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## Operating Results for the Year Ended December 31, 2013 Compared to the Years Ended December 31, 2012 and 2011 

We evaluate our operating results by analyzing revenue, operating income and net income margin (defined as net income divided by total revenue). Since we have a relatively fixed cost structure, increases in revenue generally translate into higher operating income results as well as net income margin percentages. Results for the years ended December 31, 2013, 2012 and 2011 are summarized in the following chart: 

## Services Revenue 

Services revenue increased to $765.4 million for 2013 from $693.9 million for 2012 and $621.8 million for 2011. The increase in services revenue from 2012 to 2013 was primarily due to our continued focus on existing fields and fields under development, as opposed to increasingly volatile and downward trends in exploration efforts. The increase in services revenue from 2011 to 2012 was primarily due to our contin- ued focus on worldwide crude-oil related and large natural gas plays for liquefaction projects, especially those related to the development of deepwater fields offshore West and East Africa, eastern South America, the eastern Mediterranean, and the Gulf of Mexico. 

## Product Sales Revenue 

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Product sales revenue increased to $308.1 million for 2013, from $287.2 million for 2012 and $285.9 million for 2011. The increase in revenue from 2012 to 2013, was driven primarily by the continued successful introduction of new technologies such as our new completion systems for optimizing completions and stimulations of horizontal wells, including our HTD-BLAST $_{ }$TM  and KODIAK  TM Enhanced Perforating Systems, and our permanent reservoir monitoring systems, primarily in the Canadian market. The increase in revenue from 2011 to 2012 was due to greater market penetration of our patented and proprietary completion systems. 

## Cost of Services, excluding depreciation 

Cost of services increased to $445.0 million for 2013 from $413.1 million for 2012 and $395.3 million for 2011. As a percentage of services revenue, cost of services decreased to 58.1% in 2013 from 59.5% in 2012 and 63.6% in 2011. The margin improvement is a result of higher sales, including a better mix of projects aimed at more complex reservoirs, over the fixed cost structure. 

## Cost of Product Sales, excluding depreciation 

Cost of product sales increased to $218.0 million for 2013 from $208.7 million for 2012 and $198.1 million for 2011. As a percentage of product sales revenue, cost of sales decreased to 70.8% for 2013 compared to 72.7% for 2012 and up from 69.3% for 2011. The decrease in cost of sales as a percentage of product sales revenue was primarily due to the growing demand for our new technologies which led to an overall increase in sales, which improved absorption of our fixed cost structure. The increase in cost of sales as a percentage of product sales revenue in 2012, as compared to 2011, was primarily due to the substantial increase in the cost of raw materials, especially specialty steel, in the second half of 2011 which increased our cost of product sales in 2012 as these raw mate- rials were converted to finished goods which were subsequently sold. 

## General and Administrative Expense 

General and administrative expenses include corporate management and centralized administrative services that benefit our operations. General and administrative expenses were $52.0 million for 2013, which represents 4.8% of revenue, a slight increase compared to 4.4% of revenue in 2012. General and administrative expenses as a percent of revenue were 4.5% in 2011. The increase during 2013 was primarily attributable to increases in compensation costs, including variable compensation. 

