Baker Hughes 2009 Annual Report Download - page 95

2009 Form 10-K 21
Revenues for 2008 increased 14% compared to 2007 pri-
marily due to increases in activity in certain geographic areas,
as evidenced by a 7% increase in the worldwide rig count,
price improvement and changes in market share in selected
product lines and geographic areas. These increases were par-
tially offset by the impact of hurricanes in the Gulf of Mexico.
North America
Revenues in North America, which accounted for 44%
of total revenues, increased 17% in 2008 compared to 2007,
despite the unfavorable impact on our U.S. offshore revenues
from hurricane-related disruptions in 2008. The improvement
in North America revenues was led by our Completion and
Production segment and directional drilling, as evidenced by
a 7% increase in the U.S. rig count for land and inland water
drilling. The U.S. offshore rig count was down 11% due to the
continued migration of rigs out of the Gulf of Mexico to more
attractive international markets and weather-related disrup-
tions. Canada revenues increased 12% compared to an 11%
increase in the rig count reflecting improved economics for
Canadian natural gas producers.
Outside North America
Revenues outside North America, which accounted for 56%
of total revenues, increased 12% in 2008 compared to 2007. This
increase reflected the improvement in international drilling activity,
as evidenced by a 7% increase in the rig count outside North
America, and market share gains in certain geographic areas.
Latin America revenues increased 25% compared to an
8% increase in the rig count. The improved revenue in Latin
America was led by directional drilling systems in Brazil and
Colombia; completions and production systems in Mexico;
and drill bits throughout the region.
Europe, Africa, Russia, Caspian revenues increased 10%.
The improved revenue in the region was led by all product
lines across both segments in Norway and Libya; and comple-
tion systems as well as multiple product lines in the Drilling
and Evaluation segment in both Kazakhstan and Russia par-
tially offset by lower drilling activity in the U.K.
Middle East, Asia Pacific revenues increased 8%. Middle
East revenues increased 9% compared to a 6% increase in the
rig count. Asia Pacific revenues were up 7% compared to a 5%
increase in the rig count. The improvement in revenues from
the region was led by our Completion and Production segment
in China and sales of various other product lines throughout
the region including Oman and United Arab Emirates.
Cost of Revenues
Cost of revenues as a percentage of revenues was 77%
and 67% for 2009 and 2008, respectively. The increase was
primarily due to significant declines in activity worldwide result-
ing in excess manufacturing capacity, lower utilization of our
rental tools and price deterioration, primarily in North America.
Additional contributing factors to this increase include costs
associated with employee severance of $73 million; an increase
in the net provision for doubtful accounts of $73 million; and
a change in the geographic and product mix from the sale of
our products and services as we continue to emphasize pro-
ductivity and cost improvements.
Cost of revenues as a percentage of revenues was 67%
and 66% for 2008 and 2007, respectively. The increase was
primarily due to a change in the geographic and product mix
from the sale of our products and services and increasingly
competitive conditions and pricing pressures, particularly in
North America. In addition, higher raw material costs and
labor costs contributed to the increase.
Research and Engineering
Research and engineering expenses decreased 7% in 2009
compared with 2008. The decrease is in line with the decrease
in activity; however, we continue to be committed to develop-
ing and commercializing new technologies as well as investing
in our core product offerings. The decrease is offset by $5 mil-
lion associated with employee severance. Research and devel-
opment costs decreased 12% in 2009 compared with 2008.
Research and engineering expenses increased 15% in
2008 compared with 2007. Research and development costs
increased 12% in 2008 compared with 2007. During 2007, we
opened the first phase of the Center for Technology and Inno-
vation in Houston, Texas. This facility focuses on research and
development of completion and production systems in harsh
environments. The second phase was completed in 2008.
Marketing, General and Administrative
Marketing, general and administrative (“MG&A”) expenses
increased 7% in 2009 compared with 2008. This increase
resulted primarily from an increase in costs associated with
enterprise-wide accounting system implementations and reor-
ganization activities of $46 million, and employee severance of
$14 million. These increases were partially offset by lower mar-
keting and compliance related expenses.
2008 Compared to 2007
Twelve Months Ended
December 31, Increase
2008 2007 (decrease) % Change
Geographic Revenues:
North America $ 5,178 $ 4,441 $ 737 17%
Latin America 1,127 903 224 25%
Europe, Africa, Russia, Caspian 3,386 3,076 310 10%
Middle East, Asia Pacific 2,173 2,008 165 8%
Total revenues $ 11,864 $ 10,428 $ 1,436 14%