Baker Hughes Results

09.08.2006

Baker Hughes announced that in accordance with generally accepted accounting principles (GAAP), income from continuing operations for the second quarter 2006 was $1,395.0 million or $4.14 per diluted share compared to $218.0 million or $0.64 per diluted share for the second quarter 2005 and $318.8 million or $0.93 per diluted share for the first quarter 2006.

Net income for the second quarter 2006 was $1,395.0 million or $4.14 per diluted share compared to $218.8 million or $0.64 per diluted share for the second quarter 2005 and $339.2 million or $0.99 per diluted share for the first quarter 2006.

Operating profit, which is a non-GAAP measure comprised of income from continuing operations excluding the impact of certain identified non- operational items, was $359.8 million or $1.07 per diluted share for the second quarter of 2006 compared to $218.0 million or $0.64 per diluted share for the second quarter 2005 and $318.8 million or $0.93 per diluted share for the first quarter 2006. The non-operational item in the second quarter of 2006 related to the pre-tax gain of $1,743.5 million ($1,035.2 million after tax), recorded as a gain on the sale of our interest in affiliate, resulting from the sale of our 30% interest in WesternGeco, our seismic joint venture with Schlumberger Limited, to Schlumberger on April 28, 2006 for $2.4 billion in cash. There were no non-operational items in the first quarter of 2006 or any quarter of 2005. Income from continuing operations is reconciled to operating profit in the section titled Reconciliation of GAAP Results and Operating Results in this news release.

In addition to the sale of our interest in WesternGeco referenced above, second quarter results include a $0.05 per diluted share favorable tax benefit. Of this amount, $0.04 per diluted share is attributable to certain favorable items related to foreign operations which are discrete to the quarter and which we do not expect to recur, and $0.01 per diluted share is attributable to the reduction of the company's estimated effective tax rate for the twelve months ending December 31, 2006.

Revenue for the second quarter 2006 was $2,203.3 million, up 25% compared to $1,768.4 million for the second quarter 2005 and up 7% compared to $2,062.0 million for the first quarter 2006.

Chad C. Deaton, Baker Hughes chairman and chief executive officer, said, "Q2 was another strong quarter for Baker Hughes. Price realization accelerated in the quarter; driving strong year-over-year incremental margins. In this environment our customers are demonstrating that they value Baker Hughes' execution and reliability. Results from North America were strong and we were pleased with the ongoing growth outside of North America -- particularly in the Middle East.

"We are investing in the technology and people we will need to provide growth in future years. As demonstrated by our recent internal technology reviews, we are well poised to continue to roll-out Best-in-Class technologies throughout our four regions. Our global hiring and training programs are on pace to deliver the highly skilled, diverse workforce we will need in the future.

"We remain confident in the outlook for sustained market growth for the next several years -- particularly in the Eastern Hemisphere. The entire industry will continue to be challenged to provide energy to meet global demand assuming a continuation of robust global economic growth."

Mr. Deaton concluded, "In North America the long-term natural gas market fundamentals, which have driven sustained high levels of drilling activity, remain in place. However, we would not be surprised to see a short-term decline in drilling activity if supplies exceed storage capacity. We believe that any correction in North America gas-directed drilling activity will be relatively short in duration, resulting in a rapid rebalancing of the North American gas market and a return to higher levels of activity."

During the second quarter of 2006, debt decreased $7.1 million to $1,076.2 million, and cash and short-term investments increased $1,331.4 million to $1,973.5 million. In the second quarter of 2006, the company's capital expenditures were $208.1 million, depreciation and amortization was $104.6 million and dividend payments were $44.1 million.

During the second quarter of 2006, the company repurchased 12.1 million shares of common stock at an average price of $82.01 for a total of $992.6 million. As of June 30, 2006, the company had authorization remaining to repurchase approximately $1.1 billion in common stock.

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