Baker Hughes Announces Fourth Quarter and Annual Results

Wed Jan 23, 2013 6:00am EST

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HOUSTON, Jan. 23, 2013 /PRNewswire/ -- Baker Hughes Incorporated (NYSE: BHI)
announced today income from continuing operations attributable to Baker Hughes
for the fourth quarter of 2012 of  $211 million  or  $0.48  per diluted share,
including an after-tax charge of  $63 million  ($0.14  per diluted share) for
bad debt provisions in Latin America.  These results compare to adjusted income
from continuing operations (a non-GAAP measure) of  $526 million  or  $1.20  per
diluted share for the fourth quarter of 2011, and  $308 million  or  $0.70  per
diluted share for the third quarter of 2012.  Third quarter of 2012 results
included an after-tax charge of  $27 million  ($0.06  per diluted share) for bad
debt provisions in  Latin America  and  Europe.

Adjusted income from continuing operations for the year 2012 was  $1.32 billion 
or  $3.00  per diluted share, compared to  $1.81 billion, or  $4.14  per diluted
share for the year 2011.

Revenue for the fourth quarter of 2012 was  $5.22 billion, down 1% compared to 
$5.30 billion  for the fourth quarter of 2011 and flat compared to  $5.23
billion  for the third quarter of 2012.  Revenue for the year 2012 was a record 
$20.93 billion, up 8% compared to  $19.43 billion  for the year 2011.

On a GAAP basis, income from continuing operations attributable to Baker Hughes
for the fourth quarter of 2012 was  $211 million  or  $0.48  per diluted share
compared to  $0.76  per diluted share for the fourth quarter of 2011, and  $0.60
 per diluted share for the third quarter of 2012.  Income from continuing
operations attributable to Baker Hughes for the year 2012 was  $1.28 billion  or
 $2.90  per diluted share, compared to  $3.96  per diluted share for the year
2011.  Please see Table 1 for a reconciliation of GAAP to non-GAAP Financial
Measures.

"In 2012 we posted record revenue, with growth coming from all operating
segments," said  Martin Craighead, Baker Hughes President and Chief Executive
Officer.  "Our international operations increased revenue by 11%, despite only a
2% rise in the international rig count during the year.  We've built a strong
position in many of the world's offshore markets and significantly expanded our
Integrated Operations business in the Middle East.  In North America, our
business grew by 5%, based largely on the successful introduction of several
well construction technologies, and strong demand for our production product
lines in the growing unconventional market."

Craighead added, "We are very pleased with our performance in the  Gulf of
Mexico  where our business expanded more than 30% for the year, based on a
rebound in deepwater activity, share gains in drilling and wireline services,
and modest improvements in price.  Looking ahead, we see a favorable mix of
development work building, and this will play well to our strength in
completions and production."

Craighead continued, "Our fourth quarter results reflect the challenges faced by
the industry as North American activity declined sharply towards the end of the
year, and we continue to deal with unfavorable pricing conditions in the
pressure pumping market.  As a result, we experienced a decline in  North
America  revenues and margins this quarter.  The revenue declines were almost
entirely offset by gains in our international business, driven by record
revenues in all of our international segments during the quarter."

Craighead added, "During the quarter, our balance sheet improved, with
receivables and inventories being reduced by nearly  $400 million  combined. 
Maintaining a strong balance sheet and capital discipline will remain a theme,
and we intend to reduce our capital expenditures by approximately 30% in 2013."

Cash was  $1.02 billion  as of  December 31, 2012, compared to  $1.01 billion 
at  September 30, 2012.  Debt decreased by  $229 million  to  $4.92 billion 
compared to the third quarter of 2012.   

Capital expenditures were  $714 million, depreciation and amortization expense
was  $406 million, and dividend payments were  $66 million  during the fourth
quarter 2012.  For the year 2012, capital expenditures were  $2.87 billion,
depreciation and amortization expense was  $1.53 billion, and dividend payments
were  $263 million.

Adjusted EBITDA (a non-GAAP measure) in the fourth quarter of 2012 was  $841
million, down  $83 million  compared to the third quarter of 2012.  For the full
year, Adjusted EBITDA was  $3.73 billion.  A reconciliation of income from
continuing operations attributable to Baker Hughes to Adjusted EBITDA is
provided in Table 2.  Supplemental financial information for revenue and
adjusted operating profit before tax (a non-GAAP measure) is provided in Tables
5a and 5b.

 Consolidated Condensed Statements of Income                                                                                       
 
(Unaudited)                                                                                                                      
                                                                                                                                  
                                                          Three Months Ended                                                      
                                                          December 31,                                   September 30,          
 (In millions, except per share amounts)                  2012                  2011                   2012                   
 Revenue                                                  $    5,221          $     5,295          $      5,228         
 Costs and expenses:                                                                                                          
 Cost of revenue                                          4,351                4,047                 4,305                 
 Research and engineering                                 126                  125                   117                   
 Marketing, general and administrative                    309                  296                   344                   
 Impairment of trade names                                -                    280                   -                     
 Total costs and expenses                                 4,786                4,748                 4,766                 
 Operating income                                         435                  547                   462                   
 Interest expense, net                                    (57)                 (57)                  (49)                  
 Income from continuing operations before income taxes    378                  490                   413                   
 Income taxes                                             (166)                (155)                 (143)                 
 Income from continuing operations                        212                  335                   270                   
 Income (loss) from discontinued operations, net of tax   3                    (17)                  14                    
 Net income                                               215                  318                   284                   
 Net (income) attributable to noncontrolling interests    (1)                  (4)                   (5)                   
 Net income attributable to Baker Hughes                  $    214            $     314            $      279           
                                                                                                                              
 Amounts attributable to Baker Hughes:                                                                                        
 Income from continuing operations                        $    211            $     331            $      265           
 Income (loss) from discontinued operations               3                    (17)                  14                    
 Net income attributable to Baker Hughes                  $    214            $     314            $      279           
                                                                                                                              
 Basic earnings per share:                                                                                                    
 Income from continuing operations                        $    0.48           $     0.76           $      0.60          
 Income (loss) from discontinued operations               0.01                 (0.04)                0.03                  
 Basic earnings per share attributable to Baker Hughes    $    0.49           $     0.72           $      0.63          
                                                                                                                              
 Diluted earnings per share:                                                                                                  
 Income from continuing operations                        $    0.48           $     0.76           $      0.60          
 Income (loss) from discontinued operations               0.01                 (0.04)                0.03                  
 Diluted earnings per share attributable to Baker Hughes  $    0.49           $     0.72           $      0.63          
                                                                                                                              
 Weighted average shares outstanding, basic               440                  438                   440                   
 Weighted average shares outstanding, diluted             441                  439                   441                   
 Depreciation and amortization expense                    $    406            $     334            $      399           
 Capital expenditures                                     $    714            $     802            $      732           


 Consolidated Condensed Statements of Income                                                                   
 
(Unaudited)                                                                                                  
                                                                                                              
                                                          Year Ended December 31,                             
 (In millions, except per share amounts)                  2012                        2011                  
 Revenue                                                  $     20,929              $     19,431        
 Costs and expenses:                                                                                        
 Cost of revenue                                          17,011                     14,947               
 Research and engineering                                 492                        456                  
 Marketing, general and administrative                    1,284                      1,158                
 Impairment of trade names                                -                          280                  
 Total costs and expenses                                 18,787                     16,841               
 Operating income                                         2,142                      2,590                
 Interest expense, net                                    (210)                      (221)                
 Loss on early extinguishment of debt                     -                          (40)                 
 Income from continuing operations before income taxes    1,932                      2,329                
 Income taxes                                             (645)                      (589)                
 Income from continuing operations                        1,287                      1,740                
 Income from discontinued operations, net of tax          30                         3                    
 Net income                                               1,317                      1,743                
 Net (income) attributable to noncontrolling interests    (6)                        (4)                  
 Net income attributable to Baker Hughes                  $     1,311               $     1,739         
                                                                                                            
 Amounts attributable to Baker Hughes:                                                                      
 Income from continuing operations                        $     1,281               $     1,736         
 Income from discontinued operations                      30                         3                    
 Net income attributable to Baker Hughes                  $     1,311               $     1,739         
                                                                                                            
 Basic earnings per share:                                                                                  
 Income from continuing operations                        $     2.91                $     3.98          
 Income from discontinued operations                      0.07                       0.01                 
 Basic earnings per share attributable to Baker Hughes    $     2.98                $     3.99          
                                                                                                            
 Diluted earnings per share:                                                                                
 Income from continuing operations                        $     2.90                $     3.96          
 Income from discontinued operations                      0.07                       0.01                 
 Diluted earnings per share attributable to Baker Hughes  $     2.97                $     3.97          
                                                                                                            
 Weighted average shares outstanding, basic               440                        436                  
 Weighted average shares outstanding, diluted             441                        438                  
 Depreciation and amortization expense                    $     1,528               $     1,285         
 Capital expenditures                                     $     2,874               $     2,426         


 Consolidated Condensed Balance Sheets                                                                                 
 
(Unaudited)                                                                                                          
                                                                                                                   
                                                                 December 31,              December 31,            
 (In millions)                                                   2012                      2011                    
 ASSETS                                                                                                            
 Current Assets:                                                                                                   
 Cash and cash equivalents                                       $      1,015            $      1,050          
 Accounts receivable - less allowance for doubtful accounts      4,720                    4,794                  
 
(2012 - $305, 2011 - $226)                                                                                     
 Inventories, net                                                3,771                    3,211                  
 Other current assets                                            802                      644                    
 Assets of discontinued operations                               682                      646                    
 Total current assets                                            10,990                   10,345                 
 Property, plant and equipment, net                              8,530                    7,245                  
 Goodwill                                                        5,612                    5,637                  
 Intangible assets, net                                          944                      1,086                  
 Other assets                                                    613                      534                    
 Total assets                                                    $      26,689           $      24,847         
 LIABILITIES AND EQUITY                                                                                            
 Current Liabilities:                                                                                              
 Accounts payable                                                $      1,698            $      1,774          
 Short-term debt and current portion of long-term debt           1,079                    224                    
 Accrued employee compensation                                   638                      695                    
 Other accrued liabilities                                       661                      752                    
 Liabilities of discontinued operations                          51                       56                     
 Total current liabilities                                       4,127                    3,501                  
 Long-term debt                                                  3,837                    3,845                  
 Deferred income taxes and other tax liabilities                 745                      810                    
 Long-term liabilities                                           712                      727                    
 Equity                                                          17,268                   15,964                 
 Total liabilities and equity                                    $      26,689           $      24,847         


 Consolidated Condensed Statements of Cash Flows                                                                                                              
 
(Unaudited)                                                                                                                                                 
                                                                                                                                                             
                                                                                                           Year Ended December 31,                           
 (In millions)                                                                                             2012                       2011                 
 Cash flows from operating activities:                                                                                                                     
 Income from continuing operations                                                                         $     1,287              $     1,740        
 Adjustments to reconcile income from continuing operations to net cash flows  from operating activities:                                                  
 Depreciation and amortization                                                                             1,528                     1,285               
 Other, primarily working capital                                                                          (980)                     (1,518)             
 Net cash flows from operating activities                                                                  1,835                     1,507               
 Cash flows from investing activities:                                                                                                                     
 Expenditures for capital assets                                                                           (2,874)                   (2,426)             
 Other                                                                                                     353                       535                 
 Net cash flows from investing activities                                                                  (2,521)                   (1,891)             
 Cash flows from financing activities:                                                                                                                     
 Net proceeds (payments) of debt                                                                           847                       54                  
 Dividends                                                                                                 (263)                     (261)               
 Other                                                                                                     62                        177                 
 Net cash flows from financing activities                                                                  646                       (30)                
 Effect of foreign exchange rate changes on cash                                                           5                         8                   
 Decrease in cash and cash equivalents                                                                     (35)                      (406)               
 Cash and cash equivalents, beginning of period                                                            1,050                     1,456               
 Cash and cash equivalents, end of period                                                                  $     1,015              $     1,050        


 Table 1: Reconciliation of GAAP and Non-GAAP Financial Measures                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
 The following tables reconcile income from continuing operations attributable to Baker Hughes, which is the directly comparable financial result determined in accordance with Generally Accepted Accounting Principles (GAAP), to adjusted income from continuing operations1  (a non-GAAP financial measure). These reconciliations exclude certain identified items for the three-month periods ended December 31, 2011 and September 30, 2012 and for the years ended December 31, 2012 and 2011. There were no identified  
 items requiring adjustment for the fourth quarter of 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      


                                                                        Three Months Ended                                                                                                                                
                                                                        December 31,                                                              September 30,                                                         
                                                                        2011                                                                      2012                                                                  
 (Unaudited)                                                            Income from Continuing Operations               Diluted                 Income from Continuing Operations               Diluted             
 
(In millions, except per share amounts)                                                                               
Earnings                                                               
Earnings           
                                                                                                                        
Per Share                                                              
Per Share          
 Income from continuing operations attributable to Baker Hughes (GAAP)  $             331                             $     0.76            $             265                             $     0.60        
 Identified Items:                                                                                                                                                                                                  
 Impairment of trade names2                                             195                                            0.44                   -                                              -                  
 Information technology charges3                                        -                                              -                      28                                             0.07               
 Facility closure4                                                      -                                              -                      15                                             0.03               
 Adjusted income from continuing operations (non-GAAP)1                 $             526                             $     1.20            $             308                             $     0.70        


                                                                        Year Ended December 31,                                                                                                                           
                                                                        2012                                                                      2011                                                                  
 (Unaudited)                                                            Income from Continuing Operations               Diluted                 Income from Continuing Operations               Diluted             
 
(In millions, except per share amounts)                                                                               
Earnings                                                               
Earnings           
                                                                                                                        
Per Share                                                              
Per Share          
 Income from continuing operations attributable to Baker Hughes (GAAP)  $             1,281                           $     2.90            $             1,736                           $     3.96        
 Identified Items:                                                                                                                                                                                                  
 Expenses related to Libya5                                             -                                              -                      70                                             0.16               
 Tax benefit associated with reorganization6                            -                                              -                      (214)                                          (0.49)             
 Loss on early extinguishment of debt7                                  -                                              -                      26                                             0.06               
 Impairment of trade names2                                             -                                              -                      195                                            0.45               
 Information technology charges3                                        28                                             0.07                   -                                              -                  
 Facility closure4                                                      15                                             0.03                   -                                              -                  
 Adjusted income from continuing operations (non-GAAP)1                 $             1,324                           $     3.00            $             1,813                           $     4.14        


 1    Adjusted income from continuing operations is a non-GAAP measure comprised of income from continuing operations attributable to Baker Hughes excluding the impact of certain identified items. The Company believes that adjusted income from continuing operations is useful to investors because it is a consistent measure of the underlying results of the Company's business. Furthermore, management uses adjusted income from continuing operations as a measure of the performance of the Company's operations.  
 2    Charge of $280 million before-tax ($195 million after-tax), the majority of which relates to the noncash impairment associated with the decision to minimize the use of the BJ Services trade name as part of our overall branding strategy for Baker Hughes.                                                                                                                                                                                                                                                            
 3    Charge of $43 million before-tax ($28 million after-tax) related to internally developed software and other information technology assets in the third quarter of 2012.                                                                                                                                                                                                                                                                                                                                                  
 4    Charge of $20 million before-tax ($15 million after-tax) resulting from the closure of a chemical manufacturing facility in the United Kingdom in the third quarter of 2012.                                                                                                                                                                                                                                                                                                                                             
 5    Expenses of $70 million (before and after-tax) associated with increasing the allowance for doubtful accounts, and reserves for inventory and certain other assets in the second quarter of 2011 as a result of civil unrest in Libya.                                                                                                                                                                                                                                                                                   
 6    Noncash tax benefit of $214 million associated with the reorganization of certain foreign subsidiaries in the third quarter of 2011.                                                                                                                                                                                                                                                                                                                                                                                     
 7    Loss of $40 million before-tax ($26 million after-tax) related to the early extinguishment in the third quarter of 2011 of $500 million notes due 2013.                                                                                                                                                                                                                                                                                                                                                                  


 Table 2: Calculation of EBIT, EBITDA and Adjusted EBITDA (non-GAAP measures)1                                                       
                                                                                                                                    
                                                                 Three Months Ended                                                 
                                                                 December 31,                              September 30,          
 (In millions)                                                   2012               2011                 2012                   
 Income from continuing operations attributable to Baker Hughes  $   211          $   331            $      265           
 Income from continuing operations attributable to               1                 4                   5                     
 
noncontrolling interests                                                                                                   
 Income taxes                                                    166               155                 143                   
 Income from continuing operations before income taxes           378               490                 413                   
 Interest expense, net                                           57                57                  49                    
 Earnings before interest and taxes (EBIT)                       435               547                 462                   
 Depreciation and amortization expense                           406               334                 399                   
 Earnings before interest, taxes, depreciation and               841               881                 861                   
 
amortization (EBITDA)                                                                                                      
 Adjustments to EBITDA:                                                                                                         
 Information technology charges2                                 -                 -                   43                    
 Facility closure3                                               -                 -                   20                    
 Impairment of trade names4                                      -                 280                 -                     
 Adjusted EBITDA                                                 $   841          $   1,161          $      924           


                                                                             Year Ended December 31,                           
 (In millions)                                                               2012                       2011                 
 Income from continuing operations attributable to Baker Hughes              $     1,281              $     1,736        
 Income from continuing operations attributable to noncontrolling interests  6                         4                   
 Income taxes                                                                645                       589                 
 Income from continuing operations before income taxes                       1,932                     2,329               
 Interest expense, net                                                       210                       221                 
 Earnings before interest and taxes (EBIT)                                   2,142                     2,550               
 Depreciation and amortization expense                                       1,528                     1,285               
 Earnings before interest, taxes, depreciation and amortization (EBITDA)     3,670                     3,835               
 Adjustments to EBITDA:                                                                                                      
 Information technology charges2                                             43                        -                   
 Facility closure3                                                           20                        -                   
 Impairment of trade names4                                                  -                         280                 
 Expenses related to Libya5                                                  -                         70                  
 Loss on early extinguishment of debt6                                       -                         40                  
 Adjusted EBITDA                                                             $     3,733              $     4,225        


 1    EBIT, EBITDA and Adjusted EBITDA (as defined in the calculations above) are non-GAAP measures. Management is providing these measures because it believes that such measures are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance.  
 2    Charge of $43 million before-tax ($28 million after-tax) related to internally developed software and other information technology assets in the third quarter of 2012.                                                                                                                                                       
 3    Charge of $20 million before-tax ($15 million after-tax) resulting from the closure of a chemical manufacturing facility in the United Kingdom in the third quarter of 2012.                                                                                                                                                  
 4    Charge of $280 million before-tax ($195 million after-tax), the majority of which relates to the noncash impairment associated with the decision to minimize the use of the BJ Services trade name as part of our overall branding strategy for Baker Hughes.                                                                 
 5    Expenses of $70 million (before and after-tax) associated with increasing the allowance for doubtful accounts and reserves for inventory and certain other assets in the second quarter of 2011 as a result of civil unrest in Libya.                                                                                         
 6    Loss of $40 million before-tax ($26 million after-tax) related to the early extinguishment in the third quarter of 2011 of $500 million notes due 2013.                                                                                                                                                                       


 Table 3a: Segment Revenue, Profit Before Tax, and Profit Before Tax Margin1                                    
                                                                                                               
                                        Three Months Ended                                                     
                                        December 31,                                  September 30,          
 (In millions)                          2012                  20112                 2012                   
 Segment Revenue                                                                                           
 North America                          $    2,559          $    2,828          $      2,742         
 Latin America                          639                  602                  583                   
 Europe/Africa/Russia Caspian           950                  910                  866                   
 Middle East/Asia Pacific               882                  764                  844                   
 Industrial Services3                   191                  191                  193                   
 Total Operations                       $    5,221          $    5,295          $      5,228         
 Profit Before Tax                                                                                         
 North America                          $    222            $    417            $      288           
 Latin America                          8                    19                   45                    
 Europe/Africa/Russia Caspian           173                  101                  104                   
 Middle East/Asia Pacific               80                   69                   71                    
 Industrial Services3                   21                   5                    13                    
 Total Operations                       $    504            $    611            $      521           
 Corporate and Other Profit Before Tax                                                                     
 Interest expense, net                  (57)                 (57)                 (49)                  
 Loss on early extinguishment of debt   -                    -                    -                     
 Corporate and other                    (69)                 (64)                 (59)                  
 Corporate, net interest and other      (126)                (121)                (108)                 
 Profit Before Tax                      $    378            $    490            $      413           
 Profit Before Tax Margin1                                                                                 
 North America                          9            %       15           %       11             %      
 Latin America                          1            %       3            %       8              %      
 Europe/Africa/Russia Caspian           18           %       11           %       12             %      
 Middle East/Asia Pacific               9            %       9            %       8              %      
 Industrial Services3                   11           %       3            %       7              %      
 Total Operations                       10           %       12           %       10             %      


 1    Profit before tax margin is a non-GAAP measure defined as profit before tax ("income from continuing operations before income taxes") divided by revenue. Management uses the profit before tax 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.                                                         
 2    The revenue and profit before tax of Reservoir Development Services was reclassified from the Industrial Services segment into the geographic operating segments at the beginning of 2012. Quarterly segment revenue and profit before tax for the two years ended December 31, 2011 have been reclassified to reflect this change and are available online at:  www.bakerhughes.com/investor  in the financial information section.  
 3    Quarterly revenue and profit before tax for the Industrial Services segment have been reclassified for all prior periods to exclude the discontinued operations of the Process and Pipeline Services business and are available online at:  www.bakerhughes.com/investor  in the financial information section.                                                                                                                       


 Table 3b: Segment Revenue, Profit Before Tax, and Profit Before Tax Margin1                 
                                                                                            
                                        Year Ended December 31,                             
 (In millions)                          2012                        20112                 
 Segment Revenue                                                                          
 North America                          $     10,836              $     10,279        
 Latin America                          2,399                      2,190                
 Europe/Africa/Russia Caspian           3,634                      3,372                
 Middle East/Asia Pacific               3,275                      2,852                
 Industrial Services3                   785                        738                  
 Total Operations                       $     20,929              $     19,431        
 Profit Before Tax                                                                        
 North America                          $     1,268               $     1,908         
 Latin America                          197                        223                  
 Europe/Africa/Russia Caspian           586                        336                  
 Middle East/Asia Pacific               313                        310                  
 Industrial Services3                   79                         85                   
 Total Operations                       $     2,443               $     2,862         
 Corporate and Other Profit Before Tax                                                    
 Interest expense, net                  (210)                      (221)                
 Loss on early extinguishment of debt   -                          (40)                 
 Corporate and other                    (301)                      (272)                
 Corporate, net interest and other      (511)                      (533)                
 Profit Before Tax                      $     1,932               $     2,329         
 Profit Before Tax Margin1                                                                
 North America                          12             %           19             %     
 Latin America                          8              %           10             %     
 Europe/Africa/Russia Caspian           16             %           10             %     
 Middle East/Asia Pacific               10             %           11             %     
 Industrial Services3                   10             %           12             %     
 Total Operations                       12             %           15             %     
                                                                                        
 See footnotes from Table 3a.                                                                


 Table 4a: Adjustments to Operating Profit Before Tax1, 2                                          
                                                                                                  
                                             Three Months Ended                                   
                                             December 31,                September 30,          
 (In millions)                               20113                       20124                  
 Adjustments to Operating Profit Before Tax                                                     
 North America                               $      105                $      33            
 Latin America                               64                         7                     
 Europe/Africa/Russia Caspian                48                         11                    
 Middle East/Asia Pacific                    47                         10                    
 Industrial Services                         16                         2                     
 Total Operations                            $      280                $      63            


 1    Operating profit before tax is a non-GAAP measure defined as profit before tax ("income from continuing operations before income taxes") less certain identified costs. Management uses this measure 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 measure may be used by investors to make informed investment decisions.    
 2    There were no items identified requiring adjustment in the fourth quarter of 2012.                                                                                                                                                                                                                                                                                                                                                                                   
 3    Charge of $280 million before-tax, the majority of which relates to the noncash impairment associated with the decision to minimize the use of the BJ Services trade name as part of our overall branding strategy for Baker Hughes.                                                                                                                                                                                                                                 
 4    Charges of $43 million before-tax related to internally developed software and other information technology assets in the third quarter of 2012. Charges associated with the closure of a chemical manufacturing facility in the United Kingdom were $20 million before-tax in the third quarter of 2012. The information technology assets and manufacturing facility supported our global operations. Therefore, these costs have been allocated to all segments.  


 Table 4b: Adjustments to Operating Profit Before Tax1                                        
                                                                                             
                                             Year Ended December 31,                         
 (In millions)                               20122                     20113               
 Adjustments to Operating Profit Before Tax                                                
 North America                               $     33                $     105         
 Latin America                               7                        64                 
 Europe/Africa/Russia Caspian                11                       118                
 Middle East/Asia Pacific                    10                       47                 
 Industrial Services                         2                        16                 
 Total Operations                            $     63                $     350         


 1    Operating profit before tax is a non-GAAP measure defined as profit before tax ("income from continuing operations before income taxes") less certain identified costs. Management uses this measure 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 measure may be used by investors to make informed investment decisions.                              
 2    Charges of $43 million before-tax related to internally developed software and other information technology assets in the third quarter of 2012. Charges associated with the closure of a chemical manufacturing facility in the United Kingdom were $20 million before-tax in the third quarter of 2012. The information technology assets and manufacturing facility supported our global operations. Therefore, these costs have been allocated to all segments.                            
 3    Charge of $280 million before-tax, the majority of which relates to the noncash impairment associated with the decision to minimize the use of the BJ Services trade name as part of our overall branding strategy for Baker Hughes in the fourth quarter of 2011. Charges associated with increasing the allowance for doubtful accounts and reserves for inventory and certain other assets as a result of civil unrest in Libya were $70 million before-tax in the second quarter of 2011.  


 Table 5a: Supplemental Financial Information Excluding Certain Identified Items                                                                                                                                                                                                                                                                                                                                                                              
 The following table contains non-GAAP measures of operating profit before tax and operating profit before tax margin1, excluding charges for the impairment of certain trade names recorded in the fourth quarter of 2011 and charges related to information technology and the closure of a chemical manufacturing facility recorded in the third quarter of 2012 (see Table 4a). There were no items requiring adjustment for the fourth quarter of 2012.  


                                      Three Months Ended                                                   
                                      December 31,                                September 30,          
 (In millions)                        2012                 20112                2012                   
 Segment Revenue                                                                                       
 North America                        $   2,559          $   2,828          $      2,742         
 Latin America                        639                 602                 583                   
 Europe/Africa/Russia Caspian         950                 910                 866                   
 Middle East/Asia Pacific             882                 764                 844                   
 Industrial Services3                 191                 191                 193                   
 Total Operations                     $   5,221          $   5,295          $      5,228         
 Operating Profit Before Tax1                                                                          
 North America                        $   222            $   522            $      321           
 Latin America4                       8                   83                  52                    
 Europe/Africa/Russia Caspian4        173                 149                 115                   
 Middle East/Asia Pacific             80                  116                 81                    
 Industrial Services3                 21                  21                  15                    
 Total Operations                     $   504            $   891            $      584           
 Operating Profit Before Tax Margin1                                                                   
 North America                        9           %       18          %       12             %      
 Latin America4                       1           %       14          %       9              %      
 Europe/Africa/Russia Caspian4        18          %       16          %       13             %      
 Middle East/Asia Pacific             9           %       15          %       10             %      
 Industrial Services3                 11          %       11          %       8              %      
 Total Operations                     10          %       17          %       11             %      


 1    Operating profit before tax is a non-GAAP measure defined as profit before tax ("income from continuing operations before income taxes") less certain identified costs.   
      Operating profit before tax margin is a non-GAAP measure defined as operating profit before tax divided by revenue. Management uses each of these measures because it     
      believes they are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that     
      these measures may be used by investors to make informed investment decisions.                                                                                            
 2    The revenue and operating profit before tax of Reservoir Development Services was reclassified from the Industrial Services segment into the geographic operating segments 
      at the beginning of 2012. Quarterly segment revenue and operating profit before tax for the two years ended December 31, 2011, have been reclassified to reflect this     
      change and are available online at:  www.bakerhughes.com/investor  in the financial information section.                                                                  
 3    Quarterly revenue and operating profit before tax for the Industrial Services segment have been reclassified for all prior periods to exclude the discontinued operations 
      of the Process and Pipeline Services business and are available online at:  www.bakerhughes.com/investor  in the financial information section.                           
 4    Operating profit before tax and operating profit before tax margin include bad debt provisions of $63 million in Latin America in the fourth quarter of 2012 and $22      
      million in Latin America and $7 million in Europe/Africa/Russia Caspian in the third quarter of 2012.                                                                     


 Table 5b: Supplemental Financial Information Excluding Certain Identified Items                                                                                                                                                                                                                                                                                                
 The following table contains non-GAAP measures of operating profit before tax and operating profit before tax margin1, excluding charges related to information technology and the closure of a chemical manufacturing facility recorded in 2012, as well as charges for the impairment of certain trade names and expenses related to Libya recorded in 2011 (see Table 4b).  


                                      Year Ended December 31,                             
 (In millions)                        2012                        20112                 
 Segment Revenue                                                                        
 North America                        $     10,836              $     10,279        
 Latin America                        2,399                      2,190                
 Europe/Africa/Russia Caspian         3,634                      3,372                
 Middle East/Asia Pacific             3,275                      2,852                
 Industrial Services3                 785                        738                  
 Total Operations                     $     20,929              $     19,431        
 Operating Profit Before Tax1                                                           
 North America                        $     1,301               $     2,013         
 Latin America4                       204                        287                  
 Europe/Africa/Russia Caspian4        597                        454                  
 Middle East/Asia Pacific             323                        357                  
 Industrial Services3                 81                         101                  
 Total Operations                     $     2,506               $     3,212         
 Operating Profit Before Tax Margin1                                                    
 North America                        12             %           20             %     
 Latin America4                       9              %           13             %     
 Europe/Africa/Russia Caspian4        16             %           13             %     
 Middle East/Asia Pacific             10             %           13             %     
 Industrial Services3                 10             %           14             %     
 Total Operations                     12             %           17             %     
                                                                                           
 See footnotes from Table 5a.                                                              


Baker Hughes Operational Highlights

Baker Hughes deployed an integrated suite of formation evaluation technologies
that resulted in significant production improvement and cost savings on a multi
well project in  the United States  Marcellus shale play. The first four wells
of the project were completed conventionally, using geometric fracturing designs
with 21 stages in each well. For the fifth well, we combined our wireline RPM
lithology evaluation and XMAC formation fracture evaluation technologies and
used our findings to recommend a 16-stage, non-geometric completion design that
improved production by approximately 30% relative to the other four wells.

In the  Gulf of Mexico, Baker Hughes capped off two years of research and
development to successfully deploy the next generation multi zone, single trip
frac system. This new system allows for multiple fracs during a single trip and
has set an industry record for this type of installation with a total completion
depth of more than 26,300 feet (8,015 meters).

Results of the first successful deployment of our Steerable Drilling Liner (SDL)
technology for a significant customer in an offshore well in  Norway  showed
that recovery could be increased by about 350,000 barrels.  Based on those
results, the customer signed a four-year agreement with Baker Hughes to develop
second-generation SDL technology that will potentially make it possible to
increase recovery by up to one million barrels per well.

In  East Africa, we have opened new facilities in Pemba and  Maputo, Mozambique,
as well as  Nairobi, Kenya.  These new facilities are critical to support our
ongoing growth in that important offshore market, including a recently awarded
six-year contract for directional drilling, measurement and
logging-while-drilling, surface logging and drill bits with a major customer in 
Mozambique  and  Tanzania.

In  Brazil, Baker Hughes was awarded a major integrated services contract by an
independent Brazilian operator for its upcoming exploratory campaign in a
deepwater Santos Basin field.  We will provide drilling, evaluation, completion,
pressure pumping, testing, and artificial lift technologies and services. In
announcing the contract, the operator commented, "Baker Hughes submitted the
best technical and commercial solutions for this highly demanding project, which
was a result of properly understanding our expectations."

Baker Hughesset a new drilling performance record in  Bolivia  using the 24-inch
Kymera hybrid drill bit in TruTrak and VertiTrak automated directional drilling
assemblies. In drilling to a depth of 9,750 feet (2,970 meters), we helped our
customer save 52 days of drilling time, eliminate an estimated eight runs, and
increase the average penetration rate to 2½  times that of other wells in the
field.  

Baker Hughes drilling and completions fluids technologies and services has made
it possible for oil-based drilling fluids to be used for the first time in 
Papua New Guinea. Logistical challenges and environmental concerns previously
precluded using these fluids in this ecologically sensitive area. Baker Hughes
designed a 25,000-lb-capacity drilling fluids blending and storage plant with
modular, transportable components and erected the tanks and ancillary equipment
on site. Environmental aspects played a key role in the plant's physical design
and processes.  

In  Western Canada, we leveraged our integrated oilfield services offerings to
drill the longest horizontal well and lateral section in the Cardium formation
with 100% reliability. Using the AutoTrak rotary steerable system and Baker
Hughes drill bits, the well was drilled to a total depth of more than 18,000
feet (5,485 meters), with a horizontal section of nearly 10,000 feet (3,050
meters).  The project was completed with zero failures and zero incidents.

Supplemental Financial Information

Supplemental financial information, including reconciliations to GAAP measures,
can be found on our website at:  www.bakerhughes.com/investor  in the financial
information section.

Conference Call

The Company has scheduled a conference call and webcast to discuss management's
outlook and the results reported in today's earnings announcement.  The call
will begin at 8 a.m. Eastern time, 7 a.m. Central time on  Wednesday, January
23, 2013, the content of which is not part of this earnings release.  A slide
presentation providing summary financial and statistical information and
guidance that will be discussed on the conference call will also be posted to
the company's website and available for real-time viewing.  To access the call,
please call the conference call operator at: 800-446-1671 in  the United States,
or 847-413-3362 for international calls.  Please call in 20 minutes prior to the
scheduled start time and ask for the "Baker Hughes Conference Call."  To access
the slide presentation and webcast, go to:  http://www.bakerhughes.com/investor.
 A replay of the conference call and webcast will be available through 
Wednesday, February 6, 2013.  The phone numbers for the conference call replay
are: 888-843-7419 in  the United States, or 630-652-3042 for international
calls. The access code is: 33868070.   

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,"
"potential," "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, 2011; Baker Hughes'
subsequent quarterly report on Form 10-Q for the quarterly periods ended  March
31, 2012,  June 30, 2012  and  September 30, 2012; and those set forth from
time-to-time in 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 forward-looking statements, including 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 these risk factors:

Economic and political conditions - the impact of worldwide economic conditions
and sovereign debt crises in  Europe; the impact of political conditions on
collecting accounts receivable and entering into new contracts with certain
national oil companies; 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; and foreign
currency exchange fluctuations and changes in the capital markets in locations
where we operate.

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; drilling
permits for and regulation of the shelf and the deepwater drilling; excess
productive capacity; crude and product inventories; LNG supply and demand;
seasonal and other adverse weather conditions that affect the demand for energy;
severe weather conditions, such as tornadoes and 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 periods of international conflict, particularly involving any
petroleum-producing or consuming regions; labor disruptions, civil unrest or
security conditions where we operate; expropriation of assets by governmental
action; cybersecurity risks and cyber incidents or attacks.

Price, market share, contract terms, and customer payments - our ability to
obtain market prices for our products and services; the ability of our
competitors to capture market share; our ability to retain or increase our
market share; changes in our strategic direction; 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, to successfully execute these contracts, and receive
payment in accordance with the terms of our contracts with our customers; our
ability to sell our discontinued operations at an acceptable price and on
acceptable terms and conditions; 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,
availability, distribution and delivery of sufficient raw materials and
components (especially steel alloys, chromium, copper, carbide, lead, nickel,
titanium, beryllium, barite, synthetic and natural diamonds, sand, gel,
chemicals, and electronic components); our ability to manage energy-related
costs; our ability to manage compliance-related costs; our ability to recruit,
train and retain the skilled and diverse workforce necessary to meet our
business needs and manage the associated costs; the effect of manufacturing and
subcontracting performance and capacity; 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;
unanticipated changes in the levels of our capital expenditures; the need to
replace any unanticipated losses in capital assets; labor-related actions,
including strikes, slowdowns and facility occupations; our ability to maintain
information security.

Litigation and changes in laws or regulatory conditions - the potential for
unexpected litigation or proceedings and our ability to obtain adequate
insurance on commercially reasonable terms; the legislative, regulatory and
business environment in  the United States  and other countries in which we
operate; 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; laws, regulations or restrictions on hydraulic fracturing; any
restrictions on new or ongoing offshore drilling or permit and operational
delays or program reductions as a result of the regulations in the  Gulf of
Mexico  and other areas of the world; changes in export control laws or exchange
control laws; the discovery of new environmental remediation sites; changes in
environmental regulations; the discharge of hazardous materials or hydrocarbons
into the environment; restrictions on doing business in countries subject to
sanctions; customs clearance procedures; 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.

Baker Hughes is a leading supplier of oilfield services, products, technology
and systems to the worldwide oil and natural gas industry.  The company's
58,000-plus employees today work in more than 80 countries helping customers
find, evaluate, drill, produce, transport and process hydrocarbon resources. 
For more information on Baker Hughes' century-long history, visit: 
www.bakerhughes.com.

Investor Contact:
Trey Clark, +1.713.439.8039,  trey.clark@bakerhughes.com
Eric Holcomb, +1.713.439.8822,  eric.s.holcomb@bakerhughes.com
Media Contact:
Teresa Wong, +1.713.439.8110,  teresa.wong@bakerhughes.com

SOURCE  Baker Hughes Incorporated

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