Baker Hughes 2014 Annual Report Download - page 48

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be
read in conjunction with the consolidated financial statements included in Item 8. Financial Statements and
Supplementary Data contained herein.
EXECUTIVE SUMMARY
Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil
and natural gas industry, referred to as our oilfield operations. We manage our oilfield operations through four
geographic segments consisting of North America, Latin America, Europe/Africa/Russia Caspian, and Middle East/
Asia Pacific. Our Industrial Services businesses are reported in a fifth segment. As of December 31, 2014, Baker
Hughes had approximately 62,000 employees compared to approximately 59,400 employees as of December 31,
2013.
Within our oilfield operations, the primary driver of our businesses is our customers’ capital and operating
expenditures dedicated to oil and natural gas exploration, field development and production. The main products
and services provided by oilfield operations fall into one of two categories, Drilling and Evaluation or Completion
and Production. This classification is based on the two major phases of constructing an oil and/or natural gas well,
the drilling phase and the completion phase, and how our products and services are utilized in each phase. We
also provide products and services to the downstream chemicals, and process and pipeline services, referred to as
Industrial Services.
Financial Results
For 2014, we generated revenue of $24.55 billion, an increase of $2.19 billion, or 10%, compared to 2013.
Revenue from our North America segment for 2014 was $12.08 billion, an increase of $1.2 billion, or 11%,
compared to 2013. The increase in this segment was the result of higher activity levels in our U.S. onshore
operations, improved utilization and pricing in our pressure pumping business, and growing demand for new
technologies in the unconventional plays. Revenue for our Latin America segment for 2014 was $2.24 billion, a
decrease of $71 million, or 3%, compared to 2013. The slight reduction in this segment is attributed to revenue
declines in Venezuela and Brazil, partially offset by revenue growth in Argentina, Mexico and Ecuador. Revenue in
our Middle East/Asia Pacific ("MEAP") segment for 2014 was $4.46 billion, an increase of $597 million, or 15%,
compared to 2013. The strong growth in this segment was driven primarily by increased drilling activity across the
region, in particular Saudi Arabia. Revenue in our Europe/Africa/Russia Caspian ("EARC") segment for 2014 was
$4.42 billion, an increase of $376 million, or 9%, compared to 2013. The increase was driven mainly by revenue
growth in Africa, Continental Europe and the United Kingdom. Industrial Services revenue was $1.36 billion, an
increase of $85 million, or 7%, compared to 2013. A large contributor to the growth in this segment was the
acquisition of a complementary pipeline services business in the third quarter of 2014.
Net income attributable to Baker Hughes was $1.72 billion for 2014 compared to $1.10 billion for 2013.
Operating profit before tax increased significantly year over year due to robust activity growth and higher
incremental profit on increased revenue in North America, MEAP and EARC, and improved profitability in Latin
America. In North America, profit before tax increased $498 million, or 51%, compared to 2013. In addition to
strong activity levels in U.S. onshore, increased profitability was driven by improved utilization and pricing in our
pressure pumping operations, along with growing demand for new technologies which command a higher premium.
In Latin America, profit before tax improved $224 million, or 339%, compared to 2013. The business realignment
performed in late 2013 provided an improved cost structure for 2014 activity levels. Additionally, this segment saw
higher incremental profit on increased revenue in Mexico and Argentina. In EARC, profit before tax increased $30
million, or 5%, compared to 2013. Profitability increased as a result of activity growth in the year, but was partially
offset by a $58 million restructuring charge in North Africa and foreign exchange losses, particularly in Russia. In
MEAP, profit before tax increased $218 million, or 48%, compared to 2013. The increase in profitability was due to
a combination of strong activity growth and improved profitability in Iraq, where in the prior year, we incurred a
business disruption charge of $79 million, which negatively impacted profit before tax. Profitability in our Industrial
Services segment decreased $16 million, or 12%, as a result of integration expenses related to an acquisition,
along with an increase in environmental remediation costs compared to the prior year.