | 569 | 692 | (123) | (18) |
| Middle East/Asia | 915 | 758 | 157 | 21 |
| Total | 2,804 | 2,928 | (124) | (4) |
| Total revenue by region: |  |  |  |  |
| North America | 3,542 | 3,901 | (359) | (9) |
| Latin America | 949 | 859 | 90 | 10 |
| Europe/Africa/CIS | 1,097 | 1,299 | (202) | (16) |
| Middle East/Asia | 1,462 | 1,289 | 173 | 13 |

26

| OPERATING INCOME: Millions of dollars | Three Months Ended March 31 2015 | 2014 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $462 | $661 | $(199) | (30)% |
| Drilling and Evaluation | 306 | 398 | (92) | (23) |
| Corporate and other | (108) | (89) | (19) | (21) |
| Impairments and other charges | (1,208) | — | (1,208) | — |
| Total operating income (loss) | $(548) | $970 | $(1,518) | (156)% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $234 | $446 | $(212) | (48)% |
| Latin America | 65 | 48 | 17 | 35 |
| Europe/Africa/CIS | 55 | 78 | (23) | (29) |
| Middle East/Asia | 108 | 89 | 19 | 21 |
| Total | 462 | 661 | (199) | (30) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 45 | 156 | (111) | (71) |
| Latin America | 57 | 52 | 5 | 10 |
| Europe/Africa/CIS | 31 | 68 | (37) | (54) |
| Middle East/Asia | 173 | 122 | 51 | 42 |
| Total | 306 | 398 | (92) | (23) |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 279 | 602 | (323) | (54) |
| Latin America | 122 | 100 | 22 | 22 |
| Europe/Africa/CIS | 86 | 146 | (60) | (41) |
| Middle East/Asia | 281 | 211 | 70 | 33 |

The 4% decrease in consolidated revenue in the first quarter of 2015, as compared to the first quarter of 2014, was primarily attributable to decreased well completion and drilling services in the United States land market, coupled with decreased activity in the Europe/Africa/CIS region, which more than offset strong activity growth across most product service lines in Saudi Arabia. Revenue outside of North America was 50% of consolidated revenue in the first quarter of 2015, compared to 47% of consolidated revenue in the first quarter of 2014.

The decrease of $1.5 billion, or 156%, in consolidated operating income during the first quarter of 2015, as compared to the first quarter of 2014, was driven by $1.2 billion of impairments and other charges in the first quarter of 2015 primarily to address the recent downturn in the energy market. See Note 3 to the condensed consolidated financial statements for further information.

*Completion and Production* revenue in the first quarter of 2015 decreased 4% as compared to the first quarter of 2014, primarily due to steep rig count declines and price discounts for well completion services in North America, along with decreased activity in Norway, Angola, Mexico, and Australia, which more than offset increased activity across all product lines in Venezuela and increased completion tools sales in Saudi Arabia, Qatar, and Nigeria. North America revenue dropped 5%, primarily as a result of steep rig count declines and pricing pressure. Latin America revenue increased 11%, mainly due to strong activity growth across all product service lines in Venezuela, which more than offset decreased pressure pumping services in Mexico. Europe/Africa/CIS revenue decreased 13%, as a result of decreased completion tools sales in Angola and decreased activity across all product service lines in Norway, which more than offset increased completion tools sales in Nigeria. Middle East/Asia revenue grew 3%, mainly due to increased completion tools sales and stimulation activity in Saudi Arabia, which were partially offset by decreased pressure pumping services in Australia. Revenue outside of North America was 35% of total segment revenue in the first quarter of 2015, compared to 34% of total segment revenue in the first quarter of 2014.

Completion and Production operating income was $462 million, a decrease of $199 million, or 30%, compared to the first quarter of 2014. North America operating income declined $212 million, or 48%, from the first quarter of 2014, primarily due to activity declines and price discounts impacting well completion services. Latin America operating income increased $17 million, or 35%, compared to the first quarter of 2014, primarily as a result of improved activity and profitability across all product lines in Venezuela. Europe/Africa/CIS operating income decreased $23 million, or 29%, from the first quarter of 2014, mainly due to decreased well completion services in Norway and decreased completion tools sales in Angola. Middle East/Asia operating income improved by $19 million, or 21%, compared to the first quarter of 2014, primarily due to increased completion tools sales in Qatar and Saudi Arabia.

*Drilling and Evaluation* revenue decreased 4% in the first quarter of 2015, compared to the first quarter of 2014, as a result of decreased drilling activity and fluid services in the United States land market and Europe/Africa/CIS region, which more than offset strong activity growth across all product service lines in Saudi Arabia and increased drilling activity in Venezuela. North America revenue dropped 21%, compared to the first quarter of 2014, due to decreased drilling activity and fluid services in the United States land market. Latin America revenue increased 10%, primarily due to increased fluid services and drilling activity in Venezuela and Argentina. Europe/Africa/CIS revenue decreased 18% as a result of decreased fluid services in Norway and decreased drilling services in Russia. Middle East/Asia revenue grew 21%, mainly due to strong activity growth across all product service lines in Saudi Arabia and increased consulting services in Indonesia and India. Revenue outside of North America was 73% of total segment revenue in the first quarter of 2015, compared to 67% of total segment revenue in the first quarter of 2014.

Drilling and Evaluation operating income was $306 million, a decrease of $92 million, or 23%, compared to the first quarter of 2014. North America operating income decreased $111 million, or 71%, from the first quarter of 2014, primarily due to decreased fluid and drilling services in the United States land market. Latin America operating income improved by $5 million, or 10%, compared to the first quarter of 2014, primarily due to increased fluid and drilling services in Venezuela, which were partially offset by reduced testing and fluid services in Brazil and Mexico. Europe/Africa/CIS operating income declined $37 million, or 54%, from the first quarter of 2014, mainly due to decreased fluid activity in Norway as well as currency and sanction-related issues in Russia. Middle East/Asia operating income increased $51 million, or 42%, compared to the first quarter of 2014, driven by strong activity growth across all product lines in Saudi Arabia.

*Corporate and other* was $108 million of expenses in the first quarter of 2015, compared to $89 million of expenses in the first quarter of 2014, primarily due to $39 million of costs related to the pending Baker Hughes acquisition.

*Impairments and other charges.* Primarily as a result of the recent downturn in the energy market and its corresponding impact on the company’s business outlook, we recorded a total of approximately $1.2 billion in company-wide charges during the first quarter of 2015, which consisted of asset impairments and write-offs, inventory write-downs, impairments of intangible assets, severance costs, facility closures, and other charges. See Note 3 to the condensed consolidated financial statements for further information.

### NONOPERATING ITEMS

*Other, net* was $224 million of expenses for the quarter ended March 31, 2015, compared to $31 million of expenses for the quarter ended March 31, 2014. This $193 million increase is primarily due to a $199 million foreign exchange loss we incurred in Venezuela as a result of utilizing the new SIMADI currency exchange mechanism. See Note 3 to the condensed consolidated financial statements and "Business Environment and Results of Operations" for further information.

*Effective tax rate*. Our effective tax rate on continuing operations for the quarter ended March 31, 2015 was 27.4%, which includes the tax effects of the $1.2 billion of impairments and other charges recorded during the quarter, and was positively impacted by settlements of certain international tax audits. Our effective tax rate on continuing operations for the quarter ended March 31, 2014 was 27.1%, which was positively impacted by a revised estimate of the tax basis of foreign leased assets. The effective tax rates in both periods were affected by lower tax rates in certain foreign jurisdictions.

### 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.

### 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,” “believe,” “do not believe,” “plan,” “estimate,” “intend,” “expect,” “do not expect,” “anticipate,” “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 2014 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2014.

## 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, 2015 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, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Apr 23, 2015.
Source: SEC EDGAR, the filing index for accession 0000045012-15-000079. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.