Baker Hughes Announces Fourth Quarter and Annual Results

HOUSTON, Jan 26, 2010 /PRNewswire via COMTEX News Network/ -- Baker Hughes Incorporated (NYSE: BHI) today announced that net income for the fourth quarter 2009 was $84 million or $0.27 per diluted share compared to $432 million or $1.41 per diluted share for the fourth quarter 2008 and $55 million or $0.18 per diluted share for the third quarter 2009. Net income for the fourth quarter 2009 includes expenses of $74 million before tax ($0.16 per diluted share) associated with reorganization, severance and acquisition-related costs, and an increase to our allowance for doubtful accounts. Net income for the year 2009 was $421 million or $1.36 per diluted share, compared to $1.64 billion or $5.30 per diluted share for the year 2008. Net income for the year 2009 includes expenses of $250 million before tax ($0.55 per diluted share) associated with reorganization, severance and acquisition-related costs, and an increase to our allowance for doubtful accounts.

As previously reported, net income for the third quarter 2009 included expenses of $38 million before tax ($0.08 per diluted share) associated with reorganization, severance and acquisition costs, and an increase to our allowance for doubtful accounts.

Revenue for the fourth quarter 2009 was $2.43 billion, down 24% compared to $3.19 billion for the fourth quarter 2008 and up 9% compared to $2.23 billion for the third quarter 2009. Revenue for the year 2009 was $9.66 billion, down 19% compared to $11.86 billion for the year 2008.

Chad C. Deaton, Baker Hughes chairman, president and chief executive officer, said "The sequential improvement in our fourth quarter earnings was the result of increased revenue in every region, as well as the aggressive cost cutting measures we took throughout the year. Incremental margins were particularly strong in North America driven by increased horizontal drilling in the US Land geomarket and improved rig mix in the Gulf of Mexico geomarket. In the fourth quarter, international revenue benefitted from customer requests to accelerate delivery of some large product orders and improved geographic and customer mix.

"We expect international activity to improve in 2010 driven by the global economy's increasing demand for oil and natural gas. However, margins will remain under pressure as the impact of price discounts negotiated in 2009 are reflected in 2010 results. In North America the oil-directed rig count has improved substantially and the gas-directed rig count has begun a steady increase. We expect both trends to continue.

"The implementation of our geographic-centered organization structure announced last May continues to progress and we anticipate further improvements in our competitive position during 2010. Our plans for integrating BJ Services into Baker Hughes are on schedule and we expect to close the transaction by the end of the first quarter. We look forward to welcoming the BJ Services employees to Baker Hughes, and we remain excited about the growth potential of the combined companies."

During the fourth quarter 2009, debt decreased $6 million to $1.80 billion and cash and cash equivalents increased $108 million to $1.59 billion as compared to the third quarter 2009. Capital expenditures were $292 million, depreciation and amortization expense was $179 million and dividend payments were $46 million in the fourth quarter 2009. For the year 2009, capital expenditures were $1.09 billion and depreciation and amortization expense was $711 million compared to $1.30 billion and $637 million in 2008, respectively.

    Contact:
    Gary R. Flaharty, +1.713.439.8039, gflaharty @ bakerhughes.com
    H. Gene Shiels, +1.713.439.8822, gene.shiels @ bakerhughes.com

    Financial Information
    Consolidated Statements of Operations
                                               Three Months Ended
    UNAUDITED                                  ------------------
    (In millions, except per
     share amounts)
                                          December 31,      September 30,
                                          ------------
                                        2009          2008           2009
                                        ----          ----           ----
    Revenues:
      Sales                           $1,251        $1,569         $1,091
      Services and rentals             1,177         1,617          1,141
      --------------------             -----         -----          -----
       Total revenues                  2,428         3,186          2,232
       --------------                  -----         -----          -----
    Costs and Expenses:
      Cost of sales                      968         1,129            937
      Cost of services and
       rentals                           911         1,031            824
      Research and engineering            98           114             88
      Marketing, general and
       administrative                    285           248            270
       Acquisition-related
        costs                             16             -              2
       -------------------               ---           ---            ---
       Total costs and expenses        2,278         2,522          2,121
       ------------------------        -----         -----          -----
    Operating income                     150           664            111
    Equity in income of
     affiliates                            -             1              -
    Gain (loss) on
     investments                           4           (25)             -
    Interest expense                     (33)          (36)           (29)
    Interest and dividend
     income                                1             5              1
    ---------------------                ---           ---            ---
    Income before income
     taxes                               122           609             83
    Income taxes                         (38)         (177)           (28)
    ------------                         ---          ----            ---
    Net income                           $84          $432            $55
    ==========                           ===          ====            ===
    Basic earnings per share           $0.27         $1.41          $0.18
    Diluted earnings per
     share                             $0.27         $1.41          $0.18
    Weighted average shares
     outstanding, basic                  310           306            310
    Weighted average shares
     outstanding, diluted                311           307            311
    Depreciation and
     amortization expense               $179          $177           $177
    Capital expenditures                $292          $463           $222


    Financial Information
    Consolidated Statements of Operations
                                                     Twelve Months Ended
    UNAUDITED                                           December 31,
                                                        ------------
    (In millions, except per share amounts)            2009           2008
                                                       ----           ----
    Revenues:
      Sales                                          $4,809         $5,734
      Services and rentals                            4,855          6,130
      --------------------                            -----          -----
       Total revenues                                 9,664         11,864
       --------------                                 -----         ------
    Costs and Expenses:
      Cost of sales                                   3,858          4,081
      Cost of services and rentals                    3,539          3,873
      Research and engineering                          397            426
      Marketing, general and administrative           1,120          1,046
       Acquisition-related costs                         18              -
       Litigation settlement                              -             62
       ---------------------                            ---            ---
       Total costs and expenses                       8,932          9,488
    Operating income                                    732          2,376
    Equity in income of affiliates                        -              2
    Gain on sale of product line                          -             28
    Gain (loss) on investments                            4            (25)
    Interest expense                                   (131)           (89)
    Interest and dividend income                          6             27
    ----------------------------                        ---            ---
    Income before income taxes                          611          2,319
    Income taxes                                       (190)          (684)
    ------------                                       ----           ----
    Net income                                         $421         $1,635
    ==========                                         ====         ======
    Basic earnings per share                          $1.36          $5.32
    Diluted earnings per share                        $1.36          $5.30
    Weighted average shares outstanding, basic          310            307
    Weighted average shares outstanding,
     diluted                                            311            309
    Depreciation and amortization expense              $711           $637
    Capital expenditures                             $1,086         $1,303

    Table 1:  Calculation of EBIT and EBITDA (non-GAAP measures)(1)

    UNAUDITED                            Three Months Ended
    (In millions)                        ------------------
                                                            September
                                           December 31,               30,
                                           ------------
                                         2009           2008   2009
                                         ----           ----   ----
                                         $122           $609    $83
    Income before income taxes
    Interest expense                       33             36     29
    Acquisition-related costs(2)           16              -      2
    (Gain) loss on investments(3)          (4)            25      -
    -----------------------------         ---            ---    ---
    Earnings before interest expense and
     taxes (EBIT)                         167            670    114
    Depreciation and amortization
     expense                              179            177    177
    -----------------------------         ---            ---    ---
    Earnings before interest expense,
     taxes, depreciation                 $346           $847   $291
    =================================    ====           ====   ====
         and amortization (EBITDA)
    =============================


    UNAUDITED                                  Twelve Months Ended
    (In millions)
                                                   December 31,
                                                   ------------
                                                 2009                2008
                                                 ----                ----
                                                 $611              $2,319
    Income before income taxes
    Acquisition-related costs                      18                   -
    (Gain) loss on investments(3)                  (4)                 25
    Gain on sale of product line(4)                 -                 (28)
    Litigation settlement(5)                        -                  62
    Interest expense                              131                  89
    ----------------                              ---                 ---
    Earnings before interest expense and taxes
     (EBIT)                                       756               2,467
    Depreciation and amortization expense         711                 637
    -------------------------------------         ---                 ---
    Earnings before interest expense, taxes,
     depreciation                              $1,467              $3,104
    ========================================   ======              ======
       and amortization (EBITDA)
    ===========================

(1)EBIT and EBITDA (as defined in the calculations above) are non-GAAP measurements. Management uses EBIT and EBITDA because it believes that such measurements are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that these measurements may be used by investors to make informed investment decisions.

(2)Costs related to the pending acquisition of BJ Services.

(3)Gain on investments of $4 million after-tax ($0.01 per diluted share) in the fourth quarter 2009 and a loss on investments of $25 million after-tax ($0.08 per diluted share) in the fourth quarter 2008, both relating to auction rate securities.

(4)Gain of $28 million ($18 million after-tax or $0.06 per diluted share) on the sale of the Completion and Production segment's Surface Safety Systems ("SSS") product line.

(5)Net charge of $62 million ($40 million after-tax or $0.13 per diluted share) relating to the settlement of litigation with ReedHycalog announced May 22, 2008.

    Consolidated Balance Sheets

    (UNAUDITED                              December 31,  December 31,
    ==========                                      2009           2008
     In millions)                                   ====           ====
     ============
     ASSETS
     Current Assets:
       Cash and cash equivalents                  $1,595         $1,955
       Accounts receivable, net                    2,331          2,759
       Inventories, net                            1,836          2,021
       Deferred income taxes                         268            231
       Other current assets                          195            179
       --------------------                          ---            ---
     Total current assets                          6,225          7,145
     --------------------                          -----          -----
     Property, plant and equipment, net            3,161          2,833
     Goodwill                                      1,418          1,389
     Intangible assets, net                          195            198
     Other assets                                    440            296
    Total assets                                 $11,439        $11,861
    ============                                 =======        =======
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Current Liabilities:
       Accounts payable                             $821           $888
       Short-term borrowings and current
        portion of                                    15            558
               long-term debt
       Accrued employee compensation                 448            530
       Income taxes payable                           95            272
       Other accrued liabilities                     234            263
       -------------------------                     ---            ---
     Total current liabilities                     1,613          2,511
     -------------------------                     -----          -----
     Long-term debt                                1,785          1,775
     Deferred income taxes and other tax
      liabilities                                    309            384
     Liabilities for pensions and other
      postretirement                                 379            317
         benefits
     Other liabilities                                69             67
     Stockholders' Equity:
       Common stock                                  312            309
       Capital in excess of par value                874            745
       Retained earnings                           6,512          6,276
       Accumulated other comprehensive loss         (414)          (523)
       ------------------------------------         ----           ----
     Total stockholders' equity                    7,284          6,807
     --------------------------                    -----          -----
     Total liabilities and stockholders'
      equity                                     $11,439        $11,861
     ===================================         =======        =======

    Table 2:  Revenue, Profit Before Tax, and Profit Before Tax Operating
    Margin(1)

    (in millions)                                Three Months Ended
                                                 ------------------
                                     12/31/2009    12/31/2008       9/30/2009
                                     ----------    ----------       ---------
    Segment Revenue
       Drilling and Evaluation           $1,135        $1,572          $1,051
       Completion and Production          1,293         1,614           1,181
       -------------------------          -----         -----           -----
    Oilfield Operations                  $2,428        $3,186          $2,232
    ===================                  ======        ======          ======
    Geographic Revenue
       North America                       $890        $1,411            $817
       Latin America                        304           341             265
       Europe Africa Russia Caspian         740           844             666
       Middle East Asia Pacific             494           590             484
       ------------------------             ---           ---             ---
    Oilfield Operations                  $2,428        $3,186          $2,232
    ===================                  ======        ======          ======

    Segment Profit Before Tax(1)
       Drilling and Evaluation              $56          $335             $41
       Completion and Production            186           374             146
       -------------------------            ---           ---             ---
    Oilfield Operations                    $242          $709            $187
    ===================                    ====          ====            ====
    Geographic Profit Before Tax(1)
       North America                        $78          $330             $39
       Latin America                          7            73              10
       Europe Africa Russia Caspian         107           172              87
       Middle East Asia Pacific              50           134              51
       ------------------------             ---           ---             ---
    Oilfield Operations                     242           709             187
    -------------------                     ---           ---             ---
    Corporate and Other Profit
     Before Tax(1)
       Acquisition-related costs(2)         (16)            -              (2)
       Gain (loss) on investments(3)          4           (25)              -
       Interest expense                     (33)          (36)            (29)
       Interest and dividend income           1             5               1
       Corporate and other                  (76)          (44)            (74)
       -------------------                  ---           ---             ---
    Corporate, net interest and
     other                                 (120)         (100)           (104)
    ---------------------------            ----          ----            ----
    Total Profit Before Tax                $122          $609             $83
    =======================                ====          ====             ===
    Profit Before Tax Operating
     Margin(1)
       Drilling and Evaluation                5%           21%              4%
       Completion and Production             14%           23%             12%
       -------------------------            ---           ---             ---
    Oilfield Operations                      10%           22%              8%
    ===================                     ===           ===             ===
    Profit Before Tax Operating
     Margin(1)
       North America                          9%           23%              5%
       Latin America                          2%           21%              4%
       Europe Africa Russia Caspian          14%           20%             13%
       Middle East Asia Pacific              10%           23%             11%
       ------------------------             ---           ---             ---
    Oilfield Operations                      10%           22%              8%
    ===================                     ===           ===             ===

(1) Profit before tax operating margin is a non-GAAP measure defined as profit before tax ("income before income taxes") divided by revenue. Management uses the profit before tax operating margin because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance and that this measurement may be used by investors to make informed investment decisions.

(2) Costs related to the pending acquisition of BJ Services.

(3) Gain on investments of $4 million after-tax ($0.01 per diluted share) in the fourth quarter 2009 and a loss on investments of $25 million after-tax ($0.08 per diluted share) in the fourth quarter 2008, both relating to auction rate securities.

    Table 3:  Revenue, Profit Before Tax, and Profit Before Tax Operating
    Margin(1)

    (in millions)                                   Twelve Months Ended
                                                    -------------------
                                                12/31/2009     12/31/2008
                                                ----------     ----------
    Segment Revenue
       Drilling and Evaluation                      $4,605         $6,049
       Completion and Production                     5,059          5,815
       -------------------------                        --             --
    Oilfield Operations                              9,664         11,864
    ===================                                 ==            ===
    Geographic Revenue
       North America                                 3,584          5,178
       Latin America                                 1,134          1,127
       Europe Africa Russia Caspian                  2,925          3,386
       Middle East Asia Pacific                      2,021          2,173
       ------------------------                         --             --
    Oilfield Operations                              9,664         11,864
    -------------------                                 --            ---
    Total revenues                                  $9,664        $11,864
    ==============                                  ======        =======
    Segment Profit Before Tax(1)
       Drilling and Evaluation                        $320         $1,398
       Completion and Production                       728          1,282
       -------------------------                                       --
    Oilfield Operations                              1,048          2,680
    ===================                                 ==             ==
    Geographic Profit Before Tax(1)
       North America                                   250          1,289
       Latin America                                    77            213
       Europe Africa Russia Caspian                    475            735
       Middle East Asia Pacific                        246            443
       ------------------------
    Oilfield Operations                              1,048          2,680
    Corporate and Other Profit Before
     Tax(1)
       Acquisition-related costs(2)                    (18)             -
       Gain on sale of product line(3)                   -             28
       Litigation settlement(4)                                       (62)
       Gain (loss) on investments(5)                     4            (25)
       Interest expense                               (131)           (89)
       Interest and dividend income                      6             27
       Corporate and other                            (298)          (240)
       -------------------                            ----           ----
    Corporate, net interest and other                 (437)          (361)
    ---------------------------------                 ----           ----
    Total Profit Before Tax                           $611         $2,319
    =======================                           ====         ======


    Profit Before Tax Operating Margin(1)
       Drilling and Evaluation                            7%            23%
       Completion and Production                         14%            22%
       -------------------------                        ---            ---
    Oilfield Operations                                  11%            23%
    ===================                                 ===            ===
    Profit Before Tax Operating Margin(1)
       North America                                      7%            25%
       Latin America                                      7%            19%
       Europe Africa Russia Caspian                      16%            22%
       Middle East Asia Pacific                          12%            20%
       ------------------------                         ---            ---
    Oilfield Operations                                  11%            23%
    ===================                                 ===            ===

(1) Profit before tax operating margin is a non-GAAP measure defined as profit before tax ("income before income taxes") divided by revenue. Management uses the profit before tax operating margin because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance and that this measurement may be used by investors to make informed investment decisions.

(2) Costs related to the pending acquisition of BJ Services.

(3) Gain of $28 million ($18 million after-tax or $0.06 per diluted share) on the sale of the Completion and Production segment's Surface Safety Systems ("SSS") product line.

(4) Net charge of $62 million ($40 million after-tax or $0.13 per diluted share) relating to the settlement of litigation with ReedHycalog announced May 22, 2008.

(5) Gain on investments of $4 million after-tax ($0.01 per diluted share) in the fourth quarter 2009 and a loss on investments of $25 million after-tax ($0.08 per diluted share) in the fourth quarter 2008, both relating to auction rate securities.

Table 4: Expenses for Reorganization, Severance and Acquisition Costs, and Increases to Allowance for Doubtful Accounts Included in the Following(1)

This table reconciles "Revenue, Profit Before Tax, and Profit Before Tax Operating Margin" (tables 2 and 3) with "Revenue, Profit Before Tax, and Profit Before Tax Operating Margin Excluding Reorganization, Severance and Acquisition Costs, and Increases to Allowance for Doubtful Accounts" (Tables 5 and 6).

                                               Three Months Ended
                                               ------------------
    (In millions)                   12/31/2009   12/31/2008       9/30/2009
    =============                   ==========   ==========       =========

    Segment Expense
       Drilling and Evaluation             $33          $12             $12
       Completion and Production            15            4              17
       -------------------------           ---          ---             ---
    Oilfield Operations                    $48          $16             $29
    ===================                    ===          ===             ===
    Geographic Expense
       North America                        $9           $3             $15
       Latin America                        19            -               3
       Europe Africa Russia Caspian         13           14               3
       Middle East Asia Pacific              7           (1)              8
       ------------------------            ---          ---             ---
    Oilfield Operations                    $48          $16             $29
    -------------------                    ---          ---             ---
    Corporate Expense
       Corporate and other                  26            -               9
       -------------------                 ---          ---             ---
    Total                                  $74          $16             $38
    =====                                  ===          ===             ===



                                     Twelve Months Ended
                                     -------------------
    (In millions)                12/31/2009  12/31/2008
    =============                ==========  ==========

    Segment Expense
       Drilling and Evaluation         $120         $16
       Completion and
        Production                       91           5
    Oilfield Operations                $211         $21
    Geographic Expense
       North America                    $77          $2
       Latin America                     63           -
       Europe Africa Russia
        Caspian                          44          17
       Middle East Asia Pacific          27           2
       ------------------------         ---         ---
    Oilfield Operations                $211         $21
    -------------------                ----         ---
    Corporate Expense
       Corporate and other               39           -
       -------------------              ---         ---
    Total                              $250         $21
    =====                              ====         ===

(1) Charges associated with reorganization and severance costs were approximately $36 million in the fourth quarter 2009; $31 million in the third quarter 2009; and $138 million in the year 2009. Charges associated with allowances for doubtful accounts were approximately $22 million in the fourth quarter 2009; $5 million in the third quarter 2009; and $94 million in the year 2009. Acquisition-related costs were approximately $16 million in the fourth quarter 2009; $2 million in the third quarter 2009; and $18 million in the year 2009. Amounts related to 2008 are charges associated with allowances for doubtful accounts.

Table 5: Revenue, Profit Before Tax, and Profit Before Tax Operating Margin Excluding Reorganization, Severance and Acquisition Costs, and Increases to Allowance for Doubtful Accounts(1)

The following table contains non-GAAP measures of segment profit before tax, geographic profit before tax, corporate and other profit before tax, and operating margins excluding expenses for, reorganization, severance and acquisition costs, and increases to allowance for doubtful accounts (see Table 4). Management uses this measure to isolate the results of certain operations and believes that this information may be useful to investors.

                                                Three Months Ended
                                                ------------------
                                    12/31/2009     12/31/2008      9/30/2009
                                    ----------     ----------      ---------
    Segment Revenue
       Drilling and Evaluation          $1,135         $1,572         $1,051
       Completion and Production         1,293          1,614          1,181
       -------------------------            --             --             --
    Oilfield Operations                 $2,428         $3,186         $2,232
    ===================                 ======         ======         ======
    Geographic Revenue
       North America                      $890         $1,411           $817
       Latin America                       304            341            265
       Europe Africa Russia Caspian        740            844            666
       Middle East Asia Pacific            494            590            484
       ------------------------                           ---
    Oilfield Operations                 $2,428         $3,186         $2,232
    ===================                 ======         ======         ======
    Segment Profit Before Tax
       Drilling and Evaluation             $89           $347            $53
       Completion and Production           201            378            163
       -------------------------
    Oilfield Operations                   $290           $725           $216
    ===================                   ====           ====           ====
    Geographic Profit Before Tax
       North America                       $87           $333            $54
       Latin America                        26             73             13
       Europe Africa Russia Caspian        120            186             90
       Middle East Asia Pacific             57            133             59
       ------------------------                           ---
    Oilfield Operations                    290            725            216
    -------------------
    Corporate and Other Profit
     Before Tax
       Acquisition-related costs             -              -              -
       Gain (loss) on investments            4            (25)
       Interest expense                    (33)           (36)           (29)
       Interest and dividend income          1              5              1
       Corporate and other                 (66)           (44)           (67)
       -------------------                 ---            ---            ---
    Corporate, net interest and
     other                                 (94)          (100)           (95)
    ---------------------------            ---           ----            ---
    Total Profit Before Tax               $196           $625           $121
    =======================               ====           ====           ====
    Profit Before Tax Operating
     Margin(1)
       Drilling and Evaluation               8%            22%             5%
       Completion and Production            16%            23%            14%
       -------------------------
    Oilfield Operations                     12%            23%            10%
    ===================
    Profit Before Tax Operating
     Margin(1)
       North America                        10%            24%             7%
       Latin America                         9%            21%             5%
       Europe Africa Russia Caspian         16%            22%            14%
       Middle East Asia Pacific             12%            23%            12%
       ------------------------                           ---
    Oilfield Operations                     12%            23%            10%
    ===================

(1) Profit before tax operating margin is a non-GAAP measure defined as profit before tax ("income before income taxes") divided by revenue. Management uses the profit before tax operating margin because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance and that this measurement may be used by investors to make informed investment decisions.

Table 6: Revenue, Profit Before Tax, and Profit Before Tax Operating Margin Excluding Reorganization, Severance and Acquisition Costs, and Increases to Allowance for Doubtful Accounts(1)

The following table contains non-GAAP measures of segment profit before tax, geographic profit before tax, corporate and other profit before tax, and operating margins excluding expenses for, reorganization, severance and acquisition costs, and increases to allowance for doubtful accounts (see Table 4). Management uses this measure to isolate the results of certain operations and believes that this information may be useful to investors.

                                                    Twelve Months Ended
                                                    -------------------
                                                12/31/2009     12/31/2008
                                                ----------     ----------
    Segment Revenue
       Drilling and Evaluation                      $4,605         $6,049
       Completion and Production                     5,059          5,815
       -------------------------                     -----          -----
    Oilfield Operations                             $9,664        $11,864
    ===================                             ======        =======
    Geographic Revenue
       North America                                $3,584         $5,178
       Latin America                                 1,134          1,127
       Europe Africa Russia Caspian                  2,925          3,386
       Middle East Asia Pacific                      2,021          2,173
       ------------------------                      -----          -----
    Oilfield Operations                             $9,664        $11,864
    ===================                             ======        =======

    Segment Profit Before Tax
       Drilling and Evaluation                        $440         $1,414
       Completion and Production                       819          1,287
       -------------------------                       ---          -----
    Oilfield Operations                             $1,259         $2,701
    ===================                             ======         ======
    Geographic Profit Before Tax
       North America                                  $327         $1,291
       Latin America                                   140            213
       Europe Africa Russia Caspian                    519            752
       Middle East Asia Pacific                        273            445
       ------------------------                        ---            ---
    Oilfield Operations                              1,259          2,701
    -------------------                              -----          -----
    Corporate and Other Profit Before Tax
       Acquisition-related costs                         -              -
       Gain on sale of product line                      -             28
       Litigation settlement                             -            (62)
       Gain (loss) on investments                        4            (25)
       Interest expense                               (131)           (89)
       Interest and dividend income                      6             27
       Corporate and other                            (277)          (240)
       -------------------                            ----           ----
    Corporate, net interest and other                 (398)          (361)
    ---------------------------------                 ----           ----
    Total Profit Before Tax                           $861         $2,340
    =======================                           ====         ======
    Profit Before Tax Operating Margin(1)
       Drilling and Evaluation                          10%            23%
       Completion and Production                        16%            22%
       -------------------------                       ---            ---
    Oilfield Operations                                 13%            23%
    ===================                                ===            ===
    Profit Before Tax Operating Margin(1)
       North America                                     9%            25%
       Latin America                                    12%            19%
       Europe Africa Russia Caspian                     18%            22%
       Middle East Asia Pacific                         14%            20%
       ------------------------                        ---            ---
    Oilfield Operations                                 13%            23%
    ===================                                ===            ===

(1) Profit before tax operating margin is a non-GAAP measure defined as profit before tax ("income before income taxes") divided by revenue. Management uses the profit before tax operating margin because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance and that this measurement may be used by investors to make informed investment decisions.

    Table 7:  Comparison of Revenue to Prior Periods
                               Percent Increase (Decrease) for the
                               -----------------------------------

                                  Three Months Ended       Twelve Months Ended
                                       12/31/09       12/31/09 Compared to the
                                   Compared to the        Twelve Months Ended
                                   ---------------                   12/31/08
                            Three Months        Three Months
                                Ended               Ended
                               12/31/08            9/30/09
                               --------            -------
    Segment
       Drilling and Evaluation    (28%)                 8%            (24%)
       Completion and
        Production                (20%)                10%            (13%)
       --------------             -----                ---            -----
    Oilfield Operations           (24%)                 9%            (19%)
    ===================           =====                ===            =====
    Geographic
       North America              (37%)                 9%            (31%)
       Latin America              (11%)                15%              1%
       Europe Africa Russia
        Caspian                   (12%)                11%            (14%)
       Middle East Asia
        Pacific                   (16%)                 2%             (7%)
       ----------------           -----                ---             ----
    Oilfield Operations           (24%)                 9%            (19%)
    ===================           =====                ===            =====

Operational Highlights

All comments in this section refer to information in tables 5 and 6 (Revenue, Profit Before Tax, and Profit Before Tax Operating Margin Excluding Reorganization, Severance and Acquisition Costs, and Increases to Allowance for Doubtful Accounts), and table 7 (Comparison of Revenue to Prior Periods).

North America

The decline in revenue and profit compared to the fourth quarter 2008 reflects the significant decrease in drilling in all North America geomarkets in 2009.

The 9% sequential increase in North America revenue was driven by an increase in oil-directed drilling in the Permian and Williston basins, an increase in horizontal gas directed drilling in US Land and Canada unconventional shale plays, and an increase in offshore drilling in the Gulf of Mexico geomarket.

Sequential incremental margins in excess of 45% in the North America region reflect the impact of increased activity and aggressive cost cutting earlier in 2009.

For the year 2009 compared to the year 2008, revenue decreased 31% and operating profit before tax decreased 75%. The pre-tax operating margin for 2009 was 9% compared to 25% in 2008.

Latin America

The decline in Latin America revenue compared to the fourth quarter 2008 was driven by significant decreases in activity in the Venezuela and Southern Cone (Argentina, Bolivia, Chile) geomarkets offset partially by modest increases in revenue in the Brazil and Mexico/Central America geomarkets. The decline in profit compared to fourth quarter 2008 reflected lower pricing in all geomarkets. Profit increased in the Brazil geomarket compared to the fourth quarter 2008 as incremental activity and equipment utilization offset lower pricing and start-up costs on new contracts.

Sequential improvement in the Latin America revenue was driven primarily by the seasonal increase in artificial lift sales in the Andean (Peru, Ecuador, and Colombia), Venezuela and Brazil geomarkets, offset partially by reduced activity in Mexico.

Sequential increases in operating profit were driven by the Andean, Brazil and Southern Cone geomarkets offset by declines in operating profit in the Mexico/Central America and Venezuela geomarkets. Profits were negatively impacted by reduced spending in Mexico on the Alma Marine integrated operations project and reduced demand from the ATG drilling programs.

For the year 2009 compared to the year 2008, revenue increased 1% and operating profit before tax decreased 34%. The pre-tax operating margin for 2009 was 12% compared to 19% in 2008.

Europe Africa Russia Caspian

The revenue decline in fourth quarter 2009 compared to fourth quarter 2008 was driven primarily by declines in revenue from the Russia, UK and Angola geomarkets offset partially by higher revenue in the Norway, Nigeria and Sub-Sahara geomarkets.

The 11% sequential increase in revenue was led by the Norway, Nigeria, Sub-Sahara and Libya geomarkets.

Profit margin increased compared to the third quarter 2009 and was supported by higher activity and cost management offset by incremental price erosion.

For the year 2009 compared to the year 2008, revenue decreased 14% and operating profit before tax decreased 31%. The pre-tax operating margin for 2009 was 18% compared to 22% in 2008.

Middle East Asia Pacific

Revenue increases in the Southeast Asia and North Asia geomarkets compared to the fourth quarter 2008 were more than offset by lower revenue driven by decreased activity and price deterioration throughout the region. The decline in profit compared to the fourth quarter 2008 was driven by lower utilization levels and price erosion offset partially by cost management programs.

The sequential revenue increase was driven by the North Asia, Southeast Asia, Egypt and Indonesia geomarkets offsetting lower revenues from the Saudi Arabia/Bahrain and India/Southwest Asia geomarkets.

For the year 2009 compared to the year 2008, revenue decreased 7% and operating profit before tax decreased 39%. The pre-tax operating margin for 2009 was 14% compared to 20% for 2008.

Conference Call

The company has scheduled a conference call to discuss the results of today's earnings announcement. The call will begin at 10:00 a.m. Eastern time, 9:00 a.m. Central time, on Tuesday, January 26, 2010. To access the call, which is open to the public, please contact the conference call operator at (800) 374-2469, or (706) 634-7270 for international callers, 20 minutes prior to the scheduled start time, and ask for the "Baker Hughes Conference Call." A replay will be available through Tuesday, February 9, 2010. The number for the replay is (800) 642-1687, or (706) 645-9291 for international callers, and the access code is 48158116. The call and replay will also be web cast on www.bakerhughes.com/investor.

Forward-Looking Statements

This news release (and oral statements made regarding the subjects of this release, including on the conference call announced herein) contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (each a "forward-looking statement"). The words "anticipate," "believe," "ensure," "expect," "if," "intend," "estimate," "project," "forecasts," "predict," "outlook," "aim," "will," "could," "should," "would," "may," "probable," "likely," and similar expressions, and the negative thereof, are intended to identify forward-looking statements. There are many risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These forward-looking statements are also affected by the risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2008; and those set forth from time to time in our other filings with the Securities and Exchange Commission ("SEC"). The documents are available through the company's website at http://www.bakerhughes.com/investor or through the SEC's Electronic Data Gathering and Analysis Retrieval System (EDGAR) at http://www.sec.gov/. We undertake no obligation to publicly update or revise any forward-looking statement.

Our expectations regarding our business outlook and business plans; the business plans of our customers; oil and natural gas market conditions; cost and availability of resources; economic, legal and regulatory conditions and other matters are only our forecasts regarding these matters.

These forecasts may be substantially different from actual results, which are affected by many risks including the following risk factors and the timing of any of those risk factors:

Baker Hughes - BJ Services pending merger - the ability to obtain regulatory approvals for the transaction and the approval of the merger agreement by the stockholders of both parties; the risk that the cost savings and any other synergies from the transaction may not be realized or take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; the ability to successfully integrate the businesses; unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; the inability to retain key personnel; deterioration of market conditions; the outcome of pending litigation; future regulatory or legislative actions that could adversely affect the companies and the business plans of the customers of the respective parties.

Economic conditions - the impact of worldwide economic conditions; the effect that declines in credit availability may have on worldwide economic growth and demand for hydrocarbons; the ability of our customers to finance their exploration and development plans; foreign currency exchange fluctuations and changes in the capital markets in locations where we operate; the condition of financial institutions and the debt, capital and equity markets in general, any impact on our ability to borrow to fund short-term cash requirements and retire long-term debt upon maturity as well as any impact on our customers' spending and ability to pay amounts owed to us; our ability to estimate the size of and changes in the worldwide oil and natural gas industry.

Oil and gas market conditions - the level of petroleum industry exploration, development and production expenditures; the price of, volatility in pricing of, and the demand for, crude oil and natural gas; drilling activity; excess productive capacity; crude and product inventories; LNG imports; seasonal and other adverse weather conditions that affect the demand for energy; severe weather conditions, such as hurricanes, that affect exploration and production activities; Organization of Petroleum Exporting Countries ("OPEC") policy and the adherence by OPEC nations to their OPEC production quotas.

Terrorism and geopolitical risks - war, military action, terrorist activities or extended period of international conflict, particularly involving any major petroleum-producing or consuming regions; labor disruptions, civil unrest or security conditions where we operate; expropriation of assets by governmental action.

Price, market share, contract terms, and customer payments - our ability to obtain market prices for our products and services; the effect of the level and sources of our profitability on our tax rate; the ability of our competitors to capture market share; our ability to retain or increase our market share; changes in our strategic direction; the integration of newly-acquired businesses; the effect of industry capacity relative to demand for the markets in which we participate; our ability to negotiate acceptable terms and conditions with our customers, especially national oil companies, successfully execute these contracts, and receive payment in accordance with the terms of our contracts with our customers; our ability to manage warranty claims and improve performance and quality; our ability to effectively manage our commercial agents.

Costs and availability of resources - our ability to manage the costs and availability of sufficient raw materials and components (especially steel alloys, chromium, copper, carbide, lead, nickel, titanium, beryllium, barite, synthetic and natural diamonds, chemicals, and electronic components); our ability to manage energy-related costs; our ability to manage compliancerelated costs; our ability to recruit, train and retain the skilled and diverse workforce necessary to meet our business needs and manage the associated costs; manufacturing capacity and subcontracting capacity at forecasted costs to meet our revenue goals; the availability of essential electronic components used in our products; the effect of competition, particularly our ability to introduce new technology on a forecasted schedule and at forecasted costs; potential impairment of long-lived assets; the accuracy of our estimates regarding our capital spending requirements; unanticipated changes in the levels of our capital expenditures; the need to replace any unanticipated losses in capital assets; the development of technology by us or our competitors that lowers overall finding and development costs; labor-related actions, including strikes, slowdowns and facility occupations.

Litigation and changes in laws or regulatory conditions - the potential for unexpected litigation or proceedings; the legislative, regulatory and business environment in the US and other countries in which we operate; costs and changes in processes and operations related to or resulting from the activities of the compliance monitor appointed to assess our Foreign Corrupt Practices Act policies and procedures in connection with previously reported settlements with the SEC and Department of Justice ("DOJ") as well as compliance with the terms of the settlements as well as any future agreements with the SEC, DOJ or other authority; outcome of government and legal proceedings as well as costs arising from compliance and ongoing or additional investigations in any of the countries where the company does business; new laws, regulations and policies that could have a significant impact on the future operations and conduct of all businesses; changes in export control laws or exchange control laws; restrictions on doing business in countries subject to sanctions; customs clearance procedures; changes in laws in countries identified by management for immediate focus; changes in accounting standards; changes in tax laws or tax rates in the jurisdictions in which we operate; resolution of tax assessments or audits by various tax authorities; and the ability to fully utilize our tax loss carry forwards and tax credits.

Environmental matters - unexpected, adverse outcomes or material increases in liability with respect to environmental remediation sites where we have been named as a potentially responsible party; the discovery of new environmental remediation sites; changes in environmental regulations; the discharge of hazardous materials or hydrocarbons into the environment.

Additional Information and Where to Find It

Baker Hughes has filed with the SEC an amended Registration Statement on Form S-4, which includes a preliminary joint proxy statement of Baker Hughes and BJ Services that also constitutes a preliminary prospectus of Baker Hughes regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS OF BAKER HUGHES AND BJ SERVICES ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT FILED WITH THE SEC AND THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER MATERIALS FILED OR TO BE FILED WITH THE SEC REGARDING THE PROPOSED TRANSACTION WHEN THEY BECOME AVAILABLE, BECAUSE THEY CONTAIN, OR WILL CONTAIN, IMPORTANT INFORMATION REGARDING BAKER HUGHES, BJ SERVICES AND THE PROPOSED TRANSACTION. A definitive joint proxy statement/prospectus will be sent to security holders of Baker Hughes and BJ Services seeking their approval of the proposed transaction. Investors and security holders may obtain a free copy of the proxy statement/prospectus and other documents filed by Baker Hughes and BJ Services with the SEC at the SEC's web site at http://www.sec.gov/.

The joint proxy statement/prospectus and such other documents (relating to Baker Hughes) may also be obtained from Baker Hughes for free from Baker Hughes' web site at www.bakerhughes.com/investor or by directing a request to: Baker Hughes Incorporated, 2929 Allen Parkway, Suite 2100, Houston, TX 77019, Attention: Corporate Secretary, or by phone at (713) 439-8600.

The joint proxy statement/prospectus and such other documents (relating to BJ Services) may also be obtained from BJ Services for free from BJ Services' web site at http://www.bjservices.com/ or by directing a request to: BJ Services Company, P.O. Box 4442, Houston, Texas 77210-4442, Attention: Investor Relations, or by phone at (713) 462-4239.

Participants in the Solicitation

Baker Hughes, its directors, executive officers and certain members of management and employees may be considered "participants in the solicitation" of proxies from Baker Hughes' stockholders in connection with the proposed transaction. Information regarding such persons and a description of their interests in the proposed transaction are contained in the preliminary joint proxy statement/prospectus filed.

BJ Services, its directors, executive officers and certain members of management and employees may be considered "participants in the solicitation" of proxies from BJ Services' stockholders in connection with the proposed transaction. Information regarding such persons and a description of their interests in the proposed transaction are contained in the preliminary joint proxy statement/prospectus filed.

Baker Hughes provides reservoir consulting, drilling, formation evaluation, completion and production products and services to the worldwide oil and gas industry.

SOURCE Baker Hughes Incorporated

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