Baker Hughes 2014 Annual Report Download - page 58

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services contract and higher activity for pressure pumping and wireline services in Norway were offset by the
completion of significant projects in the Eastern Mediterranean and lower activity across all drilling and evaluation
product lines in the United Kingdom.
EARC profit before tax decreased $14 million or 2% in 2013 compared to 2012. In Europe, profit margins
declined due to reduced pricing and increased start-up costs associated with the new drilling services contract in
Norway. Europe profitability was also impacted by the reduced drilling and evaluation activity in the United Kingdom
and completion of the projects in the Eastern Mediterranean. These declines were partially mitigated by improved
profits in Africa and Russia Caspian, primarily associated with higher revenue. In 2012, EARC profit before tax was
negatively impacted by the impairment charges associated with the information technology assets and facility
closure discussed previously.
Middle East/Asia Pacific
MEAP revenue increased $760 million or 25% in 2013 compared to 2012, while the corresponding rig count
increased only 4% over the same period. Both the Middle East and Asia Pacific posted strong revenue growth in all
geographies, most notably in Iraq, Saudi Arabia, the Arabian Gulf, Southeast Asia and China. Iraq revenue
increased due to growth in our integrated services contracts. However, Iraq revenue was negatively impacted in the
fourth quarter of 2013 due to a significant disruption in operations. Saudi Arabia saw a significant increase in
revenue due to higher demand for our drilling services, pressure pumping and wireline services product lines as
well as growth in an integrated services contract. Revenue increased in the Arabian Gulf due to increased demand
for our drilling services and wireline services product lines in United Arab Emirates, as well as for wireline services
in India. Within Asia Pacific, revenue growth was strongest in South East Asia for drilling services, completion
systems and pressure pumping. Indonesia and China experienced increased activity for drilling services, and
demand for wireline services grew in Papua New Guinea.
MEAP profit before tax increased $163 million or 55% in 2013 compared to 2012. The primary driver of the
increase in profit before tax was higher incremental profit on increased revenue in Asia Pacific, and to a lesser
extent in the Middle East. Further, we experienced a favorable shift in product mix with a higher proportion of
revenue derived from our drilling services and completion systems product lines. Profit before tax in 2013 also
benefited from ongoing profit improvement initiatives in Asia Pacific. These improvements were offset by $79
million of losses in Iraq related to the significant disruption to our operations, expenses associated with personnel
movements and security measures, and other non-recurring items. In 2012, MEAP profit before tax was negatively
impacted by the impairment charges associated with the information technology assets and facility closure
discussed previously.
Industrial Services
For Industrial Services, revenue increased 5% and profit before tax increased 3% in 2013 compared to 2012.
The increase in revenue was primarily driven by increased demand for our process and pipeline business. The
increase in profit before tax is due to the revenue increase offset by higher compensation expenses. In 2012,
Industrial Services profit before tax was negatively impacted by the impairment charges associated with information
technology assets and facility closure discussed previously.
Costs and Expenses
The table below details certain consolidated statement of income data and as a percentage of revenue.
2014 2013 2012
$ % $ % $ %
Revenue $ 24,551 100% $ 22,364 100% $ 21,361 100%
Cost of revenue 19,746 80% 18,553 83% 17,356 81%
Research and engineering 613 2% 556 2% 497 2%
Marketing, general and administrative 1,271 5% 1,306 6% 1,316 6%