Baker Hughes 2013 Annual Report Download - page 59

Baker Hughes Incorporated29
operating results from 2013 to 2012. In 2011, profit before tax included a charge of $315 million related to the
impairment of trade names. For further discussion of the trade name impairments see Note 7. Goodwill and
Intangible Assets. The amount of the trade name impairment charge recorded by segment was as follows: North
America - $105 million; Latin America - $64 million; Europe/Africa/Russia Caspian - $48 million; Middle East/Asia
Pacific - $47 million; and Industrial Services - $51 million.
North America
North America revenue increased 5% in 2012 compared to 2011 despite rig counts declining 1%. The primary
catalysts for the revenue growth in North America include sustained high oil prices during 2012 compared to
historical prices and new innovative technologies for drilling and completion systems and wireline services that have
resulted in increased revenue, particularly in the unconventional reservoirs in the U.S. and deepwater of the Gulf of
Mexico. Additionally, the continuing shift of drilling activities from the natural gas-directed unconventional reservoirs
to the oil-directed reservoirs in the U.S. resulted in significant increases in activity particularly for our production
product lines, artificial lift and upstream chemicals. In the Gulf of Mexico, revenue increased 32% in 2012
compared to 2011 as rig counts increased 47%, driven primarily by increased deepwater activity. These increases
in revenue were offset by reduced demand and pricing in our pressure pumping product line in the U.S. and Canada
primarily due to an oversupply of pressure pumping capacity in the industry. Additionally, as a result of reduced
customer spending in Canada, oil-directed rig counts decreased 6% and natural gas-directed rig counts were down
27% compared to 2011. Overall, this resulted in a 10% reduction in our Canadian revenue during 2012 compared
to 2011.
North America profit before tax was $1.27 billion in 2012, a decrease of $640 million, or 34%, compared to
2011. Despite higher revenue, profits in U.S. and Canada were impacted significantly by decreased fleet utilization
and lower pricing, higher personnel costs, and increased costs for critical raw materials primarily in our pressure
pumping product line. Additionally, higher depreciation and amortization expense of $125 million also contributed to
a decrease in profitability. Profit before tax in Canada was further impacted by the reduced customer spending.
These reductions were partially offset by increased activity in our U.S. product lines other than pressure pumping
and improved profits in the Gulf of Mexico, where both revenue and profit margins returned to pre-moratorium levels
as activity increased substantially. During 2012, deepwater drilling activity increased significantly compared to shelf
drilling activity. The shift from shelf activity to deepwater activity led to a favorable change in sales mix to products
and services with higher margins. The improved margins in drilling and wireline services in the deepwater resulted
in a significant increase in profits in the Gulf of Mexico during 2012 compared to 2011. North America profit before
tax in 2012 was negatively impacted by a $33 million charge associated with the information technology expenses
and the facility closure, while 2011 profit before tax was impacted by the trade name impairment charge discussed
previously.
Latin America
Latin America revenue increased 10% in 2012 compared to 2011. The primary driver was higher activity
benefiting our drilling services, artificial lift, completion systems and pressure pumping product lines in Brazil and
the Andean region, improved pricing and increased activity in the pressure pumping product line in Argentina and
higher land activity in Mexico.
Latin America profit before tax decreased 12% in 2012 compared to 2011. Despite the increase in revenue,
profits were negatively impacted by an increase of $85 million in our allowance for doubtful accounts and higher
personnel costs. Latin America profit before tax in 2012 was also negatively impacted by a $7 million charge
associated with the information technology expenses and the facility closure, while 2011 profit before tax was
impacted by the trade name impairment charge discussed previously.
Europe/Africa/Russia Caspian
EARC revenue increased 8% in 2012 compared to 2011. Strong growth was seen in Africa, particularly with
drilling systems in Mozambique and Nigeria, completion systems in Nigeria and Angola, wireline services in Nigeria,
Uganda and Angola and resumed operations in Libya. Revenue increases in Africa were augmented by increases
in our Europe region due primarily to increased wireline services activity in Norway, the U.K. and Eastern