UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2015~~March 31, 2016



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9397

Baker Hughes Incorporated

(Exact name of registrant as specified in its charter)



Delaware	76-0207995
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

2929 Allen Parkway, Suite 2100, Houston, Texas	77019-2118
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (713) 439-8600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

As of ~~October 15, 2015,~~April 28, 2016, the registrant has outstanding ~~436,086,675~~437,913,730 shares of Common Stock, $1 par value per share.

Baker Hughes Incorporated

Table of Contents



		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Condensed Statements of Income (Loss) (Unaudited) - Three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	2

	Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited) - Three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	3

	Consolidated Condensed Balance Sheets (Unaudited) - ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015	4

	Consolidated Condensed Statements of Changes in Equity (Unaudited) - ~~Nine~~Three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	5

	Consolidated Condensed Statements of Cash Flows (Unaudited) - Three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	6

	Notes to Unaudited Consolidated Condensed Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2827

Item 4.	Controls and Procedures	2927

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	3028

Item 1A.	Risk Factors	3028

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3028

Item 3.	Defaults Upon Senior Securities	3029

Item 4.	Mine Safety Disclosures	3029

Item 5.	Other Information	3129

Item 6.	Exhibits	3129

	Signatures	3230

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Baker Hughes Incorporated

Consolidated Condensed Statements of Income (Loss)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In millions, except per share amounts)	2015			2014			2015			2014			2016			2015
Revenue:
Sales	$	1,363		$	2,013		$	4,322		$	5,845		$	1,013		$	1,528
Services	2,423			4,237			8,026			12,071			1,657			3,066
Total revenue	3,786			6,250			12,348			17,916			2,670			4,594
Costs and expenses:
Cost of sales	1,148			1,620			3,723			4,651			944			1,345
Cost of services	2,255			3,487			7,637			9,921			1,714			2,997
Research and engineering	115			159			377			461			102			138
Marketing, general and administrative	271			323			896			977			207			287
Restructuring charges	98			—			747			—
Litigation settlements	—			—			(13		)	62
Impairment and restructuring charges													160			573
Merger and related costs													102			28
Total costs and expenses	3,887			5,589			13,367			16,072			3,229			5,368
Operating (loss) income	(101		)	661			(1,019		)	1,844
Operating loss													(559		)	(774		)
Interest expense, net	(55		)	(59		)	(162		)	(175		)	(55		)	(54		)
(Loss) income before income taxes	(156		)	602			(1,181		)	1,669
Loss before income taxes													(614		)	(828		)
Income taxes	—			(233		)	242			(605		)	(367		)	235
Net (loss) income	(156		)	369			(939		)	1,064
Net (income) loss attributable to noncontrolling interests	(3		)	6			3			(8		)
Net (loss) income attributable to Baker Hughes	$	(159	)	$	375		$	(936	)	$	1,056
Net loss													(981		)	(593		)
Net loss attributable to noncontrolling interests													—			4
Net loss attributable to Baker Hughes													$	(981	)	$	(589	)

Basic (loss) earnings per share attributable to Baker Hughes	$	(0.36	)	$	0.86		$	(2.13	)	$	2.42

Diluted (loss) earnings per share attributable to Baker Hughes	$	(0.36	)	$	0.86		$	(2.13	)	$	2.40
Basic and diluted loss per share attributable to Baker Hughes													$	(2.22	)	$	(1.35	)

Cash dividends per share	$	0.17		$	0.17		$	0.51		$	0.47		$	0.17		$	0.17

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

Baker Hughes Incorporated

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2015 2014 2015 2014
Net (loss) income $ (156 ) $ 369
$ (939 ) $ 1,064
Other comprehensive (loss) income:
Foreign currency translation adjustments during the period (91 ) (111 ) (182 ) (108 )
Pension and other postretirement benefits, net of tax 5
4
6
(4 )
Other comprehensive (loss) income (86 ) (107 ) (176 ) (112 )
Comprehensive (loss) income (242 ) 262
(1,115 ) 952
Comprehensive (income) loss attributable to noncontrolling interests (3 ) 6
3
(8 )
Comprehensive (loss) income attributable to Baker Hughes $ (245 ) $ 268
$ (1,112 ) $ 944



	Three Months Ended March 31,
(In millions)	2016			2015
Net loss	$	(981	)	$	(593	)
Other comprehensive income (loss):
Foreign currency translation adjustments during the period	65			(171		)
Pension and other postretirement benefits, net of tax	2			7
Other comprehensive income (loss)	67			(164		)
Comprehensive loss	(914		)	(757		)
Comprehensive loss attributable to noncontrolling interests	—			4
Comprehensive loss attributable to Baker Hughes	$	(914	)	$	(753	)

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

Baker Hughes Incorporated

Consolidated Condensed Balance Sheets

(Unaudited)


(In millions)	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	2,043		$	1,740		$	2,192		$	2,324
Accounts receivable - less allowance for doubtful accounts (2015 - $366; 2014 - $224)	3,518			5,418
Accounts receivable - less allowance for doubtful accounts (2016 - $431; 2015 - $383)							2,800			3,217
Inventories, net	3,262			4,074			2,789			2,917
Deferred income taxes	332			418			208			301
Other current assets	431			395			782			509
Total current assets	9,586			12,045			8,771			9,268
Property, plant and equipment - less accumulated depreciation (2015 - $8,721; 2014 - $8,215)	8,026			9,063
Property, plant and equipment - less accumulated depreciation (2016 - $7,647; 2015 - $7,378)							6,323			6,693
Goodwill	6,075			6,081			6,074			6,070
Intangible assets, net	729			812			549			583
Other assets	1,000			826			1,219			1,466
Total assets	$	25,416		$	28,827		$	22,936		$	24,080
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,480		$	2,807		$	1,153		$	1,409
Short-term debt and current portion of long-term debt	156			220			162			151
Accrued employee compensation	795			782			507			690
Income taxes payable	50			265			176			55
Other accrued liabilities	437			563			464			470
Total current liabilities	2,918			4,637			2,462			2,775
Long-term debt	3,896			3,913			3,885			3,890
Deferred income taxes and other tax liabilities	324			740			375			252
Liabilities for pensions and other postretirement benefits	624			629			650			646
Other liabilities	149			178			162			135
Commitments and contingencies
Equity:
Common stock	436			434			438			437
Capital in excess of par value	7,192			7,062			7,281			7,261
Retained earnings	10,720			11,878			8,559			9,614
Accumulated other comprehensive loss	(925		)	(749		)	(938		)	(1,005		)
Treasury stock	(9		)	—			(21		)	(9		)
Baker Hughes stockholders’ equity	17,414			18,625			15,319			16,298
Noncontrolling interests	91			105			83			84
Total equity	17,505			18,730			15,402			16,382
Total liabilities and equity	$	25,416		$	28,827		$	22,936		$	24,080

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

Baker Hughes Incorporated

Consolidated Condensed Statements of Changes in Equity

(Unaudited)


	Baker Hughes Stockholders' Equity																				Baker Hughes Stockholders' Equity
(In millions, except per share amounts)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-controlling Interests			Total Equity			Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-controlling Interests			Total Equity
Balance at December 31, 2014	$	434	$	7,062		$	11,878		$	(749	)	$	—		$	105		$	18,730
Balance at December 31, 2015																					$	437	$	7,261		$	9,614		$	(1,005	)	$	(9	)	$	84		$	16,382
Comprehensive loss:
Net loss						(936		)							(3		)	(939		)						(981		)										(981		)
Other comprehensive loss									(176		)							(176		)
Other comprehensive income																													67									67
Activity related to stock plans	2		62									(9		)				55			1		(14		)							(12		)				(25		)
Stock-based compensation			92															92					34															34
Cash dividends ($0.51 per share)						(222		)										(222		)
Cash dividends ($0.17 per share)																										(74		)										(74		)
Net activity related to noncontrolling interests			(24		)										(11		)	(35		)															(1		)	(1		)
Balance at September 30, 2015	$	436	$	7,192		$	10,720		$	(925	)	$	(9	)	$	91		$	17,505
Balance at March 31, 2016																					$	438	$	7,281		$	8,559		$	(938	)	$	(21	)	$	83		$	15,402

Baker Hughes Stockholders' Equity
(In millions, except per share amounts) Common Stock
Capital
in Excess
of
Par Value

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Non-controlling
Interests
Total Equity
Balance at December 31, 2013 $ 438
$ 7,341
$ 10,438
$ (504 ) $ 199
$ 17,912
Comprehensive income:
Net income 1,056
8
1,064
Other comprehensive loss (112 ) (112 )
Activity related to stock plans 4
134
138
Repurchase and retirement of common stock (9 ) (591 ) (600 )
Stock-based compensation 93
93
Cash dividends ($0.47 per share) (205 ) (205 )
Net activity related to noncontrolling interests (6 ) (6 )
Balance at September 30, 2014 $ 433
$ 6,977
$ 11,289
$ (616 ) $ 201
$ 18,284



	Baker Hughes Stockholders' Equity
(In millions, except per share amounts)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-controlling Interests			Total Equity
Balance at December 31, 2014	$	434	$	7,062		$	11,878		$	(749	)	$	—		$	105		$	18,730
Comprehensive loss:
Net loss						(589		)							(4		)	(593		)
Other comprehensive loss									(164		)							(164		)
Activity related to stock plans	1		(2		)							(7		)				(8		)
Stock-based compensation			33															33
Cash dividends ($0.17 per share)						(75		)										(75		)
Net activity related to noncontrolling interests			(10		)													(10		)
Balance at March 31, 2015	$	435	$	7,083		$	11,214		$	(913	)	$	(7	)	$	101		$	17,913

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

Baker Hughes Incorporated

Consolidated Condensed Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
(In millions)	2015			2014			2016			2015
Cash flows from operating activities:
Net (loss) income	$	(939	)	$	1,064
Adjustments to reconcile net (loss) income to net cash flows from operating activities:
Net loss							$	(981	)	$	(593	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization	1,326			1,346			354			460
Impairment of assets	265			—			118			240
Benefit for deferred income taxes	(359		)	(99		)
Provision (benefit) for deferred income taxes							359			(183		)
Provision for doubtful accounts	160			86			48			105
Other noncash items	(3		)	(89		)	(3		)	3
Changes in operating assets and liabilities:
Accounts receivable	1,692			(572		)	386			809
Inventories	764			(280		)	149			177
Accounts payable	(1,289		)	186			(263		)	(627		)
Income taxes payable	(263		)	133
Other operating items, net	(89		)	(21		)	(266		)	(135		)
Net cash flows provided by operating activities	1,265			1,754
Net cash flows provided by (used in) operating activities							(99		)	256
Cash flows from investing activities:
Expenditures for capital assets	(751		)	(1,288		)	(86		)	(315		)
Proceeds from disposal of assets	269			295			82			81
Acquisition of businesses, net of cash acquired	—			(313		)
Proceeds from maturities of investment securities							202			—
Purchases of investment securities							(137		)	—
Other investing items, net	(231		)	—			—			(3		)
Net cash flows used in investing activities	(713		)	(1,306		)
Net cash flows provided by (used in) investing activities							61			(237		)
Cash flows from financing activities:
Net (repayments) proceeds of short-term debt and other borrowings	(38		)	51
Repurchase of common stock	—			(600		)
Net repayments of short-term debt and other borrowings							(5		)	(54		)
Dividends paid	(222		)	(205		)	(74		)	(75		)
Other financing items, net	21			120			(16		)	(17		)
Net cash flows used in financing activities	(239		)	(634		)	(95		)	(146		)
Effect of foreign exchange rate changes on cash and cash equivalents	(10		)	(4		)	1			(7		)
Increase (decrease) in cash and cash equivalents	303			(190		)
Decrease in cash and cash equivalents							(132		)	(134		)
Cash and cash equivalents, beginning of period	1,740			1,399			2,324			1,740
Cash and cash equivalents, end of period	$	2,043		$	1,209		$	2,192		$	1,606
Supplemental cash flows disclosures:
Income taxes paid, net of refunds	$	395		$	571		$	85		$	124
Interest paid	$	192		$	199		$	70		$	72
Supplemental disclosure of noncash investing activities:
Capital expenditures included in accounts payable	$	52		$	123		$	32		$	139

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Baker Hughes Incorporated (“("Baker Hughes,~~” “Company,” “we,” “our,”~~" "Company," "we," "our," or ~~“us,”~~"us,") is a leading supplier of oilfield services, products, technology and systems used for drilling, formation evaluation, completion and production, pressure pumping, and reservoir development in the worldwide oil and natural gas industry. We also provide products and services for other businesses including downstream chemicals, and process and pipeline services.

Basis of Presentation

Our unaudited consolidated condensed financial statements included herein have been prepared in accordance with generally accepted accounting principles ~~(“GAAP”~~("GAAP") in the United States of America (“("U.S.”") and pursuant to the rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~("SEC") for interim financial information. Accordingly, certain information and disclosures normally included in our annual financial statements have been condensed or omitted. These unaudited consolidated condensed financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2014.~~2015. We believe the unaudited consolidated condensed financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. In the Notes to Unaudited Consolidated Condensed Financial Statements, all dollar and share amounts in tabulations are in millions of dollars and shares, respectively, unless otherwise indicated.

Beginning in 2016, all merger and related costs are presented as a separate line item in the consolidated condensed statement of income (loss). Prior year merger and related costs were reclassified from cost of sales and cost of services; research and engineering costs; and marketing, general and administrative costs to conform to the current year presentation.

New Accounting Standards ~~Updates~~Adopted

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires inventory measured using average cost methods, which we utilize, to be subsequently measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Currently, inventory is required to be subsequently measured at the lower of cost or market with market defined as replacement cost, net realizable value or net realizable value less a normal profit margin. We have elected to early adopt this guidance as of January 1, 2016 because we believe this approach will reduce the complexity in the subsequent measurement of our inventory. The guidance stipulates that the amendments in ASU No. 2015-11 shall be adopted on a prospective basis, therefore our adoption had no impact on prior reporting periods.

New Accounting Standards To Be Adopted

In May 2014, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity's nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The pronouncement is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is to be applied retrospectively. Early adoption is permitted. We have not completed an evaluation of the impact the pronouncement will have on our consolidated financial statements and related disclosures.

In ~~April~~November 2015, the FASB issued ASU No. ~~2015-3,~~2015-17, ~~Simplifying~~Balance Sheet Classification of Deferred Taxes, which amends existing guidance on income taxes to require the ~~Presentation~~classification of ~~Debt Issuance Costs~~all deferred tax assets and liabilities as~~. The ASU requires that debt issuance costs related~~

Baker Hughes Incorporated

Notes to ~~a recognized debt liability be presented in~~Unaudited Consolidated Condensed Financial Statements

noncurrent on the balance ~~sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.~~sheet. The pronouncement is effective for annual reporting periods beginning after December 15, ~~2015.~~2016, and may be applied either prospectively or retrospectively. We ~~currently report debt issuance costs consistent with~~have not completed an evaluation of the ~~guidance of this ASU; therefore there~~impact the pronouncement will ~~be no impact~~have on our consolidated financial statements and related ~~disclosures upon adoption.~~

disclosures.

In ~~April 2015,~~February 2016, the FASB issued ASU No. ~~2015-5,~~2016-02, ~~Customer's Accounting~~Leases, a new standard on accounting for ~~Fees Paid in a Cloud Computing Arrangement~~.leases. The ASU ~~provides~~introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in the current accounting guidance as well as the FASB's new revenue recognition standard. However, the ASU eliminates the use of bright-line tests in determining lease classification as required in the current guidance. The ASU also requires additional qualitative disclosures along with specific quantitative disclosures to ~~customers about whether a cloud computing arrangement includes a software license~~better enable users of financial statements to assess the amount, timing, and ~~the related accounting treatment.~~uncertainty of cash flows arising from leases. The pronouncement is effective for annual reporting periods beginning after December 15, ~~2015. Adoption~~2018, including interim periods within that reporting period, using a modified retrospective approach. Early adoption is permitted. We have not completed an evaluation of ~~this~~the impact the pronouncement ~~is not expected to~~will have ~~a material impact upon~~on our consolidated financial statements ~~or notes thereto.~~and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard provides a new requirement to record all of the tax effects related to share-based payments at settlement (or expiration) through the income statement. This pronouncement is effective for annual reporting periods beginning after December 15, 2016. We have not completed an evaluation of the impact the pronouncement will have on our consolidated financial statements and related disclosures.

NOTE 2. HALLIBURTON MERGER AGREEMENT

On November 16, 2014, Baker Hughes, Halliburton Company ~~(“Halliburton”~~("Halliburton") and a wholly owned subsidiary of Halliburton (“("Merger ~~Sub”~~Sub"), entered into an Agreement and Plan of Merger (the ~~“Merger Agreement”~~"Merger Agreement"), under which Halliburton ~~will~~would acquire all of the outstanding shares of Baker Hughes through a merger of Baker Hughes with and into Merger Sub (the "Merger"). ~~Subject to certain specified exceptions, at~~

In accordance with the ~~effective time~~provisions of Section 9.1 of the Merger ~~each~~

~~Baker Hughes Incorporated~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

~~share of Baker Hughes common stock will be converted into the right to receive (i) 1.12 shares of Halliburton common stock and (ii) $19.00 in cash.~~

On March 27, 2015, Halliburton's stockholders approved the proposal to issue shares of Halliburton common stock as contemplated by the Merger Agreement. In addition, Baker Hughes’ stockholders adopted the Merger Agreement, and thereby approved the proposed combination of the two companies. The obligation of the parties to consummate the Merger is still subject to additional customary closing conditions, including: (i) applicable regulatory approvals, including the termination or expiration of the applicable waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (ii) the absence of legal restraints and prohibitions; and (iii) other customary closing conditions. Halliburton is required to take all actions necessary to obtain regulatory approvals (including agreeing to divestitures) unless the assets, businesses or product lines subject to such actions would account for more than $7.5 billion of 2013 revenue.

As mentioned in the paragraph above, under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission (the “FTC”), the Merger cannot be completed until each of Halliburton and Baker Hughes has filed a notification and report form with the FTC and the Antitrust Division of the Department of Justice (the “DOJ”) under the HSR Act and the applicable waiting period has expired or been terminated. Each of Halliburton and Baker Hughes filed an initial notification and report form on December 8, 2014. Halliburton withdrew its filing on January 7, 2015 and refiled on January 9, 2015 in order to provide the FTC and the DOJ with an additional 30-day period to review the filings. On February 9, 2015, the DOJ issued a request for additional information under the HSR Act (the “Second Request”). On July 10, 2015, Halliburton and Baker Hughes entered into a timing agreement with the DOJ pursuant to which both companies agreed to extend the period for the DOJ's review of the Merger to the later of November 25, 2015 or 90 days after both companies have certified substantial compliance with the Second Request. On September 28, 2015, Halliburton and Baker Hughes announced an amendment to the timing agreement which extended the period for the DOJ's review of the Merger by three weeks, to the later of December 15, 2015 or 30 days following the date on which both companies have certified final, substantial compliance with the Second Request. In light of the timing agreement, Halliburton and Baker Hughes have agreed to extend the time period for closing of the acquisition pursuant to the Merger Agreement to no later than December 16, 2015. The Merger Agreement also provides that the closing can be extended into 2016, if necessary. Baker Hughes cannot predict with certainty when, or if, the Merger will be completed because completion of the Merger is subject to conditions beyond the control of Baker Hughes.

Baker Hughes and Halliburton ~~each made customary representations, warranties and covenants in~~agreed to terminate the Merger Agreement including, among others, covenants by each of Baker Hughes and Halliburton to, subject to certain exceptions, conduct its business in the ordinary course. In particular, among other restrictions and subject to certain exceptions, Baker Hughes agreed to generally refrain from acquiring new businesses, incurring new indebtedness, repurchasing shares, issuing new common stock or equity awards (other than equity awards granted to employees, officers and directors materially consistent with historical long-term incentive awards granted), or entering into new material contracts or commitments outside the normal course of business, without the consent of Halliburton, during the period between the execution of the Merger Agreement and the consummation of the Merger. With respect to equity awards granted after the Merger Agreement to officers and employees, such awards will not vest solely as a result of the Merger but will be converted to an equivalent Halliburton equity award. However, they will vest entirely if an officer or employee is terminated within one year following the closing of the Merger with Halliburton. Baker Hughes and Halliburton are each permitted to pay regular quarterly cash dividends during such period. In addition, under the terms of the Merger Agreement, Halliburton and Baker Hughes have agreed to coordinate the declaration and payment of dividends in respect of each party's common stock including record dates and payment dates relating thereto, which we expect to be in the third month of each quarter. Under the Merger Agreement, we have agreed not to increase the quarterly dividend while the Merger is pending.

~~In the event the Merger Agreement is terminated by (i) either party~~on April 30, 2016, as a result of the failure of the Merger to occur on or before ~~the end date (as it may be extended)~~April 30, 2016 due to the ~~failure~~inability to achieve certain specified ~~antitrust-related approvals when all other closing conditions (other than receipt~~antitrust related approvals. Halliburton has agreed to pay $3.5 billion to Baker Hughes, on or before May 4, 2016, representing the antitrust termination fee required to be paid pursuant to the Merger Agreement.

Baker Hughes incurred costs related to the Merger of ~~antitrust~~$102 million and ~~other specified regulatory approvals~~$28 million for the three months ended March 31, 2016 and ~~conditions that by their nature cannot be satisfied until the closing but subject to such conditions being capable of being satisfied if the closing date were the date of termination)~~2015, respectively, including costs under our retention programs and obligations for minimum incentive compensation costs which, based on meeting eligibility criteria, have been ~~satisfied, (ii) either party~~treated as merger and related expenses.

NOTE 3. IMPAIRMENT AND RESTRUCTURING CHARGES

IMPAIRMENT CHARGES

We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable based on estimated future cash flows. In the first quarter of 2016, oil prices fell to a twelve year low. Additionally, we experienced a continued decline in customer spending as our customers finalized their capital spending budgets for 2016 given the current outlook for a prolonged downturn. We considered these events to be possible impairment indicators and performed testing of long-lived assets for impairment.

As a result of ~~any antitrust-related final, non-appealable order or injunction prohibiting~~our testing, certain machinery and equipment, with a total carrying value of $203 million, was written down to its estimated fair value, resulting in an impairment charge of $106 million. Additionally, certain customer relationship intangible assets, with a total carrying value of $29 million, were written down to their estimated fair values, resulting in an impairment charge of $12 million. Total impairment charges for the ~~closing, or (iii) Baker Hughes as a result~~first quarter of ~~Halliburton’s material breach~~2016 were $118 million. The majority of ~~its obligations~~the impaired machinery and equipment and intangible assets related to ~~obtain regulatory approval such that the~~

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

~~antitrust-related condition to closing is incapable of being satisfied, then, in each case, Halliburton would be required to pay Baker Hughes a termination fee of $3.5 billion.~~

~~Baker Hughes incurred costs related to the Merger of $93 million~~our businesses in Russia Caspian and ~~$204 million~~in Asia Pacific. The estimated fair values for the three and nine months ended September 30, 2015, respectively, including costs under our retention program and obligations for minimum incentive compensation costs which, based on meeting eligibility criteria in April, have been treated as merger related expenses.

~~NOTE 3. RESTRUCTURING AND OTHER CHARGES~~

~~Beginning~~these assets were determined using discounted future cash flows. The significant level 3 unobservable inputs used in the ~~second half~~determination of ~~2014~~the fair value of these assets were the estimated future cash flows and ~~throughout~~the weighted average cost of capital of 15.0% for Russia Caspian and 13.5% for Asia Pacific.

RESTRUCTURING CHARGES

Throughout 2015 and during the ~~oil and natural gas market experienced a significant over supply~~first quarter of ~~capacity leading to a substantial and rapid decline in oil prices resulting in significantly lower activity in 2015. Accordingly, to adjust to the lower level of activity,~~2016, we ~~regularly assess our overall operations and~~ have taken actions to restructure and adjust our operations and cost structure to reflect current and expected ~~near-term~~ activity levels. These restructuring activities included workforce reductions, contract terminations, facility closures and the removal of excess machinery and equipment that resulted in asset impairments. Depending on future market conditions and activity levels, further actions may be necessary to adjust our operations, which may result in additional charges.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015, we recorded restructuring charges as summarized below:


	Three Months Ended			Nine Months Ended		Three Months Ended			Three Months Ended
Restructuring Charges	September 30, 2015			September 30, 2015		March 31, 2016			March 31, 2015
Workforce reductions	$	108		$	416	$	47		$	247
Contract terminations	—			83		—			86
Impairment of buildings and improvements	—			82		(5		)	77
Impairment of machinery and equipment	(10		)	166		—			163
Total restructuring charges	$	98		$	747	$	42		$	573

Workforce reduction costs: During 2015, we initiated workforce reductions that resulted in the elimination of approximately 18,000 positions worldwide. As of December 31, 2015, we had $81 million accrued severance remaining to be paid. In the first ~~nine~~three months of ~~2015,~~2016, we initiated workforce reductions that will result in the elimination of approximately ~~16,700~~2,000 additional positions worldwide. ~~As of September 30, 2015, we have eliminated approximately 13,100 positions.~~ As a result of ~~these workforce reductions,~~this action, we recorded a charge for severance expense of ~~$416 million for~~$47 million. During the first ~~nine months~~quarter of ~~2015. As of September 30, 2015,~~2016, we ~~have~~ made payments totaling ~~$282~~$77 million relating to workforce reductions. We expect that substantially all of the accrued severance remaining will be paid by the middle of 2016.

Contract termination costs: During the first ~~nine~~three months of 2015, we incurred costs of ~~$83~~$86 million for various contracts being terminated, primarily in North America. This includes the accrual for costs to settle leases on closed facilities and certain equipment, and other estimated exit costs, and is net of expected sublease income. We also incurred costs to terminate a take-or-pay supply contract related to the purchase of materials used in our pressure pumping operations in North America, including the write-off of $14 million of prepayments made in 2014. As of ~~September 30,~~December 31, 2015, we ~~have~~had accrued contract termination costs of $26 million remaining to be paid. During the first quarter of 2016, we made payments totaling ~~$56~~$16 million relating to contract termination costs.

Impairment of buildings and improvements: ~~We are consolidating~~During 2015, we consolidated facilities and ~~shutting~~shut down certain operations, and as a result, ~~are closing and abandoning or selling certain facilities, both owned and leased. During the first nine months of 2015,~~ we recognized ~~$82~~$77 million of impairment charges in the first quarter of 2015 related to facilities primarily in North America and Latin America. ~~For leased facilities, this charge includes the impairment of the leasehold improvements made to those facilities.~~

Impairment of machinery and equipment: ~~We are exiting~~During 2015 we exited or substantially ~~downsizing~~downsized our presence in select markets primarily in our pressure pumping product line in North America and Latin ~~America. During the first nine months of 2015,~~America, and as a result, we recognized ~~$166~~$163 million of impairment losses in the first quarter of 2015 to adjust the carrying value of certain machinery and equipment to its fair value, net of costs to dispose. ~~We are currently in the process of disposing of this machinery and equipment through sale or scrap and during the third quarter of 2015, we realized related net gains of $10 million on sales.~~

~~Baker Hughes Incorporated~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

~~Other Charges~~OTHER CHARGES

In addition to the matters described above, during the first ~~nine~~three months of 2016, we recorded a loss on a firm purchase commitment of $51 million in North America. This loss is reported in cost of services. During the first three months of 2015, we ~~also~~ recorded charges of ~~$194~~$171 million, of which ~~$37~~$29 million is reported in cost of sales and ~~$157~~$142 million is reported in cost of services, to write-down the carrying value of certain inventory. The write-down, primarily in North America, includes lower of cost or market adjustments due to the significant decline in activity and related prices for our products coupled with declines in replacement costs. In addition, the adjustments include provisions for excess inventory levels based on estimates of current and future market demand. The product lines

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

impacted are primarily pressure pumping and drilling and completion fluids.

~~NOTE 4. VENEZUELA CURRENCY DEVALUATION~~

In February of 2015, the Venezuelan government modified the currency exchange system by the creation of a new exchange mechanism, SIMADI, which allows for the trading of the Venezuelan Bolivars Fuertes ("BsF") at a floating rate. On March 31, 2015, we began using the SIMADI exchange rate of approximately 192 BsF per U.S. Dollar to remeasure our BsF denominated assets and liabilities, which resulted in a foreign currency loss of approximately $5 million. This loss was recorded in MG&A expenses in the first quarter of 2015. We believe any further devaluation of Venezuela's currency would not have a material impact on our financial position, results of operations or cash flows.

NOTE 5.4. SEGMENT INFORMATION

We are a supplier of oilfield services, products, technology and systems toused in the worldwide oil and natural gas business, referred to as oilfield operations, which are managed through operating segments that are aligned with our geographic regions. We also provide services and products to the downstream chemicals, and process and pipeline ~~industries,~~services, referred to as Industrial Services.

The performance of our operating segments is evaluated based on profit (loss) before tax, which is defined as income (loss) before income taxes and before the following: net interest expense, corporate expenses and certain gains and losses, including impairment and restructuring charges, not allocated to the operating segments.

Beginning in 2016, we excluded merger and related costs from our operating segments. These costs are now presented as a separate line item in the consolidated condensed statement of income (loss). Prior year merger and related costs have been reclassified to conform to the current year presentation.

Summarized financial information is shown in the following tables:


	Three Months Ended					Three Months Ended					Three Months Ended					Three Months Ended
	September 30, 2015					September 30, 2014					March 31, 2016					March 31, 2015
Segments	Revenue		Profit (Loss) Before Taxes			Revenue		Profit (Loss) Before Taxes			Revenue		Profit (Loss) Before Taxes			Revenue		Profit (Loss) Before Taxes
North America	$	1,368	$	(169	)	$	3,155	$	380		$	819	$	(225	)	$	2,006	$	(209	)
Latin America	439		48			571		71			277		(66		)	493		33
Europe/Africa/Russia Caspian	791		90			1,114		91			611		(19		)	895		(20		)
Middle East/Asia Pacific	849		69			1,077		155			718		49			916		62
Industrial Services	339		40			333		35			245		(4		)	284		10
Total Operations	3,786		78			6,250		732			2,670		(265		)	4,594		(124		)
Corporate and other	—		(81		)	—		(71		)
Corporate											—		(32		)	—		(49		)
Interest expense, net	—		(55		)	—		(59		)	—		(55		)	—		(54		)
Restructuring charges	—		(98		)	—		—
Impairment and restructuring charges											—		(160		)	—		(573		)
Merger and related costs											—		(102		)	—		(28		)
Total	$	3,786	$	(156	)	$	6,250	$	602		$	2,670	$	(614	)	$	4,594	$	(828	)

~~Baker Hughes Incorporated~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

Nine Months Ended Nine Months Ended
September 30, 2015 September 30, 2014
Segments Revenue Profit (Loss) Before Taxes Revenue Profit (Loss) Before Taxes
North America $ 4,872
$ (545 ) $ 8,774
$ 978
Latin America 1,371
122
1,645
172
Europe/Africa/Russia Caspian 2,555
117
3,269
421
Middle East/Asia Pacific 2,621
182
3,241
448
Industrial Services 929
79
987
96
Total Operations 12,348
(45 ) 17,916
2,115
Corporate and other —
(240 ) —
(209 )
Interest expense, net —
(162 ) —
(175 )
Restructuring charges —
(747 ) —
—
Litigation settlements —
13
—
(62 )
Total $ 12,348
$ (1,181 ) $ 17,916
$ 1,669

NOTE 6.5. INCOME TAXES

We estimate our annual effective tax rate based on actual year-to-date operating results and our expectation of operating results for the remainder of the year, by jurisdiction, and apply this rate to the actual year-to-date operating results. If our actual operating results, by jurisdiction, differ from the expected operating results, our effective tax rate can change affecting the tax expense for both interim and annual periods.

~~We reported zero income tax expense or benefit for~~For the three months ended ~~September 30, 2015, and an~~March 31, 2016, total income tax ~~benefit of $242~~expense was $367 million ~~for the nine months ended September 30, 2015. Our effective tax rate~~ on ~~the~~a loss before income taxes ~~for the three and nine months ended September 30, 2015 was 0.0% and 20.5%, respectively. The~~of $614 million, resulting in a negative effective tax rate ~~for~~of 59.8%, driven primarily by $502 million of valuation allowances.

Due to the significant downturn in the U.S. market during the three months ended ~~September 30, 2015 is lower than~~March 31, 2016 and uncertainty as to whether the U.S. ~~statutory~~will generate sufficient future taxable income to utilize the U.S. deferred tax assets, we concluded that valuation allowances were required. The valuation allowances are recorded against various deferred tax assets, including U.S. federal tax credit carryforwards ($164 million), foreign ($110 million) and state ($15 million) net operating losses ("NOL"), and certain U.S. deferred tax assets ($213 million).

In addition, we currently intend to carryback the 2015 NOL and 2016 expected NOL resulting in a $427 million reduction to the beginning of year U.S. deferred tax assets and a $484 million increase in tax receivables, of which $324 million is reflected as a current income tax ~~rate of 35% primarily due to $98 million of restructuring charges with only partial or no tax-benefit~~receivable recorded in ~~certain jurisdictions,~~other current assets in the geographical mix of profits and losses, and higher withholding taxes, partially offset by adjustments to prior years' tax positions. The total tax benefit associated with the restructuring charges and inventory write-downs for the three and nine months ended September 30, 2015 was $28 million and $263 million, respectively.consolidated condensed balance sheet.

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

NOTE 7.6. EARNINGS PER SHARE

A reconciliation of the number of shares used for the basic and diluted ~~(loss) earnings~~loss per share ~~(“EPS”)~~ computations is as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
Weighted average common shares outstanding for basic EPS 439
436
438
437
Adjustment for effect of dilutive securities - stock plans —
2
—
3
Weighted average common shares outstanding for diluted EPS 439
438
438
440

Anti-dilutive shares excluded from diluted EPS ⁽¹⁾
1
—
2
—
Future potentially dilutive shares excluded from diluted EPS ⁽²⁾
3
2
3
2



	Three Months Ended March 31,
	2016	2015
Weighted average common shares outstanding for basic and diluted loss per share	442	437

Anti-dilutive shares excluded from diluted loss per share ⁽¹⁾	—	2
Future potentially dilutive shares excluded from diluted loss per share ⁽²⁾	7	3


⁽¹⁾	The calculation of diluted ~~net~~ loss per share for ~~both~~ the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 excludes shares potentially issuable under stock-based incentive compensation plans and the employee stock purchase plan, as their effect, if included, would have been anti-dilutive.


⁽²⁾	Options where the exercise price exceeds the average market price are excluded from the calculation of diluted net loss or earnings per share because their effect would be anti-dilutive.

NOTE 8.7. INVENTORIES

Inventories, net of reserves of ~~$351~~$275 million at ~~September 30, 2015~~March 31, 2016 and ~~$319~~$278 million at December 31, ~~2014~~2015, are comprised of the following:


	September 30, 2015		December 31, 2014		March 31, 2016		December 31, 2015
Finished goods	$	2,928	$	3,644	$	2,524	$	2,649
Work in process	188		227		139		132
Raw materials	146		203		126		136
Total inventories	$	3,262	$	4,074	$	2,789	$	2,917

NOTE 9.8. INTANGIBLE ASSETS

Intangible assets are comprised of the following:


	September 30, 2015						December 31, 2014						March 31, 2016						December 31, 2015
	Gross Carrying Amount		Less: Accumulated Amortization		Net		Gross Carrying Amount		Less: Accumulated Amortization		Net		Gross Carrying Amount		Less: Accumulated Amortization		Net		Gross Carrying Amount		Less: Accumulated Amortization		Net
Technology	$	872	$	438	$	434	$	870	$	393	$	477	$	867	$	467	$	400	$	866	$	452	$	414
Customer relationships(1)	487		221		266		488		191		297		209		83		126		251		106		145
Trade names	119		95		24		120		92		28		108		90		18		108		89		19
Other	18		13		5		23		13		10		18		13		5		18		13		5
Total intangible assets	$	1,496	$	767	$	729	$	1,501	$	689	$	812	$	1,202	$	653	$	549	$	1,243	$	660	$	583


⁽¹⁾	During the first quarter of 2016, we recorded impairments relating to our customer relationship intangible assets totaling $12 million. See Note 3. "Impairment and Restructuring Charges" for further discussion.

Intangible assets are generally amortized on a straight-line basis with estimated useful lives ranging from 3 to 30 years. Amortization expense ~~included in the net loss~~ for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 was $2622 million ~~and $77 million, respectively,~~, as compared to $26 million ~~and $79 million~~ reported in ~~2014~~2015 for the same ~~periods.~~period.

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

Amortization expense of these intangibles over the remainder of ~~2015~~2016 and for each of the subsequent five fiscal years is expected to be as follows:


Year	Estimated Amortization Expense		Estimated Amortization Expense
Remainder of 2015	$	26
2016	101
Remainder of 2016			$	63
2017	98		81
2018	92		74
2019	88		71
2020	78		61
2021			53

NOTE ~~10.~~9. FINANCIAL INSTRUMENTS

Our financial instruments include cash and cash equivalents, accounts receivable, investments, accounts payable, debt and foreign currency forward contracts. Except as described below, the estimated fair value of such financial instruments at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 approximates their carrying value as reflected in our unaudited consolidated condensed balance sheets.

The estimated fair value of total debt at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 was ~~$4,403~~$4,347 million and ~~$4,663~~$4,321 million,, respectively, which differs from the carrying amounts of ~~$4,052~~$4,047 million and ~~$4,133~~$4,041 million, respectively, included in our unaudited consolidated condensed balance sheets. The fair value was determined using quoted period-end market prices.

NOTE ~~11.~~10. EMPLOYEE BENEFIT PLANS

We have both funded and unfunded noncontributory defined benefit pension plans ("Pension Benefits") covering certain employees primarily in the U.S., the United Kingdom, Germany and Canada. We also provide certain postretirement health care benefits (“("Other Postretirement ~~Benefits”~~Benefits"), through an unfunded plan, to a closed group of U.S. employees who, when they retire, have met certain age and service requirements.

The components of net periodic cost (benefit) are as follows for the three months ended ~~September 30:~~March 31:


	U.S. Pension Benefits						Non-U.S. Pension Benefits						Other Postretirement Benefits						U.S. Pension Benefits						Non-U.S. Pension Benefits						Other Postretirement Benefits
	2015			2014			2015			2014			2015			2014			2016			2015			2016			2015			2016			2015
Service cost	$	15		$	17		$	4		$	3		$	1		$	1		$	13		$	18		$	4		$	4		$	1		$	1
Interest cost	6			7			7			8			1			1			7			7			7			8			1			1
Expected return on plan assets	(12		)	(11		)	(12		)	(9		)	—			—			(10		)	(13		)	(9		)	(12		)	—			—
Amortization of prior service credit	—			—			—			—			(2		)	(2		)	—			—			—			—			(2		)	(3		)
Amortization of net actuarial loss	3			2			2			1			—			1			3			2			1			1			—			1
Curtailment gain	—			—			—			—			(2		)	—			—			—			—			—			—			(9		)
Other	8			—			—			—			—			—
Net periodic cost (benefit)	$	20		$	15		$	1		$	3		$	(2	)	$	1		$	13		$	14		$	3		$	1		$	—		$	(9	)

Expected Cash Flows

13For all pension plans, we make annual contributions to the plans in amounts equal to or greater than amounts necessary to meet minimum governmental funding requirements. During the three months ended March 31, 2016, we contributed approximately $7 million to our defined benefit and other postretirement plans. We have revised our expected contributions and accordingly, we expect to contribute between $51 million and $55 million to our funded and unfunded pension plans and to make payments of between $11 million and $15 million related to other postretirement benefits for the remainder of 2016.

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

~~The components of net periodic cost (benefit) are as follows~~We contributed approximately $49 million to our defined contribution plans during the three months ended March 31, 2016. Effective April 2016, employer contributions to certain plans were suspended indefinitely. Accordingly, we have revised our expected contributions and now estimate we will contribute between $38 million and $40 million to our defined contribution plans for the ~~nine months ended September 30:~~remainder of 2016.

U.S. Pension Benefits Non-U.S. Pension Benefits Other Postretirement Benefits
2015 2014 2015 2014 2015 2014
Service cost $ 49
$ 52
$ 12
$ 10
$ 3
$ 4
Interest cost 20
21
23
26
3
4
Expected return on plan assets (37 ) (33 ) (36 ) (29 ) —
—
Amortization of prior service credit —
—
—
—
(8 ) (5 )
Amortization of net actuarial loss 7
6
4
3
2
2
Curtailment gain —
—
—
—
(11 ) —
Other 8
—
—
—
—
(3 )
Net periodic cost (benefit) $ 47
$ 46
$ 3
$ 10
$ (11 ) $ 2

NOTE ~~12.~~11. COMMITMENTS AND CONTINGENCIES

LITIGATION

We are subject to a number of lawsuits and claims arising out of the conduct of our business. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. We record a liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, including accruals for self-insured losses which are calculated based on historical claim data, specific loss development factors and other information. A range of total possible losses for all litigation matters cannot be reasonably estimated. Based on a consideration of all relevant facts and circumstances, we do not expect the ultimate outcome of any currently pending lawsuits or claims against us will have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters.

We insure against risks arising from our business to the extent deemed prudent by our management and to the extent insurance is available, but no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending or future legal proceedings or other claims. Most of our insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for which we are responsible for payment. In determining the amount of self-insurance, it is our policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for automobile liability, general liability and workers compensation.

The following lawsuits ~~have been~~were filed in Delaware in connection with our ~~pending merger~~Merger with ~~Halliburton:~~Halliburton. Subsequent to the filing of the lawsuits, on April 30, 2016, the Merger Agreement with Halliburton was terminated as described in Note 2. "Halliburton Merger Agreement."

On November 24, 2014, Gary Molenda, a purported shareholder of the Company, filed a class action lawsuit in the Court of Chancery of the State of Delaware ("Delaware Chancery Court") against Baker Hughes, the Company’s Board of Directors, Halliburton, and Red Tiger LLC, a wholly owned subsidiary of Halliburton (“("Red ~~Tiger”~~Tiger" and together with all defendants, ~~“Defendants”~~"Defendants") styled Gary R. Molenda v. Baker Hughes, Inc., et al., Case No. 10390-CB.

On November 26, 2014, a second purported shareholder of the Company, Booth Family Trust, filed a substantially similar class action lawsuit in Delaware Chancery Court.

On December 1, 2014, New Jersey Building Laborers Annuity Fund and James Rice, two additional purported shareholders of the Company, filed substantially similar class action lawsuits in Delaware Chancery Court.

On December 10, 2014, a fifth purported shareholder of the Company, Iron Workers Mid-South Pension Fund, filed another substantially similar class action lawsuit in the Delaware Chancery Court.

On December 24, 2014, a sixth purported shareholder of the Company, Annette Shipp, filed another substantially similar class action lawsuit in the Delaware Chancery Court.

~~Baker Hughes Incorporated~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

All of the lawsuits make substantially similar claims. The plaintiffs generally allege that the members of the Company’s Board of Directors breached their fiduciary duties to our shareholders in connection with the ~~merger~~Merger negotiations by entering into the ~~merger agreement~~Merger Agreement and by approving the ~~merger,~~Merger, and that the Company, Halliburton, and Red Tiger aided and abetted the purported breaches of fiduciary duties. More specifically, the lawsuits allege that the ~~merger agreement~~Merger Agreement provides inadequate consideration to our shareholders, that the process resulting in the ~~merger agreement~~Merger Agreement was flawed, that the Company’s directors engaged in self-dealing, and that certain provisions of the ~~merger agreement~~Merger Agreement improperly favor Halliburton and Red Tiger, precluding or impeding third parties from submitting potentially superior proposals, among other things. The lawsuit filed by Annettee Shipp also alleges that our Board of Directors failed to disclose material information concerning the proposed ~~merger~~Merger in the preliminary registration statement on Form S-4. On January 7, 2015, James Rice amended his complaint, adding

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

similar allegations regarding the disclosures in the preliminary registration statement on Form S-4. The lawsuits seek unspecified damages, injunctive relief enjoining the ~~merger,~~Merger, and rescission of the ~~merger agreement,~~Merger Agreement, among other relief. On January 23, 2015, the Delaware lawsuits were consolidated under the caption In re Baker Hughes Inc. Stockholders Litigation, Consolidated C.A. No. 10390-CB (the "Consolidated Case"). Pursuant to the Court’s consolidation order, plaintiffs filed a consolidated complaint on February 4, 2015, which alleges substantially similar claims and seeks substantially similar relief to that raised in the six individual complaints, except that while Baker Hughes is named as a defendant, no claims are asserted against the Company.

On March 18, 2015, the parties reached an agreement in principle to settle the Consolidated Case in exchange for the Company making certain additional disclosures. Those disclosures were contained in a Form 8-K filed with the SEC on March 18, 2015. The settlement ~~remains~~was made subject to certain conditions, including consummation of the ~~merger,~~Merger, final documentation, and court approval.

~~On November 26, 2014, a seventh class action challenging~~ With the ~~merger was filed by a purported Company shareholder in~~termination of the ~~United States District Court for~~Merger Agreement with Halliburton, the Southern District of Texas (Houston Division). The lawsuit, styled Marc Rovner v. Baker Hughes Inc., et al., Cause No. 4:14-cv-03416 ("the Rovner lawsuit"), asserts claims against the Company, most of our current Board of Directors, Halliburton,March 18, 2015 settlement agreement is rendered null and Red Tiger. The lawsuit asserts substantially similar claims and seeks substantially similar relief as that sought in the Delaware lawsuits. On March 20, 2015, counsel for Mr. Rovner filed a notice of voluntary dismissal, and on March 23, 2015, the Court entered an order dismissing the Rovner lawsuit without prejudice.void.

On October 9, 2014, our subsidiary filed a Request for Arbitration against a customer before the London Court of International Arbitration, pursuing claims for the non-payment of invoices for goods and services provided in an amount provisionally quantified to exceed $67.9 million. In our Request for Arbitration, we also noted that invoices in an amount exceeding $57 million had been issued to the customer, and would be added to the claim in the event that they became overdue. ~~The due date for payment of all of these invoices has now passed.~~ On November 6, 2014, the customer filed its Response and Counterclaim, denying liability and counterclaiming damages for breach of contract of approximately $182 million. ~~We deny any liability to~~On March 31, 2016, the ~~customer and intend to pursue our claims against the customer and defend the claims made under the counterclaim. The Parties have~~parties agreed to a ~~suspension in~~settlement principally involving the purchase by the customer of certain inventory held by our subsidiary, with all other claims and counterclaims being released and discharged by each party, and the arbitral proceedings ~~to October 31, 2015, pending ongoing settlement discussions. No timetable for the conduct of the arbitration has yet been established.~~being discontinued.

During 2014, we received customer notifications related to a possible equipment failure in a natural gas storage system in Northern Germany, which includes certain of our products. We are currently investigating the cause of the possible failure and, if necessary, possible repair and replacement options for our products. Similar products were utilized in other natural gas storage systems for this and other customers. The customer initiated arbitral proceedings against us on June 19, 2015, under the rules of the German Institute of Arbitration e.V. (DIS). The customer alleges damages of approximately $170 million plus interest at an annual rate of prime + 5%. ~~A procedural schedule for~~The hearing before the arbitration ~~has not yet been set.~~panel is scheduled to commence on January 16, 2017. In addition, on September 21, 2015, TRIUVA Kapitalverwaltungsgesellschaft mbH filed a lawsuit in the United States District Court for the Southern District of Texas, Houston Division against the Company and Baker Hughes Oilfield Operations, Inc. alleging that the plaintiff is the owner of gas storage caverns in Etzel, Germany in which the Company provided certain equipment in connection with the development of the gas storage caverns. The plaintiff further alleges that the Company supplied equipment that was either defectively designed or failed to warn of risks that the equipment posed, and that these alleged defects caused damage to the plaintiff’s property. The plaintiff seeks recovery of alleged compensatory and punitive damages of an unspecified amount, in addition to reasonable attorneys’ fees, court

~~Baker Hughes Incorporated~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

costs and pre-judgment and post-judgment interest. The allegations in this lawsuit are related to the claims made in the June 19, 2015 German arbitration referenced above. At this time, we are not able to predict the outcome of these claims or whether either will have any material impact on our financial position, results of operations or cash flows.

On August 31, 2015, a customer of one of the Company’s subsidiaries issued a Letter of Claim pursuant to a Construction and Engineering Contract. The customer has claimed $369 million plus loss of production resulting from a breach of contract related to five electric submersible pumps installed by the subsidiary in Europe. On January 29, 2016, the Customer served its Statement of Claim, Case No. CL-2015-00584, in the Commercial Court Queen's Bench Division of the High Court of Justice. Investigation is ongoing as to the merits of the claim. At this time, we are not able to predict the outcome of this claim or whether it will have a material impact on our financial position, results of operations or cash flows.

~~We are a defendant~~On October 30, 2015, Chieftain Sand and Proppant Barron, LLC initiated arbitration against our subsidiary, Baker Hughes Oilfield Operations, Inc., in ~~various labor claims including~~ the ~~following matters.~~

~~On April 28, 2014, a collective action lawsuit alleging~~American Arbitration Association. The Claimant alleges that wethe Company failed to ~~pay a class~~purchase the required sand tonnage for the contract year 2014-2015 and further alleges that the Company repudiated its yearly purchase obligations over the remaining contract term. The Claimant alleges damages of ~~workers overtime in compliance with~~approximately $110 million plus interest, attorneys’ fees and costs. The hearing before the ~~Fair Labor Standards Act ("FLSA") was filed titled Michael Ciamillo, individually, etc., et al. vs.~~ arbitration

Baker Hughes Incorporated in

Notes to Unaudited Consolidated Condensed Financial Statements

panel is scheduled to commence on September 27, 2016. The Company intends to vigorously defend the ~~U.S. District Court for~~claim. At this time, we are not able to predict the District of Alaska (“Ciamillo”). During the fourth quarter of 2014, the parties agreed to settle the Ciamillo lawsuit, including certain state law claims, for $5 million. The court granted final approval of that settlement on June 19, 2015.

On December 10, 2013, a class and collective action lawsuit alleging that we failed to pay a nationwide class of workers overtime in compliance with the FLSA and certain state laws was filed titled Lea et al. v. Baker Hughes, Inc. in the U.S. District Court for the Southern District of Texas, Galveston Division ("Lea"). During the second quarter of 2014, the parties agreed to settle the Lea lawsuit, subject to final court approval, and we recorded a charge of $62 million, which included an estimate of the Lea settlement amount and associated costs and an amount for settlement of another wage and hour lawsuit. A portionoutcome of this ~~settlement was to be paid~~claim or whether it will have a material impact on ~~a claims made basis and during the second quarter~~our financial position, results of 2015, the date passed by which the class members could file a claim under this provision of the settlement agreement. The amount of claims made was less than estimated and accordingly, we reduced the accrual by approximately $13 million, which was recorded as an adjustment of litigation settlements during the second quarter of 2015.operations or cash flows.

On April 30, 2015, a class and collective action lawsuit alleging that we failed to pay a nationwide class of workers overtime in compliance with the ~~FLSA~~Fair Labor Standards Act and North Dakota law was filed titled Williams et al. v. Baker Hughes Oilfield Operations, Inc. in the U.S. District Court for the District of North Dakota. On February 8, 2016, the Court conditionally certified certain subclasses of employees for collective action treatment. We are evaluating the background facts and at this time cannot predict the outcome of this lawsuit and are not able to reasonably estimate the potential impact, if any, such outcome would have on our financial position, results of operations or cash flows.

On ~~May 30, 2013, we received~~July 31, 2015, Rapid Completions LLC filed a Civil Investigative Demand ("CID") from the U.S. Department of Justice ("DOJ") pursuant to the Antitrust Civil Process Act. The CID seeks documents and information from us for the period from May 29, 2011 through the date of the CIDlawsuit in ~~connection with a DOJ investigation related to pressure pumping services~~federal court in the Eastern District of Texas against Baker Hughes Incorporated, Baker Hughes Oilfield Operations, Inc., and others claiming infringement of U.S. ~~We are working with~~Patent Nos. 6,907,936; 7,134,505; 7,543,634; 7,861,774; and 8,657,009. On August 6, 2015, Rapid Completions amended its complaint to allege infringement of U.S. Patent No. 9,074,451. On September 17, 2015, Rapid Completions and Packers Plus Energy Services Inc., sued Baker Hughes Canada Company in the ~~DOJ~~Canada Federal Court on related Canadian patent 2,412,072. On April 1, 2016, Rapid Completions removed U.S. Patent No. 6,907,936 from its claims in the lawsuit. On April 5, 2016, Rapid Completions filed a second lawsuit in federal court in the Eastern District of Texas against Baker Hughes Incorporated, Baker Hughes Oilfield Operations, Inc. and others claiming infringement of U.S. Patent No. 9,303,501. These patents relate primarily to ~~provide the~~certain specific downhole completions equipment. The plaintiff has requested ~~documents~~a permanent injunction against further alleged infringement, damages in an unspecified amount, supplemental and ~~information. We~~enhanced damages, and additional relief such as attorney’s fees and costs. At this time, we are not able to predict ~~what action, if~~the outcome of these claims or whether they will have a material impact on our financial position, results of operations or cash flows.

On April 6, 2016, a civil Complaint against Baker Hughes Incorporated and Halliburton Company was filed by the United States of America seeking a permanent injunction restraining Baker Hughes and Halliburton from carrying out the planned acquisition of Baker Hughes by Halliburton or any ~~might be taken~~other transaction that would combine the two companies. The lawsuit is styled United States of America v. Halliburton Co. and Baker Hughes Inc., in the ~~future by~~U.S. District Court for the ~~DOJ or other governmental authorities as a result~~District of Delaware, Case No. 1:16-cv-00233-UNA. The Complaint alleges that the proposed transaction between Halliburton and Baker Hughes would violate Section 7 of the ~~investigation.~~

Clayton Act. Subsequent to the filing of the Complaint, on April 30, 2016, the Merger Agreement with Halliburton was terminated as described in Note 2. "Halliburton Merger Agreement."

OTHER

In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, such as surety bonds for performance, letters of credit and other bank issued guarantees, which totaled approximately ~~$1.2~~$1.2 billion at ~~September 30, 2015.~~March 31, 2016. It is not practicable to estimate the fair value of these financial instruments. None of the off-balance sheet arrangements either has, or is likely to have, a material effect on our financial position, results of operations or cash flows.

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements

NOTE ~~13.~~12. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in accumulated other comprehensive loss, net of tax:

Pensions and Other Postretirement Benefits Foreign Currency Translation Adjustments Accumulated Other Comprehensive Loss
Balance at December 31, 2014 $ (246 ) $ (503 ) $ (749 )
Other comprehensive income (loss) before reclassifications 9
(182 ) (173 )
Amounts reclassified from accumulated other comprehensive loss (6 ) —
(6 )
Deferred taxes 3
—
3

Balance at September 30, 2015 $ (240 ) $ (685 ) $ (925 )



	Pensions and Other Postretirement Benefits				Foreign Currency Translation Adjustments				Accumulated Other Comprehensive Loss
Balance at December 31, 2015		$	(261	)		$	(744	)		$	(1,005	)
Other comprehensive income before reclassifications		1				65				66
Amounts reclassified from accumulated other comprehensive loss		2				—				2
Deferred taxes		(1		)		—				(1		)
Balance at March 31, 2016		$	(259	)		$	(679	)		$	(938	)

Pensions and Other Postretirement Benefits Foreign Currency Translation Adjustments Accumulated Other Comprehensive Loss
Balance at December 31, 2013 $ (217 ) $ (287 ) $ (504 )
Other comprehensive (loss) income before reclassifications (5 ) (108 ) (113 )
Amounts reclassified from accumulated other comprehensive loss 3
—
3

Deferred taxes (2 ) —
(2 )
Balance at September 30, 2014 $ (221 ) $ (395 ) $ (616 )



	Pensions and Other Postretirement Benefits				Foreign Currency Translation Adjustments				Accumulated Other Comprehensive Loss
Balance at December 31, 2014		$	(246	)		$	(503	)		$	(749	)
Other comprehensive income (loss) before reclassifications		13				(171		)		(158		)
Amounts reclassified from accumulated other comprehensive loss		(10		)		—				(10		)
Deferred taxes		4				—				4
Balance at March 31, 2015		$	(239	)		$	(674	)		$	(913	)

The amounts reclassified from accumulated other comprehensive loss during the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~ represent the amortization of prior service credit, net actuarial loss, curtailment gain and certain other items which are included in the computation of net periodic cost (benefit). See Note ~~11. Employee~~10. "Employee Benefit ~~Plans~~Plans" for additional details. Net periodic cost (benefit) is recorded in cost of sales and services, research and engineering, and marketing, general and administrative expenses.

17NOTE 13. SUBSEQUENT EVENT

As discussed in Note 2. "Halliburton Merger Agreement," Baker Hughes and Halliburton agreed to terminate the Merger Agreement on April 30, 2016. The accompanying financial statements were prepared assuming that the Merger would proceed to completion. We have not completed an evaluation of the impact, if any, that the termination of the Merger Agreement may have on our consolidated financial statements. Any effects of the termination of the Merger Agreement on our consolidated financial statements would be reflected prospectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“("MD~~&A”~~&A") should be read in conjunction with the unaudited consolidated condensed financial statements and the related notes included in Item 1 thereto, as well as our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2014 (“2014~~2015 ("2015 Annual ~~Report”~~Report").

EXECUTIVE SUMMARY

Baker Hughes is a leading supplier of oilfield services, products, technology and systems toused in the worldwide oil and natural gas industry, referred to as our oilfield operations. We manage our oilfield operations through four geographic segments consisting of North America, Latin America, Europe/Africa/Russia Caspian ~~(“EARC”~~("EARC"), and Middle East/Asia Pacific ~~(“MEAP”~~("MEAP"). Our Industrial Services businesses are reported in a fifth segment. As of ~~September 30, 2015,~~March 31, 2016, Baker Hughes had approximately ~~46,000~~39,000 employees compared to approximately ~~62,000~~43,000 employees as of December 31, ~~2014.~~2015.

Within our oilfield operations, the primary driver of our businesses is our customers’ capital and operating expenditures dedicated to oil and natural gas exploration, field development and production. The main products and services provided by oilfield operations fall into one of two categories, Drilling and Evaluation or Completion and Production. This classification is based on the two major phases of constructing an oil and/or natural gas well, the drilling phase and the completion phase, and how our products and services are utilized in each phase. We also provide products and services to the downstream chemicals, ~~industry,~~ and process and pipeline services, referred to as Industrial Services.

~~Beginning~~In the first quarter of 2016, the negative sentiment in the ~~second half~~industry once again worsened as oil prices deteriorated to twelve year lows caused by lingering concerns about the Chinese economy, the absence of ~~2014~~a ceiling in global production, and ~~throughout 2015,~~an updated global energy demand outlook that does not appear to be robust enough to eliminate the ~~oil and natural~~oversupply. Natural gas ~~market~~prices experienced a ~~significant over supply of capacity, leading to a substantial and rapid~~similar decline in ~~oil~~the quarter, reaching levels that hadn't been seen since 1995. As our customers reduce spending to cope with this challenging low-commodity price environment, we were faced once again with a steep activity decline and natural gas prices that resulted in significantly lower activity in 2015. The decline in activity has occurred throughout the world but most notably in North America where the rig count has declined 43% in the first nine months of 2015 compared to the same period in 2014.further price deterioration. As a result of these changes in market conditions and the significant decrease in activity and customer spending, we ~~have~~ experienced a significant decline in demand and increased pricing pressuring for our products and ~~services.~~

services throughout the first quarter of 2016.

Financial Results

For the ~~third~~first quarter of ~~2015,~~2016, we generated revenue of ~~$3.79~~$2.67 billion,, a decrease of ~~$2.46~~$1.92 billion,, or ~~39%~~42%, compared to the ~~third~~first quarter of ~~2014,~~2015, consistent with the ~~40%~~41% drop in the worldwide rig count. In the first nine months of 2015, revenue totaled $12.35 billion, a decline of $5.57 billion, or 31%, compared to the same period a year ago, in line with the 31% drop in the worldwide rig count over the same time frame. All geographic segments experienced revenue declines in the ~~third~~first quarter ~~and the first nine months~~ of ~~2015~~2016 due primarily to the downturn in the oil and natural gas market. North America, driven by the drop in the onshore rig count, was the largest contributor to the year-over-year revenue decline. These conditions resulted in reduced activity, an oversupply of equipment and an unfavorable pricing environment. Additionally, the decision to continue limiting our exposure to the unprofitable onshore pressure pumping business in North America has resulted in share losses in this segment. Revenue was also negatively impacted by an unfavorable change in exchange rates of several currencies relative to the U.S. Dollar, predominately in the EARC segment. ~~North America, driven by the drop in the North America onshore rig count, was the largest contributor to the year over year revenue decline.~~

Net loss attributable to Baker Hughes was ~~$159 million and $936~~$981 million for the ~~third~~first quarter ~~and first nine months~~ of ~~2015, respectively,~~2016, compared to ~~net income attributable to Baker Hughes of $375~~$589 million ~~and $1.06 billion~~ for the ~~third~~first quarter ~~and first nine months~~ of ~~2014, respectively.~~2015. Loss before tax was ~~$156~~$614 million ~~and $1.18 billion~~ for the ~~third~~first quarter ~~and first nine months~~ of ~~2015, respectively,~~2016, compared to ~~income before tax of $602~~$828 million ~~and $1.67 billion~~ for the ~~third~~first quarter ~~and first nine months~~ of ~~2014, respectively.~~2015.

~~Even though the severity of the revenue decline has compressed our margins,~~Throughout this downturn, we have ~~lessened the impact by taking~~taken actions to reduce costs and adjust our operational cost structure, within the limitations of the Merger Agreement, to reflect current and expected near-term activity ~~levels. These~~levels, and continued those actions through the first quarter of 2016. During 2015, these restructuring activities included workforce reductions, contract terminations, facility closures and the removal of excess machinery and equipment which resulted in asset impairments. AsIn the first quarter of 2016, we recorded charges totaling $42 million, primarily

related to workforce reductions' impairment charges of $118 million to adjust the carrying amount of certain assets and a ~~result of these restructuring activities, in~~$51 million loss on a firm purchase commitment. In the first quarter of 2015, we recorded ~~charges totaling $573 million. In the second and~~

~~third quarters of 2015, we recorded additional~~ restructuring charges of ~~$76 million~~$573 million. These restructuring and ~~$98 million, respectively, related primarily to workforce reductions. These~~impairment charges have been excluded from the results of our operating segments. Additionally, in the first quarter of 2015, we incurred costs of $171 million ~~and $23 million in the first and second quarters of 2015, respectively,~~ to write-down the carrying value of certain inventory. ~~These amounts~~The prior year also includes $57 million more of reserves for doubtful account than the current quarter. The inventory write-down and increase in reserves for doubtful accounts in the prior year are included in the results of our operating segments.

Halliburton Merger Agreement

On November 16, 2014, Baker Hughes and Halliburton Company ~~(“Halliburton”~~("Halliburton") entered into a definitive agreement and plan of merger (the "Merger Agreement") under which Halliburton ~~will~~would acquire all ~~of the~~ outstanding shares of Baker Hughes in a stock and cash transaction ~~referred to as~~(the "Merger"). In accordance with the ~~"Merger". Under the terms~~provisions of ~~the agreement and subject to certain specified exceptions, at the effective time~~Section 9.1 of the merger, each share of common stock of Baker Hughes will be converted into the right to receive 1.12 Halliburton shares plus $19.00 in cash. On March 27, 2015, Halliburton's stockholders approved the proposal to issue shares of Halliburton common stock as contemplated by the Merger Agreement. In addition, Baker Hughes’ stockholders adopted the Merger Agreement, Baker Hughes and ~~thereby approved~~Halliburton agreed to terminate the ~~proposed combination~~Merger Agreement on April 30, 2016, as a result of the ~~two companies. The transaction is still subject~~failure of the Merger to ~~regulatory approvals and customary closing conditions.~~occur on or before April 30, 2016 due to the inability to achieve certain specified antitrust related approvals. Halliburton ~~and~~has agreed to pay $3.5 billion to Baker Hughes, ~~have agreed~~on or before May 4, 2016, representing the antitrust termination fee required to ~~extend the time period for closing of the transaction~~be paid pursuant to the Merger ~~Agreement~~Agreement. The antitrust termination fee is required to ~~no later than December 16, 2015. The Merger Agreement also provides~~be paid on or before May 4, 2016. We have not completed an evaluation of the impact, if any, that the ~~closing can be extended into 2016, if necessary. Baker Hughes cannot predict with certainty when, or if, the Merger will be completed because completion~~termination of the Merger ~~is subject to conditions beyond~~Agreement may have on our consolidated financial statements. Any effects of the ~~control~~termination of ~~Baker Hughes. For further information about~~ the Merger ~~see Note 2. “Halliburton Merger Agreement”~~Agreement on our consolidated financial statements would be reflected prospectively.

Outlook

Although our visibility remains limited, we are expecting rig activity worldwide to continue to decline throughout the year and pricing pressures to continue across the globe. Even though oil prices have rebounded in the last month of the ~~Notes~~quarter more than 40% off their lows, there has been no material change in the exploration and production companies’ behavior to ~~Unaudited Consolidated Condensed Financial Statements in Item 1 herein.~~

~~Outlook~~

Our industry is cyclical, and past cycles have been driven primarily by alternating periods of ample supply or shortages of oil and natural gas relative to demand. As an oilfield services company, our revenue is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is dependent onsuggest a number of factors, including our customers’ forecasts of future energy demand, their expectations for future energy prices, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs and the impact of new government regulations.

Since 2014, the oil market has experienced an excess of supply as a result of sustained high output from tight oil plays in North America, a slowdown in demand from key consumer regions such as Europe and East Asia and the Organization of the Petroleum Exporting Countries (“OPEC”) position since late November to not cut production. This market imbalance resulted in a rapid decline in oil prices, with both Brent and West Texas Intermediate prices dropping to near six-year lows in mid-March of 2015 and 60% below 2014 peak highs, which ultimately led to a significant decreasenear-term improvement in activity ~~and customer spending. Throughout 2015, both Brent and West Texas Intermediate prices have experienced significant volatility, driven by reports of estimated supply and demand.~~

levels. In ~~North America, in response to lower oil prices, activity levels began to decline in late December 2014 and as of September 30, 2015,~~ the U.S. rig count had fallen approximately 1,000 rigs, or 54%, compared to the 2014 year-end rig count; and the Canadian rig count had fallen by more than 80 rigs, or 31%, over the same period. Near the end of the thirdsecond quarter of ~~2015, we began to see another downward trend in~~2016, the North America rig count ~~as further oil price declines, combined with~~is forecasted to fall 30% compared to the ~~upcoming lending redetermination season, have driven our customers to make additional spending reductions.~~

~~As we enter~~average in the ~~fourth~~first quarter of ~~2015, our visibility remains limited. We do expect activity reductions and pricing pressures across~~2016. For the ~~globe for the remainder~~second half of the year, ~~as our customers continue~~we project the U.S. rig count to ~~adapt their spending~~begin to ~~the weaker oil price environment and prepare for lower activity into 2016. In North America,~~stabilize, although we do not expect activity to meaningfully increase in 2016. Conversely, the international rig count is predicted to decline ~~likely accelerating towards~~steadily through the end of the year as ~~operators ramp down for~~we see limited new projects in the pipeline. In this environment, helping our customers maximize production and lower overall costs is more critical than ever before. Our products and services put us in an ~~extended holiday period. Internationally, seasonal year-end product sales are not expected~~excellent position to ~~offset the anticipated decline in activity.~~help them achieve these objectives while continuing to leverage opportunities to convert our capabilities into earnings. While targeting these opportunities, we remain focused on generating positive cash flow through this historical downturn by proactively managing our cost structure, optimizing our working capital, and maximizing return on invested capital.

BUSINESS ENVIRONMENT

We operate in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. Our revenue is predominately generated from the sale of products and services to major, national, and independent oil and natural gas companies worldwide, and is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is dependent on a number of factors, including our customers’ forecasts of future energy demand and supply, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new government regulations and most importantly, their expectations for oil and natural gas prices as a key driver of their cash flows.

Oil and Natural Gas Prices

Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2015		2014		2015		2014		2016		2015
Brent oil price ($/Bbl) ⁽¹⁾	$	50.17	$	102.16	$	55.36	$	106.58	$	34.53	$	53.90
WTI oil price ($/Bbl) ⁽²⁾	46.48		97.70		50.94		99.81		33.41		48.49
Natural gas price ($/mmBtu) ⁽³⁾	2.75		3.94		2.78		4.55		1.96		2.87


⁽¹⁾	Bloomberg Dated Brent ~~(“Brent”~~("Brent") Oil Spot Price per Barrel


⁽²⁾	Bloomberg West Texas Intermediate ~~(“WTI”~~("WTI") Cushing Crude Oil Spot Price per Barrel


⁽³⁾	Bloomberg Henry Hub Natural Gas Spot Price per million British Thermal Unit

In North America, customer spending is highly driven by WTI oil prices, which fluctuated widely during the ~~third~~first quarter of ~~2015. At the beginning of~~2016. During the quarter, WTI oil prices ~~continued their downward trend started~~deteriorated to twelve year lows reaching $26.21/Bbl in ~~June 2015, which resulted from reports~~mid-February 2016 as a result of ~~surplus supplies in the U.S. and~~lingering concerns about ~~weaker~~the fragile Chinese economy, the absence of restraint in global production, and an updated global energy demand ~~from China. The decline of WTI~~outlook that did not appear to be strong enough to eliminate the surplus. Although oil prices ~~accelerated in the third quarter of 2015, falling 33%~~have rebounded more than 45% from ~~a high of $56.96/~~their previous lows, to $38.34/Bbl at the ~~beginning~~end of ~~July~~the quarter, driven by the potential for a possible output freeze by The Organization of the Petroleum Exporting Countries ("OPEC") and non-OPEC countries, there has yet to be any material change in customer behavior to suggest a ~~low of $38.09/Bbl~~near-term improvement in ~~late August, before rebounding slightly~~activity levels. We continue to ~~$45.09/Bbl~~see significant skepticism that a deal to ~~finish~~freeze crude production can help clear the ~~quarter. This rise~~global oversupply, especially as oil producers failed to reach an agreement in ~~price in September of 2015 was in response to lower estimates of U.S. oil production and increased estimates of global demand, particularly from China.~~recent meetings.

Outside North America, customer spending is most heavily influenced by Brent oil prices, which, similar to WTI oil prices, fluctuated throughout the quarter, ~~decreasing from a high of $60.88/Bbl at the start of the quarter to~~reaching a low of ~~$40.74/~~$26.39/Bbl in ~~late August 2015,~~mid-January 2016, and bouncing back ~~slightly~~ to ~~$47.13/~~$37.86/Bbl at the end of the quarter. ~~Weaker~~Brent oil ~~prices~~price fluctuations were driven by the same factors as WTI.

Overall, ~~Brent~~WTI and ~~WTI~~Brent oil prices in the ~~third~~first quarter of ~~2015~~2016 averaged ~~52%~~ lower than the prior year by 31% and 36%, respectively, stemming from heightened concerns of a long term global oversupply imbalance as U.S. production has proven to be more resilient than expected to the impact of reduced drilling activity.

In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged ~~$2.75/~~$1.96/mmBtu in the ~~third~~first quarter of ~~2015.~~2016. Compared to the prior year, natural gas prices have decreased ~~30%~~32%. ~~Despite an increase in the~~During March 2016, natural gas prices declined to $1.49/mmBtu, reaching prices that have not been seen since 1995 as reduced heating demand ~~forecast for 2015, driven primarily by increase~~resulted in ~~natural gas use in the power sector, overall supply growth and abundant inventories have led to lower prices in 2015 compared to 2014.~~stockpiles reaching record levels. According to the U.S. Department of Energy ~~(“DOE”~~("DOE"), working natural gas in storage at the end of the ~~third~~first quarter of ~~2015~~2016 was ~~3,538~~2,468 Bcf, which is 4%52% higher than the previous five-year ~~(2010-2014)~~(2011-2015) average, and ~~10%~~69%, or ~~333~~1,007 Bcf, above the corresponding week in ~~2014.~~2015.

Baker Hughes Rig Count

The Baker Hughes rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Rig count trends are governed by the exploration and development spending by oil and natural gas companies, which in turn is influenced by current and future price expectations for oil and natural gas. Therefore, the counts may reflect the relative strength and stability of energy prices and overall market activity. However, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity.

Baker Hughes has been providing rig counts to the public since 1944. We gather all relevant data through our field service personnel, who obtain the necessary data from routine visits to the various rigs, customers, contractors and/or other outside sources. We base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction. This data is then compiled and distributed to various wire services and trade associations and is published on our website. We believe the counting process and resulting data is reliable; however, it is subject to our ability to obtain accurate and timely information. Rig counts are compiled weekly for the U.S. and Canada and monthly for all international rigs. Published international rig counts do not

include rigs drilling in certain locations, such as Russia, the Caspian region, Iran and onshore China because this information is not readily available.

Rigs in the U.S. and Canada are counted as active if, on the day the count is taken, the well being drilled has been started but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits. In international areas, rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week. The weekly results are then averaged for the month and published accordingly. The rig count does not include rigs that are in transit from one location to another, rigging up, being used in non-drilling activities including production testing, completion and workover, and are not expected to be significant consumers of drill bits.

The rig counts are summarized in the table below as averages for each of the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2015	2014	% Change		2015	2014	% Change		2016	2015	% Change
U.S. - land and inland waters	833	1,842	(55	%)	1,021	1,787	(43	%)	535	1,353	(60	%)
U.S. - offshore	32	61	(48	%)	38	58	(34	%)	26	49	(47	%)
Canada	190	386	(51	%)	200	370	(46	%)	165	313	(47	%)
North America	1,055	2,289	(54	%)	1,259	2,215	(43	%)	726	1,715	(58	%)
Latin America	318	406	(22	%)	331	403	(18	%)	233	352	(34	%)
North Sea	37	35	6	%	39	39	—	%	30	43	(30	%)
Continental Europe	72	113	(36	%)	80	105	(24	%)	74	89	(17	%)
Africa	95	126	(25	%)	111	134	(17	%)	91	130	(30	%)
Middle East	393	411	(4	%)	403	409	(1	%)	403	412	(2	%)
Asia Pacific	217	256	(15	%)	224	254	(12	%)	186	235	(21	%)
Outside North America	1,132	1,347	(16	%)	1,188	1,344	(12	%)	1,017	1,261	(19	%)
Worldwide	2,187	3,636	(40	%)	2,447	3,559	(31	%)	1,743	2,976	(41	%)

The rig count in North America decreased ~~54%~~58% in the ~~third~~first quarter of ~~2015~~2016 compared to the same period a year ago, as a consequence of reduced spending from our customers as they adapt to a lower oil price environment. The reduction in North America rig activity compared to the prior year is mainly attributable to oil-directed drilling, which experienced a ~~59%~~58% decline in rig counts as the steep drop in oil prices over the last year resulted in a reduction in exploration and production ~~spending.~~spending across the region, especially in the U.S. onshore. The natural gas-directed rig count experienced a ~~37%~~56% decrease compared to the same period a year ago as a result of lower natural gas prices. In the U.S., natural gas prices remain below levels that are considered to be economic for new investments in many natural gas fields. In Canada,

the reduction in the natural gas-directed rig count was primarily related to lower drilling activity levels in condensate rich zones in Alberta to service oil sands.

Outside North America, the rig count in the ~~third~~first quarter of ~~2015~~2016 decreased ~~16%~~19% compared to the same period a year ago. In Latin America, the rig count declined ~~22%~~34% as a consequence of ~~reduced drilling activity~~customer spending reductions throughout the entire region, but most notably in Argentina, Mexico, Colombia, Ecuador and ~~Ecuador.~~Brazil. In Europe, the rig count in the North Sea ~~increased 6%~~decreased 30%, primarily due to ~~an increase~~a reduction in offshore drilling activity in ~~Norway, while~~the UK, and in Continental Europe the rig count declined by ~~36%~~17% driven by lower onshore drilling activity primarily in Romania, Turkey, ~~Albania, Romania~~ and France. In Africa, the rig count decreased ~~25%~~30% primarily due to reduced ~~onshore~~ drilling activity across the region, mainly in ~~Libya,~~Nigeria, Angola, Chad, and ~~Nigeria, and lower offshore drilling activity in Angola; partially offset by an increase in onshore drilling in Algeria.~~Libya. The rig count decreased 4%2% in the Middle East due to lower drilling activity in ~~Iraq~~Egypt onshore, Kuwait and ~~Egypt,~~Iraq, partially offset by ~~higher rig~~increased drilling activity in ~~Saudi Arabia,~~ Abu Dhabi, Oman and ~~Pakistan.~~Saudi Arabia. In Asia Pacific, the rig count declined ~~15%~~21% as a result of reduced drilling activity in Indonesia, India, ~~Indonesia,~~offshore China, Australia, and New Zealand.

RESULTS OF OPERATIONS

The discussions below relating to significant line items from our unaudited consolidated condensed statements of income (loss) are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items. In addition, the discussions below for revenue and cost of revenue are on a total basis as the business drivers for product sales and services are similar. All dollar amounts in tabulations in this section are in millions of dollars, unless otherwise stated.

Revenue and Profit (Loss) Before Tax

Revenue and profit (loss) before tax for each of our five operating segments is provided below. The performance of our operating segments is evaluated based on profit (loss) before tax, which is defined as income (loss) before income taxes and before the following: net interest expense, corporate expenses, impairment and restructuring charges and certain gains and losses not allocated to the operating segments. Beginning in 2016, we excluded merger and related costs from our operating segments. These costs are now presented as a separate line item in the consolidated condensed statement of income (loss). Prior year merger and related costs have been reclassified to conform to the current year presentation.


	Three Months Ended September 30,				$ Change			% Change			Nine Months Ended September 30,						$ Change			% Change		Three Months Ended March 31,				$ Change			% Change
	2015		2014					% Change		2015			2014			2016				% Change			2015			$ Change			% Change
Revenue:					$ Change												$ Change
North America	$	1,368	$	3,155	$	(1,787	)	(57	%)		$	4,872		$	8,774		$	(3,902	)	(44	%)	$	819	$	2,006	$	(1,187	)	(59	%)
Latin America	439		571		(132		)	(23	%)		1,371			1,645			(274		)	(17	%)	277		493		(216		)	(44	%)
Europe/Africa/Russia Caspian	791		1,114		(323		)	(29	%)		2,555			3,269			(714		)	(22	%)	611		895		(284		)	(32	%)
Middle East/Asia Pacific	849		1,077		(228		)	(21	%)		2,621			3,241			(620		)	(19	%)	718		916		(198		)	(22	%)
Industrial Services	339		333		6			2	%		929			987			(58		)	(6	%)	245		284		(39		)	(14	%)
Total	$	3,786	$	6,250	$	(2,464	)	(39	%)		$	12,348		$	17,916		$	(5,568	)	(31	%)	$	2,670	$	4,594	$	(1,924	)	(42	%)


	Three Months Ended September 30,						$ Change			% Change			Nine Months Ended September 30,								$ Change			% Change		Three Months Ended March 31,						$ Change			% Change
	2015			2014						% Change		2015				2014				2016				% Change			2015					$ Change			% Change
Profit (Loss) Before Taxes:							$ Change														$ Change
North America	$	(169	)	$	380		$	(549	)	(144	%)		$	(545	)		$	978			$	(1,523	)	(156	%)	$	(225	)	$	(209	)	$	(16	)	(8	%)
Latin America	48			71			(23		)	(32	%)		122				172				(50		)	(29	%)	(66		)	33			(99		)	(300	%)
Europe/Africa/Russia Caspian	90			91			(1		)	(1	%)		117				421				(304		)	(72	%)	(19		)	(20		)	1			5	%
Middle East/Asia Pacific	69			155			(86		)	(55	%)		182				448				(266		)	(59	%)	49			62			(13		)	(21	%)
Industrial Services	40			35			5			14	%		79				96				(17		)	(18	%)	(4		)	10			(14		)	(140	%)
Total Operations	78			732			(654		)	(89	%)		(45		)		2,115				(2,160		)	(102	%)	(265		)	(124		)	(141		)	(114	%)
Corporate and other	(81		)	(71		)	(10		)	14	%		(240		)		(209		)		(31		)	15	%
Corporate																										(32		)	(49		)	17			(35	%)
Interest expense, net	(55		)	(59		)	4			(7	%)		(162		)		(175		)		13			(7	%)	(55		)	(54		)	(1		)	2	%
Restructuring charges	(98		)	—			(98		)	N/M			(747		)		—				(747		)	N/M
Litigation settlements	—			—			—			—	%		13				(62		)		75			N/M
Impairment and restructuring charges																										(160		)	(573		)	413			(72	%)
Merger and related costs																										(102		)	(28		)	(74		)	264	%
Total	$	(156	)	$	602		$	(758	)	(126	%)		$	(1,181	)		$	1,669			$	(2,850	)	(171	%)	$	(614	)	$	(828	)	$	214		26	%

~~“N/M” represents not meaningful.~~

~~Third~~First Quarter of ~~2015~~2016 Compared to the ~~Third~~First Quarter of ~~2014~~

2015

North America

North America revenue decreased ~~$1.79~~$1.19 billion, or ~~57%~~59%, in the ~~third~~first quarter of 2016 compared to the first quarter of 2015 ~~compared to~~primarily as a result of the ~~third quarter of 2014 consistent with the 54% decline~~steep drop in activity, as reflected in the 58% year-over-year rig ~~count. The drop~~count decline, and deteriorating pricing conditions as operators further adjust their spending levels in revenue is primarily attributable to the reduction in customer spending, which has resulted in a steep decline in activity, primarily in onshore and shallow water markets, and an unfavorable pricing environment.2016. All product lines have been unfavorably impacted by the activity drop, ~~in activity,~~ with production chemicals, ~~and~~ deepwater operations, and artificial lift showing the most resilience. ~~In the Gulf of Mexico, deepwater activity delays from seasonal ocean currents did not impact our~~Revenue has also been impacted by onshore pressure pumping share losses, as we strive to maintain cash flow positive operations ~~to the same extent as the prior year.~~

in a market where pricing remains unsustainable.

North America loss before tax was ~~$169~~$225 million in the ~~third~~first quarter of ~~2015~~2016 compared to ~~profit before tax of $380~~$209 million in the ~~third~~first quarter of ~~2014. Margins~~2015. Operating results were negatively impacted by the sharp reduction in activity and an increasingly unfavorable pricing environment. Actions taken ~~in the first three quarters of 2015~~ to reduce our workforce, close and consolidate facilities and improve commercial terms with vendors, resulted in lower operating costs. ~~Despite these~~These actions to restructure our North American operations to operate in a lower activity environment, combined with the ~~speed~~reduction of depreciation and amortization from the impairments recorded in the prior-year, helped mitigate the impact of the ~~revenue~~precipitous decline ~~outpaced~~in revenue. Our operating results include a $51 million loss related to a firm purchase commitment recognized in the ~~benefits~~first quarter of ~~cost saving initiatives.~~

2016 compared to $159 million of costs related to adjusting the carrying value of certain inventory recorded in the first quarter of 2015.

Latin America

Latin America revenue decreased~~$132~~ $216 million,, or ~~23%~~44%, in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of ~~2014. Revenue~~2015 primarily driven by activity declines, as evident in the 46% rig count drop, exclusive of Venezuela, where we have limited presence. Activity has declined ~~largely as a result of activity reductions~~swiftly across the ~~region, predominately in~~entire segment, with the Andean area ~~where~~experiencing the ~~rig count has declined 46%. Revenue was also negatively impacted by the unfavorable change in foreign exchange rates, primarily in Brazil.~~

largest decline.

Latin America loss before tax was $66 million in the first quarter of 2016 compared to profit before tax ~~was $48~~of $33 million in the ~~third~~first quarter of ~~2015, a decrease of $23 million compared to the third quarter of 2014.~~2015. The reduction in profitability ~~as a result~~from lower revenue was exacerbated by an unfavorable product mix from reduced offshore and artificial lift activity. The first quarter of ~~lower activity~~2016 included an additional $33 million in provisions for doubtful accounts, primarily in Ecuador, which has reduced the benefit of implemented cost reduction measures. Also included in the first quarter of 2016 was ~~partially offset by improvements made~~an expense of $15 million related to ~~our operational cost structure.~~

local non-income taxes. In the first quarter of 2015, we incurred costs of $12 million to write-down the carrying value of certain inventory.

Europe/Africa/Russia Caspian

EARC revenue decreased ~~$323~~$284 million, or ~~29%~~32%, in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of ~~2014.~~2015. The decrease in revenue can be attributed ~~predominately~~ to activity reductions across all markets, primarily in West Africa, the UK, and Continental ~~Europe, as reflected in~~Europe; price deterioration throughout the ~~30% rig count decline for these areas;~~region; and the unfavorable change in exchange rates, mainly in the European and Russian currencies.

EARC loss before tax was $19 million in the first quarter of ~~several~~

~~currencies across~~2016 compared to $20 million in the ~~region relative to the U.S. Dollar, which resulted~~first quarter of 2015. The decline in ~~a reduction in revenue of approximately $110 million;~~operating profit from lower activity levels and unfavorable pricing ~~across the region. The deconsolidation of a joint venture in North Africa late last year also contributed to the decline.~~

~~EARC profit before tax~~ was $90 million in the third quarter of 2015 compared to $91 million in the third quarter of 2014. Profitability was impacted by lower activity levels, pricing deterioration and approximately $43 million associated with the unfavorable change in exchange rates, which were partiallyentirely offset by ~~the savings resulting~~improved profitability from ~~recent cost reduction measures. Also, the third quarter of 2014 included~~implemented cost-saving actions and a ~~$58~~$60 million ~~charge associated with the restructuring of our operations~~decline in ~~North Africa, and impairment of certain assets, that did not repeat~~provisions for doubtful accounts, primarily in ~~the third quarter of 2015.~~

Africa.

Middle East/Asia Pacific

MEAP revenue decreased ~~$228~~$198 million, or 22%, in the first quarter of 2016 compared to the first quarter of 2015. The decrease in revenue was predominantly a result of reduced activity in Southeast Asia, Australia and Iraq, and significant pricing pressure across the region.

MEAP profit before tax was $49 million, a decrease of $13 million, or 21%, in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of 2014. The decline in revenue was driven primarily by lower activity throughout Asia Pacific, as reflected in the 15% drop in the rig count, and in the Middle East mainly as a result of a reduction of our integrated operations in Iraq. Revenue was also impacted by unfavorable pricing in certain markets across the region. Share gains in the Middle East slightly offset the activity and pricing declines.

~~MEAP profit before tax was $69 million, a decrease of $86 million, or~~ ~~55%, in the third quarter of 2015 compared to the third quarter of 2014.~~2015. The reduction in profitability was attributed largely to lower activity levels and

unfavorable ~~pricing. The current quarter also includes charges related to our integrated operations in Iraq. These reductions were~~pricing, partially offset by the benefit of implemented cost-saving actions and $22 million of provisions for doubtful accounts in the ~~recent cost-saving actions.~~prior year that did not repeat in the current quarter.

Industrial ~~Services~~

Services

For Industrial Services, revenue ~~increased $6~~decreased $39 million and ~~profit before tax increased $5~~profitability decreased $14 million in the ~~third~~first quarter of 2016 compared to the first quarter of 2015 ~~compared~~due to ~~the third quarter of 2014. The increase in revenue was attributed to the acquisition of a pipeline services business late in the third quarter of 2014, partially offset by~~activity reductions as customers reduced ~~activity.~~spending and delayed projects. Revenue ~~was~~and profitability were also negatively impacted by pricing and the unfavorable ~~changes~~change in foreign exchange rates. The ~~improvement in profitability can be largely associated with increased revenue and savings from recent cost reduction measures.~~

~~Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014~~

~~Revenue for~~first quarter of 2016 also included higher environmental costs than the ~~nine months ended September 30, 2015 decreased~~ ~~$5.57 billion, or~~ ~~31%~~, compared to the nine months ended September 30, 2014. Revenue decreased in all geographic segments, with the steepest drop seen in North America where the average rig count declined 43% for the first nine months of 2015 compared to the same period a year ago. Reduced activity, unfavorable pricing and foreign exchange rates negatively impacted our revenue from foreign operations.prior year.

~~Loss before tax for the nine months ended September 30, 2015 was~~ ~~$1.18 billion, compared to profit before tax of~~ ~~$1.67 billion~~ for the same period a year ago, which included $747 million of restructuring charges. In North America, profitability was negatively impacted by the sharp reduction in activity and an increasingly unfavorable pricing environment. In addition, we recorded $194 million in charges to write down the carrying value of certain inventory. In Latin America, the decline in 2015 compared to 2014 has been tempered as improvements in our operational cost structure offset the impact of declines in revenue. Profits in our EARC and MEAP segments were negatively impacted by lower activity levels and pricing deterioration. In addition, in EARC the unfavorable change in exchange rates reduced profitability. Actions taken across all segments to reduce our workforce, close and consolidate facilities and improve commercial terms with vendors partially offset these unfavorable market conditions.

Costs and Expenses

The table below details certain unaudited consolidated condensed statement of income data and as a percentage of revenue.


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
	2015				2014				2015				2014				2016				2015
	$		%		$		%		$		%		$		%		$		%		$		%
Revenue	$	3,786	100	%	$	6,250	100	%	$	12,348	100	%	$	17,916	100	%	$	2,670	100	%	$	4,594	100	%
Cost of revenue	3,403		90	%	5,107		82	%	11,360		92	%	14,572		81	%	2,658		99.6	%	4,342		94.5	%
Research and engineering	115		3	%	159		3	%	377		3	%	461		3	%	102		3.8	%	138		3.0	%
Marketing, general and administrative	271		7	%	323		5	%	896		7	%	977		5	%	207		7.8	%	287		6.2	%
Impairment and restructuring charges																	160		6.0	%	573		12.5	%
Merger and related costs																	102		3.8	%	28		0.6	%

Cost of Revenue

Cost of revenue declined by $1.68 billion, or 39%, in the first quarter of 2016 compared to the prior year. However, as a percentage of revenue, cost of revenue increased to 99.6% from 94.5% over the same periods The decrease in cost of revenue is directly attributable to the 42% decline in revenue year over year. The increase in cost of revenue as a percentage of revenue is due mainly to deteriorating pricing conditions as operators reduce their spending and the oversupply of capacity continues to worsen. Additionally, in the first quarter of 2016, we recorded a loss on a firm purchase commitment of $51 million that was ~~90%~~ ~~and 92% for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2015, respectively, and 82% and 81% for the three and nine months ended September 30, 2014, respectively. Despite actions to restructure~~recorded in cost of service. However, our ~~global operations to operate in a lower price and activity environment,~~ongoing cost management efforts helped limit the decline in ~~revenue has outpaced~~margins on the benefit of cost saving measures. Additionally, the product lines most significantly impacted by the downturn in rig activity are also the most capital-intensive. Accordingly, the fixed costs associated with those product lines lessened the positive impact of our cost reduction efforts in 2015. Cost of revenue for the first nine months of 2015 was also negatively impacted by a charge of $194 million to adjust the carrying value of certain inventory due to the market decline, and $59 million of expenses related to the Merger, of which $28 million was recorded in the third quarter of 2015.

reduced activity.

Research and Engineering

Research and engineering expenses declined by ~~$44 million and $84~~$36 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively,~~March 31, 2016, compared to the prior year, ~~yet remained relatively flat~~primarily as a ~~percentage~~result of ~~revenue. The reduction in research and engineering expense was driven by~~ cost reduction ~~measures, partially offset by $11 million of expenses related to the Merger, of which $5 million was recorded in the third quarter of 2015.~~

measures.

Marketing, General and Administrative

Marketing, general and administrative (“("MG~~&A”~~&A") expenses declined by ~~$52 million and $81~~$80 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively,~~March 31, 2016, compared to the same ~~periods~~period a year ago. ~~Included~~The decline in MG&A expenses ~~for~~is primarily a result of workforce reductions and lower spending.

Impairment and Restructuring Charges

During the ~~three and nine months~~quarter ended ~~September 30, 2015, are costs~~March 31, 2016, we recorded restructuring charges of ~~$60~~$42 million ~~and $134 million, respectively,~~consisting primarily of workforce reduction costs. Total cash paid during 2016 related to these charges as well as contract terminations finalized in 2015 was $93 million. In addition to our restructuring activities, in response to the ~~Merger, which were more than offset by cost reduction measures.~~

~~Restructuring Charges~~downturn in the energy market and its impact on our business outlook, we determined that the carrying amount of certain of our assets exceeded their respective fair values; therefore, we recorded an impairment charge of $118 million.

During the ~~three months~~quarter ended ~~September 30,~~March 31, 2015, we recorded a restructuring ~~charge~~charges of ~~$98~~$573 million ~~bringing our year-to-date total restructuring charge to $747 million. The charge in the third quarter~~consisting of ~~2015 was primarily related to additional workforce reductions. The year-to-date restructuring charge consists of $416 million for~~ workforce reduction costs, ~~$83 million for~~ contract termination costs and ~~$248~~asset impairments. Workforce reduction costs were $247 million, ~~for asset~~net of a related benefit plan curtailment gain of $9 million, and contract termination costs were $86 million, including the write-off of $14 million of prepayments made in 2014. Asset impairments were $240 million related to ~~excess~~ machinery and equipment and facilities. ~~Total cash paid during the nine months ended September 30, 2015 related to these charges was $338 million.~~

For further discussion of these ~~restructuring~~ charges, see Note 3. ~~“Restructuring~~"Impairment and ~~Other Charges”~~Restructuring Charges" of the Notes to Unaudited Consolidated Condensed Financial Statements in Item 1 of Part 1 herein.

Merger and Related Costs

~~The reduction in~~We incurred costs ~~from eliminating depreciation~~related to the Merger of $102 million and ~~reduced employee expenses in~~$28 million for the three months ended March 31, 2016 and ~~nine months ended September~~2015, respectively, including costs under our retention programs and obligations for minimum incentive compensation costs which, based on meeting eligibility criteria, have been treated as merger and related expenses. On April 30, ~~2015 is approximately $222 million and $423 million, respectively, and is expected to be approximately $254 million for~~2016, the ~~fourth quarter~~Merger Agreement with Halliburton was terminated as described in Note 2. "Halliburton Merger Agreement" of ~~2015 and more than $1.31 billion on an annualized basis.~~

~~Litigation Settlements~~

During the second quarter of 2014, we recorded a charge of $62 million related to litigation settlements for wage and hour lawsuits. A portion of this settlement was to be paid on a claims made basis and during the second quarter of 2015, the date passed by which the class members could file a claim under this provision of the settlement agreement. The amount of claims made was less than estimated and accordingly, we reduced the accrual by approximately $13 million, which was recorded as an adjustment for litigation settlements during the second quarter of 2015. For further discussion, see Note 12. “Commitments and Contingencies - Litigation” in the Notes to Unaudited Consolidated Condensed Financial Statements in Item 1 of Part 1 herein.

We expect to incur merger and related costs through June 30, 2016.

Income Taxes

Due to the significant downturn in the U.S. market during the three months ended ~~September 30, 2015 is lower than~~March 31, 2016 and uncertainty as to whether the U.S. ~~statutory~~will generate sufficient future taxable income to utilize the U.S. deferred tax ~~rate~~assets, we concluded that valuation allowances were required. The valuation allowances are recorded against various deferred tax assets, including U.S. federal tax credit carryforwards ($164 million), foreign ($110 million) and state ($15 million) net operating losses ("NOL"), and certain U.S. deferred tax assets ($213 million).

Currently, we expect to be able to utilize all of ~~35% primarily due to $98 million of restructuring charges with only partial or no tax-benefit in certain jurisdictions,~~ the ~~geographical mix of profits~~2015 and 2016 U.S. losses ~~and higher withholding taxes, partially offset~~ by ~~adjustments~~carrying them back to prior ~~years’~~years. To the extent losses generated in the U.S. are not able to be carried back, a full valuation allowance would be required against these NOL deferred tax ~~positions. The total tax benefit associated with the restructuring and inventory write-downs for the three and nine months ended September 30, 2015 was $28 million and $263 million, respectively.~~assets.

LIQUIDITY AND CAPITAL RESOURCES

Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources and financial flexibility in order to fund the requirements of our business. At ~~September 30, 2015,~~March 31, 2016, we had cash and cash equivalents of ~~$2.04~~$2.19 billion,, of which approximately ~~$1.68~~$1.96 billion was held by foreign subsidiaries. This compares to ~~$1.74~~$2.32 billion of cash and cash equivalents held at December 31, ~~2014,~~2015, of which approximately ~~$1.31~~$2.01 billion was held by foreign affiliates. A substantial portion of the cash held by foreign subsidiaries at ~~September 30, 2015~~March 31, 2016 was reinvested in our international operations as our intent is to use this cash to, among other things, fund the operations of our foreign subsidiaries. If we decide at a later date to repatriate those funds to the U.S., we may be required to provide taxes on certain of those funds based on applicable U.S. tax rates net of foreign tax credits. We have a committed revolving credit facility (“("credit ~~facility”~~facility") with commercial banks and a related commercial paper program under which the maximum combined borrowing at any time under both the credit facility and the commercial paper program is $2.50 billion. At ~~September 30, 2015,~~March 31, 2016, we had no commercial paper outstanding; therefore, the amount available for borrowing under the credit facility as of ~~September 30, 2015~~March 31, 2016 was $2.50 billion. In the three months ended March 31, 2016, we used cash to fund a variety of activities including certain working capital needs and restructuring costs, capital expenditures, and the payment of dividends. We believe that cash on hand, cash flows generated from operations and the available credit facility, including the issuance of commercial paper, will provide sufficient liquidity to manage our global cash needs. In the nine months ended September 30, 2015, we used cash to fund a variety of activities including certain working capital needs and restructuring costs, capital expenditures, and the payment of dividends.

Cash Flows

Cash flows provided by (used in) each type of activity were as follows for the ~~nine~~three months ended ~~September 30:~~March 31:


(In millions)	2015			2014			2016			2015
Operating activities	$	1,265		$	1,754		$	(99	)	$	256
Investing activities	(713		)	(1,306		)	61			(237		)
Financing activities	(239		)	(634		)	(95		)	(146		)

Operating Activities

Cash flows from operating activities ~~provided~~used cash of ~~$1.27 billion~~$99 million in the ~~nine~~three months ended ~~September 30, 2015, driven~~March 31, 2016, due primarily ~~by changes in working capital (receivables, inventories, accounts payable), which declined due~~ to ~~lower activity in~~ the ~~nine months ended September 30, 2015, resulting~~decrease in net ~~operating cash flows of $1.17~~

~~billion.~~income after noncash charges. Included in our cash flows from operating activities are payments of ~~$338~~$93 million made for employee severance and contract termination costs as a result of our restructuring activities initiated in ~~2015.~~

2015 and continuing through the first quarter of 2016.

Investing Activities

Our principal recurring investing activity is the funding of capital expenditures to ensure that we have the appropriate levels and types of machinery and equipment in place to generate revenue from operations. Expenditures for capital assets totaled ~~$751~~$86 million in the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016.

Proceeds from the disposal of assets were ~~$269~~$82 million in the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, which related primarily to equipment that was lost-in-hole, and to a lesser extent, property, machinery and equipment no longer used in operations that was sold throughout the period.

We had proceeds from maturities of investment securities of $202 million and purchases of investment securities of $137 million in the three months ended March 31, 2016.

Financing Activities

We had net repayments of short-term debt and other borrowings of ~~$38~~$5 million in the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016. Total debt outstanding at ~~September 30, 2015~~March 31, 2016 was ~~$4.05~~$4.05 billion,~~, a~~ ~~decrease~~ an increase of ~~$81~~$6 million compared to December 31, ~~2014.~~2015. The total debt-to-capital (defined as total debt plus equity) ratio was ~~0.19~~0.21 at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015. We paid dividends of ~~$222~~$74 million in the ~~nine~~three months ended ~~September 30, 2015.~~

March 31, 2016.

Our Board of Directors has previously authorized a program to repurchase our common stock from time to time. In the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, we did not repurchase any shares of common stock. We had authorization remaining to repurchase approximately $1.05 billion in common stock at ~~September~~March 31, 2016. On April 30, ~~2015. During~~2016, our Board of Directors approved an increase to the ~~nine months ended September 30, 2014, we repurchased 9.1 million shares~~share repurchase program authorization from $1.05 billion to $2.0 billion and authorized the repurchase of ~~our common stock at an average price of $65.75 per share, for a total of $600 million.~~

debt up to $1.0 billion.

Under the ~~merger agreement~~Merger Agreement with Halliburton, which was terminated on April 30, 2016, as described in Note 2. "Halliburton Merger Agreement" of the Notes to Unaudited Consolidated Condensed Financial Statements in Item 1 of Part I herein, we ~~have~~ generally agreed not to repurchase any shares of our common stock while the ~~merger~~Merger was pending. As a result of the termination of the Merger Agreement, this restriction is ~~pending.~~

no longer in effect.

Available Credit Facility

We have a committed revolving credit facility with commercial banks and a related commercial paper program under which the maximum combined borrowing at any time under both the credit facility and the commercial paper program is $2.50 billion. The credit facility matures in September 2016 and contains certain covenants which, among other things, restrict certain merger transactions or the sale of all or substantially all of our assets or a significant subsidiary and limit the amount of subsidiary indebtedness. Upon the occurrence of certain events of default, our obligations under the credit facility may be accelerated. Such events of default include payment

defaults to lenders under the credit facility, covenant defaults and other customary defaults. We were in compliance with all of the credit facility’s covenants, and there were no direct borrowings under the credit facility during the quarter ended ~~September 30, 2015.~~March 31, 2016. Under the commercial paper program, we may issue from time to time up to $2.50 billion in commercial paper with maturity of no more than 270 days. The amount available to borrow under the credit facility is reduced by the amount of any commercial paper outstanding. At ~~September 30, 2015,~~March 31, 2016, we had no outstanding borrowings under the commercial paper program.

The Company intends to refinance its $2.5 billion credit facility, which expires in September 2016.

If market conditions were to change and our revenue was reduced significantly or operating costs were to increase, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit rating. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility. However, a downgrade in our credit ratings could increase the cost of borrowings under the facility and could also limit or preclude our ability to issue commercial paper. Should this occur, we would seek alternative sources of funding, including borrowing under the credit facility.

We believe our current credit ratings would allow us to obtain interim financing over and above our existing credit facility for any currently unforeseen significant needs.

Cash Requirements

In ~~2015,~~2016, we believe cash on hand, cash flows from operating activities and the available credit facility will provide us with sufficient capital resources and liquidity to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, and support the development of our short-term and long-term operating strategies. If necessary, we may issue commercial paper or other short-term debt to fund cash needs in the U.S. in excess of the cash generated in the U.S.

In ~~2015,~~2016, we expect our capital expenditures to be between ~~$900~~$450 million and ~~$1 billion,~~$550 million, excluding any amount related to acquisitions. The expenditures are expected to be used primarily for normal, recurring items necessary to support our business and operations. A significant portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels.

WeAs a result of our current intention to carryback the 2015 NOL, we anticipate making income tax payments, net of ~~between $450 million and $550~~refunds, of up to $50 million in ~~2015.~~

2016.

During the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, we contributed approximately ~~$220~~$56 million to our defined benefit, defined contribution and other postretirement plans. WeEffective April 2016, employer contributions to certain defined contribution plans were suspended indefinitely. Accordingly, we have revised our expected contributions and now expect to make additional contributions in the range of ~~$60~~$100 million to ~~$65~~$110 million ~~to these plans in~~for the ~~fourth quarter~~remainder of ~~2015.~~

2016.

We currently anticipate paying dividends in the range of ~~between $295~~$73 million ~~and $305~~to $78 million in ~~2015.~~the second quarter of 2016. Under the ~~merger agreement~~Merger Agreement with Halliburton, which was terminated on April 30, 2016, as described in Note 2. "Halliburton Merger Agreement" of the Notes to Unaudited Consolidated Condensed Financial Statements in Item 1 of Part I herein, we ~~have~~ agreed not to increase the quarterly dividend while the ~~merger~~Merger was pending. As a result of the termination of the Merger Agreement, this restriction is ~~pending.~~

no longer in effect.

FORWARD-LOOKING STATEMENTS

MD&A and certain statements in the Notes to Unaudited Consolidated Condensed Financial Statements, includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act (each a ~~“forward-looking statement”~~"forward-looking statement"). The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “estimate,” “probable,” “project,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “would,” “potential,” “may,” “likely”"anticipate," "believe," "ensure," "expect," "if," "intend," "estimate," "probable," "project," "forecasts," "predict," "outlook," "aim," "will," "could," "should," "would," "potential," "may," "likely" and similar expressions, and the negative thereof, are intended to identify forward-looking statements. Our forward-looking statements are based on assumptions that we believe to be reasonable but that may not prove to be accurate. The statements do not include the potential impact of future transactions, such as an acquisition, disposition, merger, joint venture or other transactions that could ~~occur, including the pending merger with Halliburton.~~occur. We undertake no obligation to

publicly update or revise any forward-looking statement. Our expectations regarding our business outlook, including changes in revenue, pricing, capital spending, profitability, tax rates, strategies for our operations, the impact of any common stock or debt repurchases or exchanges, renegotiation of our credit facility, oil and natural gas market conditions, the business plans of our customers, market share and contract terms, costs and availability of resources, legal, economic and regulatory conditions, and environmental matters are only our forecasts regarding these matters.

All of our forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in ~~“Part~~"Part II, Item 1A. Risk ~~Factors”~~Factors" section contained herein, as well as the risk factors described in our ~~2014~~2015 Annual Report, this filing and those set forth from time to time in our filings with the SEC. These documents are available through our website or through the SEC’s Electronic Data Gathering and Analysis Retrieval ~~(“EDGAR”~~("EDGAR") system at http://www.sec.gov.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information about market risks for the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, does not differ materially from that discussed under Part II, Item 7(a), ~~“Quantitative~~"Quantitative and Qualitative Disclosures About Market Risk,”" in our ~~2014~~2015 Annual Report on Form ~~10-K.~~10-K/A.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act of 1934, as amended (the ~~“Exchange Act”~~"Exchange Act"). This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that, as of ~~September 30, 2015,~~March 31, 2016, our disclosure controls and procedures, as defined by Rule 13a-15(e) of the Exchange Act, ~~are effective at~~were not effective.

During the quarter ended March 31, 2016, we identified a ~~reasonable assurance level. There has been no change~~material weakness in our controls related to the determination of valuation allowances for deferred tax assets. A material weakness is a deficiency, or a combination of deficiencies, in internal ~~controls~~control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Our identified weakness had no impact on any amounts reported in the financial statements for the quarter ended March 31, 2016 or for any previous period. We are currently designing a remediation plan to strengthen controls over this process which is expected to be implemented during the quarter ~~ended September~~ending June 30, ~~2015 that has materially affected, or is reasonably likely~~2016. This weakness will not be considered remediated until the enhanced controls have been tested and determined to ~~materially affect, our internal controls over financial reporting.~~

be designed and operating effectively.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

Except as discussed immediately above in the Evaluation of Disclosure Controls and Procedures, there has been no change in our internal controls over financial reporting during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See discussion of legal proceedings in Note 1211 of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report, Item 3 of Part I of our ~~2014~~2015 Annual Report and Note 13 of the Notes to Consolidated Financial Statements included in Item 8 of our ~~2014~~2015 Annual Report.

ITEM 1A. RISK FACTORS

As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously disclosed in our ~~“Risk Factors”~~"Risk Factors" in the ~~2014~~2015 Annual Report as well as the following risk ~~factor:~~factors related to the Merger with Halliburton that was terminated on April 30, 2016:

~~Our restructuring activities may not achieve the results we expect and~~The termination of our Merger with Halliburton could ~~change, which could materially and adversely~~negatively affect our ~~results of operations~~stock price and our future business and financial ~~condition.~~results.

~~In the first quarter of 2015, we announced and began to implement restructuring activities to reduce expenses, which included a reduction in our workforce,~~Following the termination of ~~various contracts,~~our Merger with Halliburton, there may be some ongoing adverse impact to our business, including the ~~closing or abandoning~~following:

having to pay certain costs relating to the Merger and its termination;

the trading price of ~~certain facilities, and~~Baker Hughes common stock may decline to the downsizing of our presence in select markets. In the second and third quarters of 2015, we had additional workforce reductions. There can be no assurance that our restructuring activities will produce the cost savings we anticipate in the expected timeframe orextent that the ~~cumulative restructuring charge will not have~~current trading price reflected a market assumption that the Merger would be completed; and

the Company could be subject to ~~increase~~litigation from shareholders related to the Merger Agreement or its termination.

Changes in ~~order~~economic and/or market conditions may impact any stock or debt repurchases.

To the extent the Company engages in stock or debt repurchases, such activity is subject to ~~achieve~~economic and market conditions, such as the trading prices for our ~~cost savings targets. Any delay~~stock and debt, as well as the terms of any stock purchase plans intended to comply with Rule 10b5-1 or ~~failure to achieve~~Rule 10b-18 of the ~~expected cost savings and~~Exchange Act. At our discretion, we may engage in or discontinue stock or debt repurchases at any ~~increase in our anticipated cumulative restructuring charge would likely cause our future earnings to be lower than anticipated.~~time.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table contains information about our purchases of equity securities during the three months ended ~~September 30, 2015.~~March 31, 2016.

Period
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of a Publicly Announced Program ⁽²⁾

Maximum Number
(or Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Program ⁽³⁾
July 1-31, 2015 20,761
$ 59.77
— $ 1,049,832,435
August 1-31, 2015 5,512
$ 50.06
— $ 1,049,832,435
September 1-30, 2015 —
$ —
— $ 1,049,832,435
Total 26,273
$ 57.74
—



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share⁽¹⁾		Total Number of Shares Purchased as Part of a Publicly Announced Program ⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under the Program ⁽²⁾⁽³⁾
January 1-31, 2016	384,461	$	40.14	—	$	1,049,832,435
February 1-29, 2016	16,737	$	44.25	—	$	1,049,832,435
March 1-31, 2016	353	$	44.05	—	$	1,049,832,435
Total	401,551	$	40.19	—


⁽¹⁾	Represents shares purchased from employees to satisfy the tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock units.


⁽²⁾	There were no repurchases during the ~~third~~first quarter of ~~2015~~2016 under our previously announced purchase program.

⁽³⁾


⁽³⁾	On April 30, 2016, our Board of Directors approved an increase to the share repurchase program authorization from $1.05 billion to $2.0 billion.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Our barite mining operations, in support of our drilling fluids products and services business, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the

Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report.

ITEM 5. OTHER INFORMATION

None.

~~None.~~

ITEM 6. EXHIBITS

Each exhibit identified below is filed as a part of this report. Exhibits designated with an ~~“*”~~"*" are filed as an exhibit to this Quarterly Report on Form 10-Q. ~~Exhibits designated with a “+” are identified as management contracts or compensatory plans or arrangements. Exhibits previously filed as indicated below are incorporated by reference.~~



31.1*		Certification of Martin S. Craighead, Chairman and Chief Executive Officer, furnished pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*		Certification of Kimberly A. Ross, Chief Financial Officer, furnished pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32*		Statement of Martin S. Craighead, Chairman and Chief Executive Officer, and Kimberly A. Ross, Chief Financial Officer, furnished pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.
95*		Mine Safety Disclosure.
99.1*		Notice of Extension dated July 10, 2015 of the Agreement and Plan of Merger among Halliburton Company, Red Tiger LLC and Baker Hughes Incorporated dated November 16, 2014, extending the termination date to December 1, 2015.
99.2*		Notice of Extension dated September 25, 2015 of the Agreement and Plan of Merger among Halliburton Company, Red Tiger LLC and Baker Hughes Incorporated dated November 16, 2014, extending the termination date to December 16, 2015.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Schema Document
101.CAL*		XBRL Calculation Linkbase Document
101.LAB*		XBRL Label Linkbase Document
101.PRE*		XBRL Presentation Linkbase Document
101.DEF*		XBRL Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		BAKER HUGHES INCORPORATED (Registrant)

Date:	~~October 21, 2015~~May 2, 2016	By:	/s/ KIMBERLY A. ROSS
		Kimberly A. Ross
		Senior Vice President and Chief Financial Officer

Date:	~~October 21, 2015~~May 2, 2016	By:	/s/ ALAN J. KEIFER
		Alan J. Keifer
		Vice President and Controller

3230



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program ⁽²⁾	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program ⁽³⁾
July 1-31, 2015	20,761	$	59.77	—	$	1,049,832,435
August 1-31, 2015	5,512	$	50.06	—	$	1,049,832,435
September 1-30, 2015	—	$	—	—	$	1,049,832,435
Total	26,273	$	57.74	—