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 JuneSeptember 30, 2011
OR
   
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) 76-0207995
(I.R.S. Employer Identification No.)
   
2929 Allen Parkway, Suite 2100, Houston, Texas
77019-2118
(Address of principal executive offices) 77019-2118
(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. YESþ NOo
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). YESþ NOo
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 filerþ
 Accelerated filero Non-accelerated filero Smaller reporting companyo
    (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). YESo NOþ
As of July 26,October 27, 2011, the registrant has outstanding 436,198,379436,465,887 shares of Common Stock, $1 par value per share.
 
 

 

 

INDEX
   
  Page No.
PART I — FINANCIAL INFORMATION
  
Item 1.    Financial Statements (Unaudited)
  
Consolidated Condensed Statements of Operations (Unaudited) — Three months and sixnine months ended JuneSeptember 30, 2011 and 2010
 2
Consolidated Condensed Balance Sheets (Unaudited) — JuneSeptember 30, 2011 and December 31, 2010
 3
Consolidated Condensed Statements of Cash Flows (Unaudited) — SixNine months ended JuneSeptember 30, 2011 and 2010
 4
Notes to Unaudited Consolidated Condensed Financial Statements
 5
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 14
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 2324
Item 4.    Controls and Procedures
 24
PART II — OTHER INFORMATION
  
Item 1.    Legal Proceedings
 2425
Item 1A. Risk Factors
 2425
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 25
Item 3.    Defaults Upon Senior Securities
 2526
Item 4.    [Removed and Reserved]
 2526
Item 5.    Other Information
 2526
Item 6.    Exhibits
 26
Signatures
 27
EX-3.1
 EX-31.1
 EX-31.2
 EX-32
 EX-99.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

1

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Baker Hughes Incorporated
Consolidated Condensed Statements of Operations
(In millions, except per share amounts)
(Unaudited)
                                
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended 
 June 30, June 30, September 30, September 30, 
 2011 2010 2011 2010  2011 2010 2011 2010 
Revenue:  
Sales $1,557 $1,357 $2,990 $2,610  $1,670 $1,391 $4,660 $4,001 
Services and rentals 3,184 2,017 6,276 3,303 
Services 3,508 2,687 9,784 5,990 
Total revenue 4,741 3,374 9,266 5,913  5,178 4,078 14,444 9,991 
  
Costs and expenses:  
Cost of sales 1,266 1,013 2,432 1,956  1,353 1,176 3,785 3,132 
Cost of services and rentals 2,452 1,649 4,783 2,618 
Cost of services 2,578 2,013 7,361 4,631 
Research and engineering 114 112 220 206  117 118 337 324 
Marketing, general and administrative 292 312 574 617  313 354 887 971 
Acquisition-related costs — 56 — 66  — 12 — 78 
Total costs and expenses 4,124 3,142 8,009 5,463  4,361 3,673 12,370 9,136 
  
Operating income 617 232 1,257 450  817 405 2,074 855 
Interest expense, net  (54)  (30)  (106)  (54)  (58)  (39)  (164)  (93)
Loss on early extinguishment of debt  (40) —  (40) — 
 
Income before income taxes 563 202 1,151 396  719 366 1,870 762 
Income taxes 228 109 432 174   (13)  (111)  (445)  (285)
Net income 335 93 719 222  706 255 1,425 477 
Net income (loss) attributable to noncontrolling interests  (3) — — —  — — — — 
Net income attributable to Baker Hughes $338 $93 $719 $222  $706 $255 $1,425 $477 
  
Basic income per share attributable to Baker Hughes $0.78 $0.23 $1.65 $0.63  $1.62 $0.59 $3.27 $1.25 
  
Diluted income per share attributable to Baker Hughes $0.77 $0.23 $1.64 $0.62  $1.61 $0.59 $3.25 $1.25 
  
Cash dividends per share $0.15 $0.15 $0.30 $0.30  $0.15 $0.15 $0.45 $0.45 
See accompanying notes to unaudited consolidated condensed financial statements.

2

Baker Hughes Incorporated

Consolidated Condensed Balance Sheets
(In millions)
(Unaudited)
                
 June 30, December 31,  September 30, December 31, 
 2011 2010  2011 2010 
ASSETS
  
 
Current Assets:  
Cash and cash equivalents $937 $1,456  $803 $1,456 
Short-term investments — 250  — 250 
Accounts receivable — less allowance for doubtful accounts (2011 - $225; 2010 — $162) 4,434 3,942 
Accounts receivable — less allowance for doubtful accounts (2011 - $223; 2010 - $162) 4,977 3,942 
Inventories, net 2,939 2,594  3,053 2,594 
Deferred income taxes 254 234  254 234 
Other current assets 248 231  254 231 
Total current assets 8,812 8,707  9,341 8,707 
  
Property, plant and equipment, net 6,700 6,310 
Property, plant and equipment — net of accumulated depreciation (2011 - $5,035; 2010 - $4,367) 6,966 6,310 
Goodwill 5,953 5,869  5,947 5,869 
Intangible assets, net 1,524 1,569  1,494 1,569 
Other assets 565 531  603 531 
Total assets $ 23,554 $22,986  $24,351 $22,986 
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
  
  
Current Liabilities:  
Accounts payable $1,588 $1,496  $1,688 $1,496 
Short-term borrowings and current portion of long-term debt 59 331  54 331 
Accrued employee compensation 586 589  686 589 
Income taxes payable 75 219  53 219 
Other accrued liabilities 519 504  517 504 
Total current liabilities 2,827 3,139  2,998 3,139 
  
Long-term debt 3,549 3,554  3,846 3,554 
Deferred income taxes and other tax liabilities 1,316 1,360  1,125 1,360 
Liabilities for pensions and other postretirement benefits 507 483  469 483 
Other liabilities 165 164  150 164 
Commitments and contingencies  
  
Stockholders’ Equity:  
Common stock 436 432  436 432 
Capital in excess of par value 7,167 7,005  7,244 7,005 
Retained earnings 7,672 7,083  8,313 7,083 
Accumulated other comprehensive loss  (337)  (420)  (447)  (420)
Baker Hughes stockholders’ equity 14,938 14,100  15,546 14,100 
Noncontrolling interest 252 186  217 186 
Total stockholders’ equity 15,190 14,286  15,763 14,286 
Total liabilities and stockholders’ equity $23,554 $22,986  $24,351 $22,986 
See accompanying notes to unaudited consolidated condensed financial statements.

3

Baker Hughes Incorporated

Consolidated Condensed Statements of Cash Flows
(In millions)
(Unaudited)
                
 Six Months Ended  Nine Months Ended 
 June 30, September 30, 
 2011 2010  2011 2010 
Cash flows from operating activities:  
Net income $719 $222  $1,425 $477 
Adjustments to reconcile net income to net cash flows from operating activities:  
Depreciation and amortization 646 450  978 743 
Stock-based compensation costs 53 41  85 66 
Provision (benefit) for deferred income taxes  (52)  (63)  (312)  (155)
Gain on disposal of assets  (90)  (49)  (124)  (79)
Loss on early extinguishment of debt 40 — 
Provision for doubtful accounts 76 11  76 19 
Changes in operating assets and liabilities:  
Accounts receivable  (512)  (258)  (1,107)  (504)
Inventories  (314)  (124)  (463)  (161)
Accounts payable 57 123  183 177 
Accrued employee compensation and other accrued liabilities  (25)  (37) 84 97 
Income taxes payable  (160)  (15)  (189)  (68)
Other  (1)  (143) 6  (34)
Net cash flows from operating activities 397 158  682 578 
  
Cash flows from investing activities:  
Expenditures for capital assets  (1,023)  (539)  (1,651)  (1,005)
Proceeds from disposal of assets 215 152 
Purchase of short-term investments —  (250)
Proceeds from maturities of short-term investments 250 —  250 — 
Proceeds from disposal of assets 142 89 
Acquisition of businesses, net of cash acquired  (5)  (834)  (5)  (852)
Other investing items, net 14 39 
Net cash flows from investing activities  (636)  (1,284)  (1,177)  (1,916)
  
Cash flows from financing activities:  
Net (payments) borrowings of commercial paper and other short-term debt  (21) 555   (41) 9 
Net proceeds of long-term debt 742 1,479 
Repayment of long-term debt  (250) —   (813) — 
Proceeds from termination of interest rate swap agreements 26 — 
Proceeds from issuance of common stock 115 28  144 29 
Dividends  (130)  (111)  (195)  (175)
Purchase of noncontrolling interest  (26) — 
Other financing items, net  (9) 1   (1) 2 
Net cash flows from financing activities  (295) 473   (164) 1,344 
  
Effect of foreign exchange rate changes on cash 15  (23) 6 5 
Increase (decrease) in cash and cash equivalents  (519)  (676)  (653) 11 
Cash and cash equivalents, beginning of period 1,456 1,595  1,456 1,595 
Cash and cash equivalents, end of period $937 $919  $803 $1,606 
Supplemental cash flows disclosures:  
Income taxes paid, net of refunds $647 $342  $934 $516 
Interest paid $121 $75  $184 $96 
Supplemental disclosure of noncash investing activities:  
Capital expenditures included in accounts payable $33 $26  $78 $33 
See accompanying notes to unaudited consolidated condensed financial statements.

4

Baker Hughes Incorporated

Notes to Unaudited Consolidated Condensed Financial Statements
NOTE 1. GENERAL
Nature of Operations
     Baker Hughes Incorporated (“Company,Baker Hughes,” “Company,” “we,” “our” or “us”) is engaged in the oilfield services industry. We are a leading supplier of wellbore-related products and technology services and provide products and services for drilling, pressure pumping, formation evaluation, completion and production, and reservoir development services to the worldwide oil and natural gas industry. We also provide products and services to the downstream refining and process and pipeline industries.
Basis of Presentation
     Our unaudited consolidated condensed financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission 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/A for the year ended December 31, 2010 (“2010 Annual Report”). 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 the unaudited consolidated condensed financial statements, all dollar and share amounts in tabulations are in millions of dollars and shares, respectively, unless otherwise indicated.
Accounting Standards Updates
     In May 2011, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“ASC”) 820,Fair Value Measurement. The Accounting Standards Update (“ASU”) conforms certain sections of ASC 820 to International Financial Reporting Standards in order to provide a single converged guidance on the measurement of fair value. This update also expands the existing disclosure requirements for fair value measurements. This ASU is effective for interim and annual periods beginning after December 15, 2011. We will adopt this ASU prospectively in the first quarter of 2012. We currently do not expect this ASU to have not yet determined thea material impact, if any, on our consolidated condensed financial statements.
     In June 2011, the FASB issued an update to ASC 220,Comprehensive Income. This ASU requires entities to present components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements that would include reclassification adjustments for items that are reclassified from other comprehensive income to net income on the face of the financial statements. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We will adopt the new presentation requirements of this ASU retrospectively in the first quarter of 2012.
     In September 2011, the FASB issued an update to ASC 350,Intangibles — Goodwill and Other. This ASU amends the guidance in ASC 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test annually for impairment. The ASU is limited to goodwill and does not amend the annual requirement for testing other indefinite-lived intangible assets for impairment. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We will adopt this ASU for our 2012 goodwill impairment testing. We do not expect this ASU to have a material impact, if any, on our consolidated condensed financial statements.
NOTE 2. ACQUISITIONS
ACQUISITION OF BJ SERVICES
     On April 28, 2010, we acquired 100% of the outstanding common stock of BJ Services Company (“BJ Services”) in a cash and stock transaction valued at $6,897 million. BJ Services is a leading provider of pressure pumping and other oilfield services and was acquired to expand the product offerings of the Company. Total consideration consisted of $793 million in cash, 118 million shares valued at $6,048 million, and Baker Hughes options with a fair value of $56 million in exchange for BJ Services options. We also assumed all outstanding stock options held by BJ Services employees and directors.

5

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
Recording of Assets Acquired and Liabilities Assumed
     The transaction has been accounted for using the acquisition method of accounting, and accordingly assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The excess of the consideration transferred over those fair values totaling $4,406 million was recorded as goodwill. The following table summarizes the amounts recognized for assets acquired and liabilities assumed.

5

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
     
  Fair Values 
 
Assets:    
Cash and cash equivalents $113 
Accounts receivable  951 
Inventories  419 
Other current assets  125 
Property, plant and equipment  2,745 
Intangible assets  1,404 
Goodwill  4,406 
Other long-term assets  109 
     
Liabilities:    
Liabilities for change in control and transaction fees  210 
Current liabilities  776 
Deferred income taxes and other tax liabilities  1,428 
Long-term debt  531 
Pension and other postretirement liabilities  154 
Other long-term liabilities  29 
Noncontrolling interests  247 
 
Net assets acquired $6,897 
 
     During the quarter ended March 31, 2011, we increased our step-up adjustment related to noncontrolling interests in certain BJ Services entities by $68 million to $202 million and reduced our step-up adjustment related to deferred tax liabilities and other taxes by $21 million to $1,262 million as part of the acquisition accounting related to fair market value adjustments for acquired intangible assets and property, plant and equipment (“PP&E”) as well as for uncertain tax positions taken in prior years.
Pro Forma Impact of the Acquisition
     The following unaudited supplemental pro forma results present consolidated information as if the acquisition had been completed as of January 1, 2010. The pro forma results include: (i) the amortization associated with an estimate of the acquired intangible assets, (ii) interest expense associated with debt used to fund a portion of the acquisition and reduced interest income associated with cash used to fund a portion of the acquisition, (iii) the impact of certain fair value adjustments such as additional depreciation expense for adjustments to PP&E and reduction to interest expense for adjustments to debt, and (iv) costs directly related to acquiring BJ Services. The pro forma results do not include any potential synergies, cost savings or other expected benefits of the acquisition. Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the acquisition and related borrowings had been consummated as of January 1, 2010, nor are they indicative of future results.
            
 Three Months Ended Six Months Ended  Nine Months Ended 
 June 30, 2010 June 30, 2010  September 30, 2010 
 Pro Forma Pro Forma  Pro Forma 
Revenue $3,745 $7,402  $11,480 
Net income $98 $231  $493 
Basic net income per share $0.23 $0.54  $1.14 
Diluted net income per share $0.23 $0.53  $1.14 

6

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
NOTE 3. SEGMENT INFORMATION
     Baker Hughes has tenWe conduct our business primarily through operating segments that are aligned with our geographic regions, which have been aggregated into the following five reportable segments:
 • North America (U.S. Land, U.S. Gulf of Mexico and Canada)
 
 • Latin America
 
 • Europe/Africa/Russia Caspian
 
 • Middle East/Asia Pacific
•Industrial Services and Other
Industrial Services and Other (downstream chemicals and reservoir development services)

6

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
     We have aggregated our operating segments within each reportable segment because they have similar economic characteristics and because the long-term financial performance of the segments is affected by similar economic conditions. The performance of our segments is evaluated based on profit before tax, which is defined as income before income taxes, net interest expense, interest income,corporate expenses, and certain gains and losses not allocated to the segments. The financial results of BJ Services are included in each of the five reportable segments from the date of acquisition on April 28, 2010.
     Summarized financial information is shown in the following table:table.
                                
 Three Months Ended Three Months Ended  Three Months Ended Three Months Ended 
 June 30, 2011 June 30, 2010  September 30, 2011 September 30, 2010 
Segments Revenue Profit (loss) Revenue Profit (loss)  Revenue Profit (loss) Revenue Profit (loss) 
North America $2,368 $440 $1,486 $204  $2,716 $607 $2,006 $340 
Latin America 542 71 384 13  568 71 431 9 
Europe/Africa/Russia Caspian 806 47 736 69  850 105 757 47 
Middle East/Asia Pacific 701 88 545 40  708 84 606 39 
Industrial Services and Other 324 34 223 18  336 28 278 36 
Total Operations 4,741 680 3,374 344  5,178 895 4,078 471 
Corporate and Other —  (63) —  (56) —  (78) —  (54)
Interest expense, net —  (54) —  (30) —  (58) —  (39)
Loss on early extinguishment of debt —  (40) — — 
Acquisition-related costs — — —  (56) — — —  (12)
Total $4,741 $563 $3,374 $202  $5,178 $719 $4,078 $366 
                                
 Six Months Ended Six Months Ended  Nine Months Ended Nine Months Ended 
 June 30, 2011 June 30, 2010  September 30, 2011 September 30, 2010 
Segments Revenue Profit (loss) Revenue Profit (loss)  Revenue Profit (loss) Revenue Profit (loss) 
North America $4,720 $900 $2,405 $345  $7,436 $1,507 $4,411 $685 
Latin America 1,015 134 656 22  1,583 205 1,087 31 
Europe/Africa/Russia Caspian 1,577 138 1,456 149  2,427 243 2,213 196 
Middle East/Asia Pacific 1,360 167 984 70  2,068 251 1,590 109 
Industrial Services and Other 594 48 412 35  930 76 690 71 
Total Operations 9,266 1,387 5,913 621  14,444 2,282 9,991 1,092 
Corporate and Other —  (130) —  (105) —  (208) —  (159)
Interest expense, net —  (106) —  (54) —  (164) —  (93)
Loss on early extinguishment of debt —  (40) — — 
Acquisition-related costs — — —  (66) — — —  (78)
Total $9,266 $1,151 $5,913 $396  $14,444 $1,870 $9,991 $762 

7

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
NOTE 4. EARNINGS PER SHARE
     A reconciliation of the number of shares used for the basic and diluted earnings per share (“EPS”) computations is as follows:
                 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
 
Weighted average common shares outstanding for basic EPS  436   398   435   355 
Effect of dilutive securities — stock plans  2   1   3   1 
 
Adjusted weighted average common shares outstanding for diluted EPS  438   399   438   356 
 
                 
Future potentially dilutive shares excluded from diluted EPS:                
Options with an exercise price greater than the average market price for the period  2   6   3   6 
 

7

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
                 
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2011 2010 2011 2010
 
Weighted average common shares outstanding for basic EPS  437   432   436   381 
Effect of dilutive securities — stock plans  2   1   2   1 
 
Adjusted weighted average common shares outstanding for diluted EPS  439   433   438   382 
 
                 
Future potentially dilutive shares excluded from diluted EPS:                
Options with an exercise price greater than the average market price for the period  3   7   3   7 
 
NOTE 5. INCOME TAXES
     In the third quarter of 2011, total income tax expense of $13 million included a $214 million tax benefit associated with the reorganization of certain foreign subsidiaries to better align the Baker Hughes and BJ Services entities. As a result of the reorganization, previously accrued U.S. deferred income taxes related to those subsidiaries have been reduced by Baker Hughes foreign tax credits now available to offset future U.S. taxes.
NOTE 6. INVENTORIES
     Inventories, net of reserves, are comprised of the following:
                
 June 30, December 31,  September 30, December 31,
 2011 2010  2011 2010
Finished goods $2,590 $2,283  $2,683 $2,283 
Work in process 208 181  222 181 
Raw materials 141 130  148 130 
Total $2,939 $2,594  $3,053 $2,594 
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
     Property, plant and equipment are comprised of the following:
         
  June 30,  December 31, 
  2011  2010 
 
Land $193  $191 
Buildings and improvements  1,762   1,605 
Machinery and equipment  6,908   6,409 
Rental tools and equipment  2,669   2,472 
 
Subtotal  11,532   10,677 
Less: Accumulated depreciation  4,832   4,367 
 
Total $6,700  $6,310 
 
NOTE 7. GOODWILL AND INTANGIBLE ASSETS
     The changes in the carrying amount of goodwill are detailed below by reportable segment:segment.
                         
          Europe/  Middle  Industrial    
          Africa/  East/  Services    
  North  Latin  Russia  Asia  and    
  America  America  Caspian  Pacific  Other  Total 
 
Balance as of December 31, 2010 $2,731  $879  $936  $895  $428  $5,869 
Purchase price adjustments for previous Acquisitions  314   (293)  86   (42)  12   77 
Acquisitions  5   —   —   —   —   5 
Other adjustments  1   —   1   1   (1)  2 
 
Balance as of June 30, 2011 $3,051  $586  $1,023  $854  $439  $5,953 
 
     Intangible assets are comprised of the following:
                         
  June 30, 2011  December 31, 2010 
  Gross  Less:      Gross  Less:    
  Carrying  Accumulated      Carrying  Accumulated    
  Amount  Amortization  Net  Amount  Amortization  Net 
 
Definite lived intangibles:                        
Technology $767  $208  $559  $760  $181  $579 
Contract-based  17   8   9   20   11   9 
Trade names  81   16   65   84   18   66 
Customer relationships  497   57   440   495   39   456 
 
Subtotal  1,362   289   1,073   1,359   249   1,110 
 
Indefinite lived intangibles:                        
Trade name  360   —   360   360   —   360 
In-process research and development  91   —   91   99   —   99 
 
Total $1,813  $289  $1,524  $1,818  $249  $1,569 
 
                         
          Europe/ Middle Industrial  
          Africa/ East/ Services  
  North Latin Russia Asia and  
  America America Caspian Pacific Other Total
 
Balance as of December 31, 2010 $2,731  $879  $936  $895  $428  $5,869 
Purchase price adjustments for previous acquisitions  314   (293)  86   (42)  12   77 
Acquisitions  4   —   —   —   —   4 
Other adjustments  (3)  —   —   —   —   (3)
 
Balance as of September 30, 2011 $3,046  $586  $1,022  $853  $440  $5,947 
 

8

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
     Intangible assets are comprised of the following:
                         
  September 30, 2011 December 31, 2010
  Gross Less:     Gross Less:  
  Carrying Accumulated     Carrying Accumulated  
  Amount Amortization Net Amount Amortization Net
 
Definite lived intangibles:                        
Technology $761  $218  $543  $760  $181  $579 
Contract-based  18   9   9   20   11   9 
Trade names  80   18   62   84   18   66 
Customer relationships  496   66   430   495   39   456 
 
Subtotal  1,355   311   1,044   1,359   249   1,110 
 
Indefinite-lived intangibles:                        
Trade name  360   —   360   360   —   360 
In-process research and development  90   —   90   99   —   99 
 
Total $1,805  $311  $1,494  $1,818  $249  $1,569 
 
     Intangible assets are amortized either on a straight-line basis with estimated useful lives ranging from 2 to 20 years, or on a basis that reflects the pattern in which the economic benefits of the intangible assets are expected to be realized, which rangeranges from 15 to 30 years.
     Amortization expense for intangible assets included in net income for the three months and sixnine months ended JuneSeptember 30, 2011 was $24$25 million and $46$71 million, respectively, and is estimated to be $90$24 million for the fullremainder of fiscal year 2011. Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows: 2012 — $95$94 million; 2013 — $94$93 million; 2014 — $93$92 million; 2015 — $88$90 million; and 2016 — $87$89 million.
NOTE 8. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
     Our financial instruments include cash and cash equivalents, and short-term investments, accounts receivable, accounts payable, debt, foreign currency forward contracts and interest rate swaps. Except as described below, the estimated fair value of such financial instruments at JuneSeptember 30, 2011 and December 31, 2010 approximates their carrying value as reflected in our consolidated condensed balance sheets. The fair value of our debt, foreign currency forward contracts and interest rate swaps has been estimated based on quoted period end market prices.
Short-term Investments
     During the year ended December 31, 2010, we purchased short-term investments consisting of $250 million in U.S. Treasury Bills, which matured in May 2011 and were used to repay the $250 million principal amount of our 5.75% notes that matured in June 2011.2011 (“5.75% Notes”).
Debt
     The estimated fair value of total debt at JuneSeptember 30, 2011 and December 31, 2010 was $4,045$4,635 million and $4,298 million, respectively, which differs from the carrying amount of $3,608$3,900 million and $3,885 million, respectively, included in our consolidated condensed balance sheets. The fair value was determined using Level 2 inputs including quoted period end market prices.
Foreign Currency Forward Contracts
     We conduct our business in over 80 countries around the world, and we are exposed to market risks resulting from fluctuations in foreign currency exchange rates. A number of our significant foreign subsidiaries have designated the local currency as their functional currency. We transact in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to reduce the risks associated with the effects of certain foreign currency exposures. Under this program, our strategy is to have gains or losses on the foreign currency forward contracts mitigate the foreign currency transaction gains or losses to the extent practical. These foreign currency exposures typically arise from changes in the value of assets and liabilities which are denominated in currencies other than the functional currency. Our foreign currency forward contracts generally settle in less than 180

9

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
days. We do not use these forward contracts for trading or speculative purposes. We designate these forward contracts as fair value hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period to our consolidated condensed balance sheet with changes in fair value recorded in our consolidated condensed statement of operations along with the change in fair value of the hedged item.
     We had outstanding foreign currency forward contracts with notional amounts aggregating $150$157 million and $156 million to hedge exposure to currency fluctuations in various foreign currencies at JuneSeptember 30, 2011 and December 31, 2010, respectively. These contracts are designated and qualify as fair value hedging instruments. The fair value was determined using a model with Level 2 inputs including quoted market prices for contracts with similar terms and maturity dates.
Interest Rate Swaps
     We are subject to interest rate risk on our debt and investment of cash and cash equivalents arising in the normal course of our business, as we do not engage in speculative trading strategies. We maintain an interest rate management strategy, which primarily uses a mix of fixed and variable rate debt that is intended to mitigate the exposure to changes in interest rates in the aggregate for our investment portfolio. In addition, we are currently usingWe may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt so thatdebt.
     In September 2011, we redeemed in full our $500 million 6.5% fixed rate senior notes maturing November 2013 (“6.5% Notes”). Consequently, we terminated two related interest rate swap agreements resulting in a gain on the interest payable on this debt effectively becomes linkedswap agreements of $25 million. The two swap agreements were entered into in June 2009 for a notional amount of $250 million each in order to variable rates. Our interest rate

9

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
swaps arehedge changes in the fair market value of the debt. The swap agreements had been designated and each qualifiesqualified as a fair value hedging instrument. The fair value of our interest rate swaps was determined using a model with Level 2 inputs including quoted market prices for contracts with similar terms and maturity dates.
Fair Value of Derivative Instruments
     The fair values of derivative instruments included in our consolidated condensed balance sheets were as follows:
                  
 Fair Value  Fair Value
Derivative Balance Sheet Location June 30, 2011 December 31, 2010  Balance Sheet Location September 30, 2011 December 31, 2010
Foreign Currency Forward Contracts Other current assets $1 $—  Other current assets $3 $— 
Foreign Currency Forward Contracts Other accrued liabilities $1 $2  Other accrued liabilities $8 $2 
Interest Rate Swaps Other assets $24 $24  Other assets $— $24 
     The effects of derivative instruments in our consolidated condensed statements of operations were as follows (amounts exclude any income tax effects):
                              
 Gain (Loss) Recognized in Income  Gain (Loss) Recognized in Income
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended
 Statement of June 30, June 30,  September 30, September 30,
Derivative Operations Location 2011 2010 2011 2010  Statement of Operations Location 2011 2010 2011 2010
Foreign Currency Forward Marketing, general and 
Contracts administrative $(2) $(4) $(3) $(9)
Foreign Currency Forward Contracts Marketing, general and administrative $(3) $11 $(6) $1 
Interest Rate Swaps Interest expense $3 $3 $6 $10  Interest expense $2 $2 $8 $12 
NOTE 9. INDEBTEDNESS
     In August 2011, we completed a private placement of $750 million 3.2% senior notes that have registration rights and will mature in August 2021 (“3.2% Notes”) under our Indenture dated October 28, 2008. Net proceeds from the offering were approximately $742 million after deducting the underwriting discounts and expenses of the offering. Interest is payable February 15 and August 15 of each year. The 3.2% Notes are senior unsecured obligations and rank equal in right of payment to all of our existing and future indebtedness; senior in right of payment to any future subordinated indebtedness; and effectively junior to our future secured indebtedness, if any, and structurally subordinated to all existing and future indebtedness of our subsidiaries. We may redeem, at our option, all or part of the 3.2% Notes at any time, at the applicable make-whole redemption prices plus accrued and unpaid interest to the date of redemption. In September 2011, we used $563 million of the net proceeds from the offering to redeem in full our 6.5% Notes, and the remainder will be used for general corporate purposes, which could include funding on-going operations, business acquisitions and repurchases of our common stock. The redemption of our 6.5% Notes resulted in a payment of a redemption premium of $63 million and in a pretax loss on the early extinguishment of this debt of $40 million, which includes the redemption

10

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
premium, the write off of the remaining original debt issuance costs and debt discount, partially offset by the $25 million gain from the termination of two related interest rate swap agreements.
     In June 2011, we repaid the $250 million principal amount of our 5.75% notesNotes using proceeds from U.S. Treasury Bills that matured in May 2011.
     At June 30,In September 2011, we had $1.7entered into a five-year committed $2.5 billion ofrevolving credit facility maturing in September 2016. The new revolving credit facility replaced our existing committed revolving credit facilities with commercial banks.of $500 million maturing in July 2012 and $1.2 billion maturing in March 2013, both of which were terminated in September 2011. There were no direct borrowings under the committed revolving credit facilities during the sixnine months ended JuneSeptember 30, 2011. We also have a commercial paper program under which we may issue up to $1.0 billion in commercial paper with maturity of no more than 270 days. To the extent we have outstanding commercial paper, our ability to borrow under the facilitiesfacility is reduced. At JuneSeptember 30, 2011, we had no outstanding commercial paper.
NOTE 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., Canada, the U.K., Germany and several countries in the Middle East and Asia Pacific region. We also provide certain postretirement health care benefits (“other postretirement benefits”), through an unfunded plan, to substantially all U.S. employees who retire and have met certain age and service requirements.
     The components of net periodic cost are as follows for the three months ended JuneSeptember 30:
                         
  U.S. Pension Benefits  Non-U.S. Pension Benefits  Other Postretirement Benefits 
  2011  2010  2011  2010  2011  2010 
 
Service cost $9  $8  $2  $2  $2  $2 
Interest cost  5   5   8   7   2   3 
Expected return on plan assets  (8)  (7)  (8)  (6)  —   — 
Amortization of prior service cost (benefit)  —   —   —   1   (1)  — 
Amortization of net loss  2   3   1   —   —   — 
 
Net periodic cost (benefit) $8  $9  $3  $4  $3  $5 
 

10

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
                         
  U.S. Pension Benefits Non-U.S. Pension Benefits Other Postretirement Benefits
  2011 2010 2011 2010 2011 2010
 
Service cost $10  $8  $2  $2  $2  $3 
Interest cost  5   5   8   8   2   2 
Expected return on plan assets  (8)  (7)  (8)  (7)  —   — 
Amortization of net loss  3   3   1   1   —   — 
 
Net periodic cost (benefit) $10  $9  $3  $4  $4  $5 
 
     The components of net periodic cost are as follows for the sixnine months ended JuneSeptember 30:
                                                
 Other Postretirement  Other Postretirement
 U.S. Pension Benefits Non-U.S. Pension Benefits Benefits  U.S. Pension Benefits Non-U.S. Pension Benefits Benefits
 2011 2010 2011 2010 2011 2010  2011 2010 2011 2010 2011 2010
Service cost $18 $16 $4 $3 $4 $4  $28 $24 $6 $5 $6 $7 
Interest cost 10 11 16 12 4 6  15 16 24 20 6 8 
Expected return on plan assets  (16)  (14)  (16)  (10) — —   (24)  (21)  (24)  (17) — — 
Amortization of prior service cost (benefit) — — — —  (2) 1  — — — —  (2) 1 
Amortization of net loss 4 6 2 2 — —  7 9 3 3 — — 
Net periodic cost (benefit) $16 $19 $6 $7 $6 $11  $26 $28 $9 $11 $10 $16 
     We invest the plan assets of our U.S. and Non-U.S. pension plans in investments according to the policies developed by our investment committees. The changes in the fair value of our U.S. and Non-U.S. pension plans’ assets using Level 3 unobservable inputs for the three months and sixnine months ended JuneSeptember 30, 2011 were as follows:
                                            
 Three Months Ended June 30, 2011  Three Months Ended September 30, 2011
 U.S. Non-U.S. Non-U.S.    U.S. Global Non-U.S. Non-U.S.  
 Property Hedge Property Insurance    Property Property Hedge Property Insurance  
 Fund Funds Fund Contracts Total  Fund Fund Funds Fund Contracts Total
Ending balance at March 31, 2011 $14 $98 $20 $16 $148 
Unrealized gains 1 2 — — 3 
Ending balance at June 30, 2011 $15 $— $102 $20 $16 $153 
Purchases (sales)  (7) 3 4 — — — 
Unrealized gains (loss) — —  (4)  (1) —  (5)
Transfers from Level 2 to Level 3 — 2 — — 2  — — — — — — 
Ending balance at June 30, 2011 $15 $102 $20 $16 $153 
Ending balance at September 30, 2011 $8 $3 $102 $19 $16 $148 

11

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
                                            
 Six Months Ended June 30, 2011  Nine Months Ended September 30, 2011
 U.S. Non-U.S. Non-U.S.    U.S. Global Non-U.S. Non-U.S.  
 Property Hedge Property Insurance    Property Property Hedge Property Insurance  
 Fund Funds Fund Contracts Total  Fund Fund Funds Fund Contracts Total
Ending balance at December 31, 2010 $14 $— $19 $16 $49  $14 $— $— $19 $16 $49 
Unrealized gains 1 4 1 — 6 
Purchases (sales)  (7) 3 4 — — — 
Unrealized gains (loss) 1 — — — — 1 
Transfers from Level 2 to Level 3 — 98 — — 98  — — 98 — — 98 
Ending balance at June 30, 2011 $15 $102 $20 $16 $153 
Ending balance at September 30, 2011 $8 $3 $102 $19 $16 $148 
     Beginning in 2011, the U.S. pension plan began purchasing shares in three hedge funds, which the Company deems to be Level 3 investments. These hedge funds take long and short positions in equities, fixed income securities, currencies and derivative contracts.
NOTE 11. COMMITMENTS AND CONTINGENCIES
LITIGATION
     We are involved in litigation or proceedings that have arisen in our ordinary business activities. We insure against these risks 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 and future legal proceedings. Many of these 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 accruals for losses are calculated by estimating losses for claims using historical claim data, specific loss development factors and other information as necessary.
     We were among several unrelated companies who received a subpoena from the Office of the New York Attorney General, dated June 17, 2011. The subpoena received by the Company seeks information and documents relating to, among other things, natural gas development and hydraulic fracturing. We are reviewing the subpoena and discussing its contents with the New York Attorney General’s office in anticipation of our responding as appropriate.

11

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
     In July 2011, the Company settled the previously reported customer claim against BJ Services relating to the move of a stimulation vessel out of the North Sea market. The settlement did not have a material effect on our consolidated condensed financial statements.
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 billion at JuneSeptember 30, 2011. None of the off-balance sheet arrangements either has, or is likely to have, a material effect on our consolidated condensed financial statements.

12

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
NOTE 12. STOCKHOLDERS’ EQUITY
     The following tables summarize our stockholders’ equity activity.
                                                
 Capital Accumulated      Capital Accumulated    
 in Excess Other      in Excess Other    
 Common of Retained Comprehensive Noncontrolling    Common of Retained Comprehensive Noncontrolling  
 Stock Par Value Earnings Loss Interest Total  Stock Par Value Earnings Loss Interest Total
Balance at December 31, 2010 $432 $7,005 $7,083 $(420) $186 $14,286  $432 $7,005 $7,083 $(420) $186 $14,286 
Comprehensive income:  
Net income 719 
Net income attributable to Baker Hughes 1,425 
Foreign currency translation adjustments 83   (32)  (1) 
Defined benefit pension plan, net of tax of ($4) 5 
Total comprehensive income 802  1,397 
Issuance of common stock pursuant to employee stock plans 4 103 107  4 126 130 
Tax provision on stock plans 7 7 
Tax benefit on stock plans 17 17 
Stock-based compensation costs 53 53  85 85 
Cash dividends ($0.30 per share)  (130)  (130)
Cash dividends ($0.45 per share)  (195)  (195)
Purchase of subsidiary shares of noncontrolling interests  (1)  (1) 11  (37)  (26)
Dividends paid to noncontrolling interests  (4)  (4)  (5)  (5)
Capital contribution from noncontrolling interest 4 4 
Capital contribution from noncontrolling interest, and other 8 8 
Change in noncontrolling interest associated with purchase price adjustment 66 66  66 66 
Balance at June 30, 2011 $436 $7,167 $7,672 $(337) $252 $15,190 
Balance at September 30, 2011 $436 $7,244 $8,313 $(447) $217 $15,763 
                         
      Capital      Accumulated       
      in Excess      Other       
  Common  of  Retained  Comprehensive  Noncontrolling    
  Stock  Par Value  Earnings  Loss  Interest  Total 
 
Balance at December 31, 2009 $312  $874  $6,512  $(414) $—  $7,284 
Comprehensive income:                        
Net income          222             
Foreign currency translation adjustments              (120)        
Defined benefit pension plans, net of tax of $(4)              21         
Total comprehensive income                      123 
Issuance of common stock pursuant to employee stock plans  1   20               21 
Issuance of common stock to acquire BJ Services  118   5,986               6,104 
Tax provision on stock plans      2               2 
Stock-based compensation costs      41               41 
Cash dividends ($0.30 per share)          (111)          (111)
 
Balance at June 30, 2010 $431  $6,923  $6,623  $(513) $—  $13,464 
 

12

Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
                         
      Capital     Accumulated    
      in Excess     Other    
  Common of Retained Comprehensive Noncontrolling  
  Stock Par Value Earnings Loss Interest Total
 
Balance at December 31, 2009 $312  $874  $6,512  $(414) $—  $7,284 
Comprehensive income:                        
Net income          477             
Foreign currency translation adjustments              (41)        
Defined benefit pension plans, net of tax of $(5)              18         
Total comprehensive income                      454 
Issuance of common stock pursuant to employee stock plans  1   21               22 
Issuance of common stock to acquire BJ Services  118   5,986               6,104 
Tax benefit on stock plans      2               2 
Stock-based compensation costs      66               66 
Cash dividends ($0.45 per share)          (175)          (175)
 
Balance at September 30, 2010 $431  $6,949  $6,814  $(437) $—  $13,757 
 
     Total accumulated other comprehensive loss, net of tax, consisted of the following:
                
 June 30, 2011 December 31, 2010  September 30, 2011 December 31, 2010
Foreign currency translation adjustments $(178) $(261) $(293) $(261)
Pension and other postretirement benefits  (159)  (159)  (154)  (159)
Total accumulated other comprehensive loss $(337) $(420) $(447) $(420)

13

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”) should be read in conjunction with our consolidated condensed financial statements and the related notes thereto, as well as our Annual Report on Form 10-K/A for the year ended December 31, 2010 (“2010 Annual Report”). Phrases such as “Company”, “we”,“Company,” “we,” “our” and “us”, and “our” intend to refer to Baker Hughes Incorporated when used.
EXECUTIVE SUMMARY
     We are a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. We provide products and services for:
 • drilling and evaluation of oil and gas wells;
 
 • completion and production of oil and gas wells; and
 
 • other industries, including downstream refining and process and pipeline industries; and reservoir development services.
     We operate our business primarily through geographic regions that have been aggregated into five reportable segments: North America, Latin America, Europe/Africa/Russia Caspian, (“EARC”), Middle East/Asia Pacific (“MEAP”) and Industrial Services and Other. The four geographical segments represent our oilfield operations.
     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. Our business is cyclical and is dependent upon our customers’ expectations for future oil and natural gas prices, economic growth, hydrocarbon demand and estimates of current and future oil and natural gas production.
     For the secondthird quarter of 2011, we generated revenue of $4.74$5.18 billion, an increase of $1.37$1.10 billion or 41%27% compared to the same quarter a year ago. For the first sixnine months of 2011, revenue was $9.27$14.44 billion, an increase of $3.35$4.45 billion or 57%45% compared to the first sixnine months of 2010. The increase in revenue for both periods was due to the significant improvementincrease in activity and service intensity primarily in North America, driven by oil-directed drilling mainly in unconventional reservoirs andreservoirs. The increase in revenue for the first nine months of 2011 was also due to the acquisition of BJ Services Company (“BJ Services”) during the second quarterwhich occurred in April of 2010.
     Net income attributable to Baker Hughes was $338$706 million for the secondthird quarter of 2011 compared to $93$255 million for the same quarter a year ago; and was $719 million$1.43 billion for the first sixnine months of 2011 compared to $222$477 million for the same period a year ago. The increase in net income for both periods was primarilychiefly due to the improved profitabilityincreased activity in North America and to a lesser extent internationally as well asinternationally. Additionally, we recorded a $214 million tax benefit associated with the reorganization of certain foreign subsidiaries in the third quarter of 2011. The increase in net income for the first nine months of 2011 was also due to the acquisition of BJ Services. The increase was partially offset by a charge of $70 million recognized in the second quarter of 2011 associated with increasing the allowance for doubtful accounts and reserves for inventory and certain other assets in Libya, where our operations have currently ceased, pending resolution of the conflict.
     At JuneSeptember 30, 2011, we had approximately 54,00055,100 employees compared to approximately 53,100 employees at December 31, 2010.
BUSINESS ENVIRONMENT
     Global economic growth and the resultant demand for oil and natural gas are the primary drivers of our customers’ expenditures to develop and produce oil and gas. The expansion of the global economy, following the recession of 2008/2009, continued through 2010 and into 2011. Increasing economic activity, particularly in the emerging economies in Asia and the Middle East, and expectations for continued economic growth supported expectations for increasing demand for oil and natural gas. Spending by oil and natural gas exploration and production companies, which is dependent upon their forecasts regarding the expected future supply and future demand for oil and natural gas products and their estimates of costs to find, develop, and produce reserves, increased in the first halfnine months of 2011 compared to the first half of 2010.same period a year ago. Changes in oil and natural gas exploration and production spending resultresulted in increased demand for our products and services, which is reflected in the rig count and other measures. Although growth in our customers’ activity has expanded throughout the first nine months of 2011, commodity prices experienced a significant decline in the third quarter of 2011. This decline was primarily driven by concerns surrounding European fiscal issues, growth reduction in China and the threat of a U.S. recession; all are factors that can affect the demand for oil and natural gas.
     In North America, customer spending on oil projects increased in 2011, resulting in a 75%58% increase in the North America oil-directed rig count in the secondthird quarter of 2011 compared to the same period a year ago. The increase in oil-directed drilling reflected the global price of oil, which is tradingcontracted somewhat during the third quarter of 2011, but continues to trade at a an energy equivalent

14

premium on a Btu-equivalent basis, relative to natural gas in North America. Gas-directed drilling activity declined 8% in the third quarter of 2011 compared to the same period a year ago, as decreased activity in unconventional shale gas plays with relatively little associated natural gas liquids (dry gas) was partially offset by increased activity in the unconventional liquid-rich shale gas plays with relatively high volumes of associated natural gas liquids (wet gas). Despite relatively weak natural gas prices, spending on gas-directed projects in

14

the secondthird quarter of 2011 was supported by: (1) associated production of natural gas liquids and crude oil in certain basins; (2) hedges on production made in prior periods when future prices were higher; (3) the need of companies to drill and produce natural gas to hold leases acquired in earlier periods; and (4) the influx of equity from companies interested in developing a position in the unconventional shale resource plays.
     Outside of North America, customer spending is most heavily influenced by Brent oil prices, which were more than 50%47% higher in the secondthird quarter of 2011 compared to the secondthird quarter of 2010, as the economic recovery continued. In response to higher2010. While oil prices were higher year over year, recent concerns about European fiscal issues, growth reduction in China and expectations that the expanding economy would support prices well in excessthreat of $80/Bbl,a U.S. recession have restrained oil prices; however our customers’ spending increased.was not adversely affected in the third quarter of 2011. This was reflected in a 5% increase in the rig count outside of North America.
Oil and Natural Gas Prices
     Oil (Bloomberg West Texas Intermediate (“WTI”) Cushing Crude Oil Spot Price and Bloomberg Dated Brent (“Brent”)) and natural gas (Bloomberg Henry Hub Natural Gas Spot Price) prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.
                 
  Three Months Ended June 30,  Six Months Ended June 30, 
  2011  2010  2011  2010 
 
   
WTI oil prices ($/Bbl) $102.34  $77.88  $98.50  $78.35 
Brent oil prices ($/Bbl)  116.81   78.63   110.96   77.71 
Natural gas prices ($/mmBtu)  4.38   4.33   4.29   4.71 
                 
  Three Months Ended September 30, Nine Months Ended September 30,
  2011 2010 2011 2010
 
WTI oil prices ($/Bbl)(1)
 $89.54  $76.09  $95.47  $77.58 
Brent oil prices ($/Bbl)(2)
  112.38   76.41   111.44   77.26 
Natural gas prices ($/mmBtu)(3)
  4.05   4.28   4.21   4.56 
(1)     Bloomberg West Texas Intermediate (“WTI”) Cushing Crude Oil Spot Price
(2)     Bloomberg Dated Brent (“Brent”)
(3)     Bloomberg Henry Hub Natural Gas Spot Price
     WTI oil prices averaged $102.34/$89.54/Bbl in the secondthird quarter of 2011. Prices ranged from a high of $113.93/$99.87/Bbl in AprilJuly 2011 to a low of $90.61/$79.20/Bbl in JuneSeptember 2011. Oil prices weakened throughout the secondthird quarter of 2011 driven by expectations of a slowdown of the worldwide economic recovery and energy demand growth, particularly in Europe. The International Energy Agency (“IEA”) estimated in its JulyOctober 2011 Oil Market Report that worldwide demand would increase 1.2one million barrels per day or 1.4%1% to 89.589.2 million barrels per day in 2011, up from 88.388.2 million barrels per day in 2010.
     Natural gas prices averaged $4.38/$4.05/mmBtu in the secondthird quarter of 2011. Natural gas prices traded in a range between $4.847/$4.55/mmBtu and $4.041/$3.67/mmBtu in the secondthird quarter of 2011. At the end of the quarter, working natural gas in storage was 2,4323,409 Bcf, which was 9% or 252 Bcf belowremained relatively flat compared to the corresponding week in 2010.
Rig Counts
     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. This data is then compiled and distributed to various wire services and trade associations and is published on our website. Rig counts are compiled weekly for the U.S. and Canada and monthly for all international and U.S. workover rigs. Published international rig counts do not include rigs drilling in certain locations, such as Russia, the Caspian and onshore China, because this information is not readily available.
     Rigs in the U.S. 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. Rigs in Canada are counted as active if data obtained by the Canadian Association of Oilwell Drillers and Contractors indicates that drilling operations have occurred during the week and we are able to verify this information. In most international areas, rigs are counted as active if drilling operations have taken place for at least 15 days during the month; however, in certain international areas where better data is available, we compute a weekly or daily average of active rigs. In international areas where there is poor availability of data, the rig counts are estimated from third-party data. 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.

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     Our rig counts are summarized in the table below as averages for each of the periods indicated.
                        
                         Three Months Ended Nine Months Ended  
 Three Months Ended June 30, % Six Months Ended June 30, %  September 30, % September 30, %
 2011 2010 Change 2011 2010 Change  2011 2010 Change 2011 2010 Change
   | | |   | |
U.S. — land and inland waters 1,795 1,464  23% 1,745 1,385  26% 1,911 1,601  19% 1,805 1,459  24%
U.S. — offshore 31 42  (26)% 28 44  (36)% 34 18  89% 30 35  (14)%
Canada 187 163  15% 379 310  22% 441 360  23% 401 327  23%
    
North America 2,013 1,669  21% 2,152 1,739  24% 2,386 1,979  21% 2,236 1,821  23%
   mm  
Latin America 417 384  9% 413 381  8% 437 385  14% 421 383  10%
North Sea 38 45  (16)% 41 44  (7)% 38 39  (3)% 40 42  (5)%
Continental Europe 74 51  45% 74 48  54% 85 53  60% 77 50  54%
Africa 76 85  (11)% 79 82  (4)% 71 84  (15)% 76 83  (8)%
Middle East 291 256  14% 287 258  11% 289 273  6% 288 263  10%
Asia Pacific 251 267  (6)% 262 262 —  249 276  (10)% 258 267  (3)%
    
Outside North America 1,147 1,088  5% 1,156 1,075  8% 1,169 1,110  5% 1,160 1,088  7%
    
Worldwide 3,160 2,757  15% 3,308 2,814  18% 3,555 3,089  15% 3,396 2,909  17%
    
SecondThird Quarter of 2011 Compared to the SecondThird Quarter of 2010
     The rig count in North America increased 21% reflecting a 75%65% increase in the U.S. oil-directed rig count partially offset by an 8% decrease in the U.S. gas-directed rig count, and a 26%39% increase in the Canadian oil-directed rig count andpartially offset by a 1% increase3% decrease in the Canadian gas-directed rig count in Canada.count. Outside North America the rig count increased 5%. The rig count in Latin America increased primarily due to higher rig activity in Brazil, Colombia and Venezuela, while partially offset by lower activity in Argentina and Mexico.all geomarkets within the region. The increase in the Continental Europe geomarket was led by Turkey, Poland and Germany. The rig count in Africa decreased primarilychiefly due to the shutdown of activity in Libya partially offset with stronger activity in Algeria, Gabon and Gabon.Congo. The rig count increased in the Middle East primarily due to higher activity in Kuwait, Egypt and Abu Dhabi, partially offset by declines in activity in Yemen and Pakistan.Syria. In the Asia Pacific region, activity decreased primarily in Indonesia, Malaysia and Vietnam while activity increased in India and Thailand.India.
RESULTS OF OPERATIONS
     The discussions below relating to significant line items from our consolidated condensed statements of operations 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 possible and practical, have quantified the impact of such items. We acquired BJ Services on April 28, 2010; therefore, our results of operations for the three and sixnine months ended JuneSeptember 30, 2010 include the results of its operations from that date. In addition, the discussion below for revenue and cost of revenue is on a total basis as the business drivers for the individual components of 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 Before Tax
     The performance of our segments is evaluated based on segment profit before tax, which is defined as income before income taxes, interest expense, interest income, and certain gains and losses not allocated to the segments.
                                
 Three Months Ended Six Months Ended                      
 June 30, June 30,      Three Months Ended Nine Months Ended    
 Increase Increase    September 30, Increase September 30, Increase  
 2011 2010 (decrease) % Change 2011 2010 (decrease) % Change  2011 2010 (decrease) % Change 2011 2010 (decrease) % Change
Revenue:  
North America $2,368 $1,486 $882  59% $4,720 $2,405 $2,315  96% $2,716 $2,006 $710  35% $7,436 $4,411 $3,025  69%
Latin America 542 384 158  41% 1,015 656 359  55% 568 431 137  32% 1,583 1,087 496  46%
Europe/Africa/Russia Caspian 806 736 70  10% 1,577 1,456 121  8% 850 757 93  12% 2,427 2,213 214  10%
Middle East/Asia Pacific 701 545 156  29% 1,360 984 376  38% 708 606 102  17% 2,068 1,590 478  30%
Industrial Services and Other 324 223 101  45% 594 412 182  44% 336 278 58  21% 930 690 240  35%
Total $4,741 $3,374 $1,367  41% $9,266 $5,913 $3,353  57% $5,178 $4,078 $1,100  27% $14,444 $9,991 $4,453  45%

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 Three Months Ended Six Months Ended                      
 June 30, June 30,      Three Months Ended Nine Months Ended    
 Increase Increase    September 30, Increase September 30, Increase  
 2011 2010 (decrease) % Change 2011 2010 (decrease) % Change  2011 2010 (decrease) % Change 2011 2010 (decrease) % Change
Profit Before Tax:  
North America $440 $204 236 $116% $900 $345 $555  161% $607 $340 $267  79% $1,507 $685 $822  120%
Latin America 71 13 58  446% 134 22 112  509% 71 9 62  689% 205 31 174  561%
Europe/Africa/Russia Caspian 47 69 (22)  (32)% 138 149  (11)  (7)% 105 47 58  123% 243 196 47  24%
Middle East/Asia Pacific 88 40 48  120% 167 70 97  139% 84 39 45  115% 251 109 142  130%
Industrial Services and Other 34 18 16  89% 48 35 13  37% 28 36  (8)  (22)% 76 71 5  7%
Total $680 $344 $336 98% $1,387 $621 $766  123% $895 $471 $424  90% $2,282 $1,092 $1,190  109%
SecondThird Quarter of 2011 Compared to Secondthe Third Quarter of 2010
     Revenue for the secondthird quarter of 2011 increased $1.37$1.10 billion or 41%27% compared to the secondthird quarter of 2010. Excluding BJ Services, revenue was up 23%. The primary drivers of the change included increased activity and improved pricing in the U.S. Land and Canada markets and to a lesser extent, increased activity in our international segments.
     Profit before tax for the secondthird quarter of 2011 increased $336$424 million or 98%90% compared to the secondthird quarter of 2010. Excluding BJ Services, profit before tax was up 73%. These increases were primarily due to worldwide cost management initiatives as well as strong activity in the North America segment where increased service intensity in the unconventional markets has led to increased efficiency, and utilization, and pricing improvement. Additionally, profit before tax also benefitted from worldwide cost management initiatives.
North America
     North America revenue increased 59%35% or $710 million in the secondthird quarter of 2011 compared with the secondthird quarter of 2010. Excluding BJ Services, revenue increased 33%. Revenue and pricing increases were supported by a 23%19% increase in the U.S. land and inland waters rig count and a 15%23% increase in the Canada rig count. The unconventional reservoirs are demanding our best technology to deliver longer horizontals, complex completions, increasing hydraulic fracturing (“frac”) horsepower and more frac stages resulting in improved pricing and higher revenue. Revenue in the Gulf of Mexico was essentially unchangedimproved appreciably compared to the second quarter of 2010. Revenue in Canada is up compared to secondthird quarter of 2010, but is down sequentially from the first quarter of 2011 due to the seasonal spring thaw.as permitting modestly improved.
     North America profit before tax increased 116%79% or $267 million in the secondthird quarter of 2011 compared with the secondthird quarter of 2010. Excluding BJ Services, profit before tax increased 98%. In addition to increased revenue, the primary drivers of the increased profitability included improved tool utilization, improved absorption of manufacturing and other overhead, and higher pricing. This improvement was partially offset by a decline in our profitabilityAlthough there is positive progress in the Gulf of Mexico, directly attributable to the slow pace of re-permitting following the lifting of the drilling moratorium.has not enabled activity to return to pre-Macondo levels.
Latin America
     Latin America revenue increased 41%32% or $137 million in the secondthird quarter of 2011 compared with the secondthird quarter of 2010 outpacing the 9%14% increase in the Latin America rig count. The primary drivers included increased activity and commensurate revenue increases for drilling services and completions inof the Brazil geomarket andincrease were sales of artificial lift and drilling fluidssystems in the Andean and Venezuela geomarkets, and drilling systems in the Brazil geomarket.
     Latin America profit before tax increased $58$62 million in the secondthird quarter of 2011 compared to the secondthird quarter of 2010 primarily due to revenue improvements in the increased revenue fromAndean, Venezuela and Mexico geomarkets and price improvements in Argentina, partially offset by an increase in costs in the Brazil and Andean geomarkets.geomarket.
Europe/Africa/Russia Caspian (“EARC”)
     EARC revenue increased 10%12% or $93 million in the secondthird quarter of 2011 compared to the secondthird quarter of 2010. The primary drivers of the increase were sales of completions systems anddrilling fluids in the Norway geomarket andgeomarket; directional drilling and wireline sales in the Continental Europe geomarket,geomarket; and higher drilling fluids and drilling systems activity in Nigeria; partially offset by the impact of decreased sales in Libya where our operations have currently ceased pending normal resumption of operations upon resolution of the conflict.
     EARC profit before tax decreased 32%increased 123% or $22$58 million in the secondthird quarter of 2011 compared to the secondthird quarter of 2010. Improved profit before tax in the Europe and Africa regions resulting fromwere driven by higher activity was more thanin Norway and Sub Sahara Africa geomarkets, partially offset by expensesan unfavorable product mix and transient costs in Europe in the third quarter of $70 million, before and after-tax, due to the civil unrest in Libya. These expenses were associated with increasing the allowance for doubtful accounts and reserves for inventory and certain other assets in Libya.2011.

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Middle East/Asia Pacific (“MEAP”)
     Middle East/Asia PacificMEAP revenue increased 29%$102 million or 17% in the secondthird quarter of 2011 compared to the secondthird quarter of 2010. The increase in this segment was attributable to higher activity in various product linesdirectional drilling and artificial lift systems and share gains from the Iraq, Saudi Arabia geomarket and increased wireline and completion activity in the Southeast Asia and Gulf geomarkets.geomarket, with significant revenue gain in Iraq on production enhancement activity, partially offset by slower deliveries in Egypt.
     Middle East/Asia PacificMEAP profit before tax increased 120%115% or $48$45 million in the secondthird quarter of 2011 compared to the secondthird quarter of 2010 primarily due to increasedin line with the revenue increases in the Gulf, Southeast Asia and Saudi Arabia and Iraq geomarkets.geomarkets, compensating for start-up activities in Iraq.
Industrial Services and Other
     Industrial Services and Other revenue increased 45%21% in the secondthird quarter of 2011 compared to the secondthird quarter of 2010. Excluding BJ Services, revenue increased 29%. Industrial Services and Other profit before tax increased 89%decreased 22% or $16$8 million in the secondthird quarter of 2011 compared to the secondthird quarter of 2010. Excluding BJ Services, profit before tax increased 29%.2010, primarily driven by an overall increase in cost of goods and services sold.
SixNine months ended JuneSeptember 30, 2011 compared to sixnine months ended JuneSeptember 30, 2010
     Revenue for the sixnine months ended JuneSeptember 30, 2011 increased $3.35$4.45 billion or 57%45% compared to the sixnine months ended JuneSeptember 30, 2010. Excluding BJ Services, revenue was up 19%. The primary drivers of the change included increased activity and improved pricing in the U.S. Land and Canada markets and to a lesser extent, increased activity in our international segments. The increase is also due to the acquisition of BJ Services in April 2010.
     Profit before tax for the sixnine months ended JuneSeptember 30, 2011 increased $766 million$1.19 billion or 123%109% compared to the sixnine months ended JuneSeptember 30, 2010. Excluding BJ Services, profit before tax was up 70%2010, primarily due to strong activity in the North America segment where increased activity has led to increased utilization, improved absorption of manufacturing and other overhead costs, and realized pricing improvement, and to a lesser extent, higher profits in the Latin America and Middle East/Asia Pacific segments as a result of cost management, improvements in operational efficiency and improved absorption of fixed costs. The increase is also due to the acquisition of BJ Services in April 2010.
Costs and Expenses
     The table below details certain consolidated condensed statement of operations data and their percentage of revenue for the periods indicated.
                                                 
 Three Months Ended June 30, Six Months Ended June 30,  Three Months Ended September 30, Nine Months Ended September 30,
 2011 2010 2011 2010  2011 2010 2011 2010
Revenue $4,741  100% $3,374  100% $9,266  100% $5,913  100% $5,178  100% $4,078  100% $14,444  100% $9,991  100%
Cost of revenue 3,718  78% 2,662  79% 7,215  78% 4,574  77% 3,931  76% 3,189  78% 11,146  77% 7,763  78%
Research and engineering 114  2% 112  3% 220  2% 206  3% 117  2% 118  3% 337  2% 324  3%
Marketing, general and administrative 292  6% 312  9% 574  6% 617  10% 313  6% 354  9% 887  6% 971  10%
Cost of Revenue
     Cost of revenue as a percentage of revenue was 78%76% and 79%78% for the three months ended JuneSeptember 30, 2011 and 2010, respectively; and was 78%77% and 77%78% for the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively. The decrease for the three months wasThese decreases were due primarily to improved pricing in North America, and efficiency and cost management initiatives partially offset by the $70 million charge in Libya where our operations have ceased, pending resolution of the conflict. The increase for the six months was primarily due to the impacts of civil unrest in North Africa, including the charge related to Libya.globally.
Research and Engineering
     Research and engineering expenses increased 2% and 7%4% for the three and sixnine months ended JuneSeptember 30, 2011, respectively, compared to the same periodsperiod a year ago. The increases were primarily due to the acquisition of BJ Services in the second quarter of 2010. Weago as we continue to be committed to developing and commercializing new technologies as well as investing in our core product offerings.

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Marketing, General and Administrative
     Marketing, general and administrative (“MG&A”) expenses decreased 6%12% and 7%9% for the three months and sixnine months ended JuneSeptember 30, 2011, respectively, compared to the same periods a year ago. Excluding BJ Services, MG&A for the three and six months ended June 30, 2011 decreased 11% and 17%, respectively. These decreases resulted primarily from a reduction in costs associated with finance redesign efforts, which were completed during 2010. In addition, during the first six months of 2011, we benefited from reductions in

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expenses as a result of cost cutting measures implemented in the latter half of 2010 and synergies we are realizing as we continue to integrate BJ Services into our operations.
Interest Expense, net
     Interest expense, net of interest income, increased $24$19 million and $52$71 million for the three months and sixnine months ended JuneSeptember 30, 2011, respectively, compared to the same periods a year ago. These increases were primarily due to the issuance of $1.5 billion of debt in August 2010 and the issuance of $750 million of debt in August 2011. In addition, the increase for the nine months ended September 30, 2011 is due to the assumption of $500 million of debt associated with the acquisition of BJ Services in April 2010.
Loss on Early Extinguishment of Debt
     In September 2011, we redeemed in full our $500 million 6.5% fixed rate senior notes maturing November 2013 and paid a redemption premium of $63 million. The redemption resulted in a pretax loss on the early extinguishment of debt of $40 million which includes the redemption premium, the write off of the remaining original debt issuance costs and debt discount, partially offset by the $25 million gain from the termination of two related interest rate swap agreements.
Income Taxes
     Total income tax expense was $228$13 million and $432$445 million for the three months and sixnine months ended JuneSeptember 30, 2011, respectively. OurThese amounts include a $214 million tax benefit associated with the reorganization of certain foreign subsidiaries. Excluding the impact of the reorganization, our effective tax rate on operating profits for the three months and sixnine months ended JuneSeptember 30, 2011 was 40.5%31.6% and 37.5%35.2%, respectively, which is higher thanrespectively. The third quarter tax expense also included other discrete tax benefits of $23 million and was positively impacted by a more favorable mix of geographic income, partially offset by state income taxes. For the U.S. statutory incomenine months ended September 30, 2011, the effective tax rate of 35% due towas negatively impacted by the $70 million chargeimpairment of assets in Libya recorded in the second quarter for which there was no tax benefit, higher effectivebenefit.
     During the third quarter, we reorganized a portion of our foreign subsidiaries to better align certain Baker Hughes and BJ Services entities. As a result of the reorganization, previously accrued U.S. deferred income taxes related to those subsidiaries have been reduced by Baker Hughes foreign tax rates on certain international operations and state incomecredits now available to offset future U.S. taxes.
     Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business. These audits may result in assessment of additional taxes that are resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. We have received tax assessments from various taxing authorities and are currently at varying stages of appeals and/or litigation regarding these matters. We believe we have substantial defenses to the questions being raised and will pursue all legal remedies should an unfavorable outcome result. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable.
OUTLOOK
     This section should be read in conjunction with the factors described in “Part II, Item 1A. Risk Factors” and in the “Forward-Looking Statements” section in this Part I, Item 2, both contained herein. These factors could impact, either positively or negatively, our expectation for: oil and natural gas demand; oil and natural gas prices; exploration and development spending and drilling activity; and production spending.
     Our industry is cyclical, and past cycles have been driven primarily by alternating periods of ample supply or shortage 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 on 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 gas, the impact of new government regulations and their ability to fund their capital programs.
     Our outlook for exploration and development spending is based upon our expectations for customer spending in the markets in which we operate, and is driven primarily by our perception of industry expectations for oil and natural gas prices and their likely impact on customer capital and operating budgets as well as other factors that could impact the economic return oil and gas companies expect for developing oil and gas reserves. Our forecasts are based on our analysis of information provided by our customers as well as market research and analyst reports including theShort Term Energy Outlook(“STEO”) published by the Energy Information Administration (“EIA”) of the U.S. Department of Energy (“DOE”), theOil Market Reportpublished by the IEA and theMonthly Oil

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Market Reportpublished by Organization of the Petroleum Exporting Countries (“OPEC”). Our outlook for economic growth is based on our analysis of information published by a number of sources including the International Monetary Fund (“IMF”), the Organization for Economic Cooperation and Development (“OECD”) and the World Bank.
     The primary drivers impacting the 2011 business environment include the following:
Worldwide Economic Growth — The global economy is continuing its expansion following the recession of 2008/2009. Economic growth has been strongest in China and the other emerging and developing countries outside the OECD. While important in terms of total consumption, the developed economies of OECD countries are expected to experience relatively modest economic growth and will not contribute meaningfully to incremental oil or natural gas demand. In

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 • Worldwide Economic Growth — The global economy is continuing its expansion following the recession of 2008/2009. Economic growth has been strongest in China and the other emerging and developing countries outside the OECD. While important in terms of total consumption, the developed economies of OECD countries are expected to experience relatively modest economic growth and will not contribute meaningfully to incremental oil or natural gas demand. In contrast, the emerging and developing countries outside the OECD are expected to drive most of the world’s incremental energy demand. TheAs of the third quarter 2011, the risks to the global economic recovery continue to be the sovereign and financial troubles within the Euro area and policies to redress fiscal imbalances in the advanced economies in general.
 
 • Demand for Hydrocarbons — The IEA in its JulyOctober 2011 Oil Market Report said that it expects global demand for oil to increase 1.2one million barrels per day in 2011 relative to 2010. While forecasts by IEA, EIA and OPEC have been revised modestly lower in the past few months, primarily as a reaction to higher oil prices and uncertainty regarding the strength of the economic recovery, the expected increase in demand for hydrocarbons is expected to support increased spending to develop oil and natural gas resources.
 
 • Production of Hydrocarbons — Global spare production capacity is relatively limited and is proving to be inadequate to decouple oil prices from geopolitical supply disruptions throughout North Africa and the Middle East. Several key OPEC countries have announced plans to increase their exploration and development efforts to develop resources to meet the expected increase in global demand. In response to higher oil prices, certain OPEC countries have committed to increasing production. In the second quarter, the IEA announced a coordinated release of strategic oil reserves to bridge between the current tight market and increased OPEC production.stated they will increase productive capacity.
 
 • Oil and Natural Gas Prices — With oil prices trading between $90/$80/Bbl and $115/$100/Bbl most resource plays will provide adequate returns to encourage incremental investment. In North America, natural gas prices are lower, on a Btu-equivalent basis, but are supporting attractive returns in those conventional and unconventional resource plays with relatively high portions of associated crude oil or natural gas liquids production.
     Activity and Spending Outlook for North America-— Overall customer spending in North America is expected to increase in the second halffourth quarter of 2011 compared to the first halffourth quarter of 2011.2010. Resource plays with crude oil and natural gas liquids content are attracting incremental investment while investment in dry gas plays has declined. Service intensity has increased in North America as customers are demanding advanced directional drilling, more complex completion systems and pressure pumping to develop the unconventional shale resource plays. The demand for these key technologies has grown faster than the industry’s ability to produce them supportingresulting in support for higher prices. Activity in Canada is expected to increase sequentially in the third and fourth quarters,quarter, recovering from its seasonally low second quarter and building to a seasonally high peak in the first quarter. In the Gulf of Mexico, activity on the continental shelf has remained steady, while the secondthird quarter saw an increase in deep water permits and subsequently deep water drilling. The level of activity in the deep water Gulf of Mexico remains well below pre-moratorium levels; however, we have confidence that as the pace of permit issuance we experienced early in the second quarter has not been sustained. Operators’ planspermitting process is better understood deepwater activity will ultimately return to increase drilling activity are dependent on the issuance of new drilling permits.pre-Macondo levels. We are investing in our people and processes to ensure that we will be fully compliant with the new and more stringent regulatory requirements in the Gulf of Mexico, for which costs will continue over the next several quarters.
     Activity and Spending Outlook Outside North America-— International activity is driven primarily by the price of oil which is high enough to provide attractive economic returns in almost every region. Customers are expected to increase spending to develop new resources and offset declines from existing developed resources. Areas that are expected to see increased spending inthroughout the second halfrest of 2011the year include: the Middle East, in particular Saudi Arabia, Kuwait and Abu Dhabi, which have announced significant increases to their spending plans; the Brazil geomarket with the investment in the pre-salt resources; and the Andean geomarket.Colombia which has seen a rapid expansion associated with improved fiscal terms for our customers.
     Capital Expenditures-— Our capital expenditures, excluding acquisitions, are expected to be between $2.3 billion and $2.7$2.4 billion for 2011. A significant portion of our planned capital expenditures can be adjusted to reflect changes in our expectations for future customer spending. We will manage our capital expenditures to match market demand.

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LIQUIDITY AND CAPITAL RESOURCES
     Our objective in financing our business is to maintain adequate financial resources and access to sufficient liquidity. At JuneSeptember 30, 2011, we had cash and cash equivalents of $937$803 million, and $1.7of which approximately $701 million was held by foreign subsidiaries. A substantial portion of the cash held by foreign subsidiaries at September 30, 2011, was reinvested in our international operations as our intent is to use 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 taxes. In addition, we had $2.5 billion available for borrowing under committed revolving credit facilities with commercial banks. We believe that cash on hand and cash flows from operations will provide sufficient liquidity to manage our global cash needs. We may, if necessary, also issue commercial paper or other short-term debt to fund cash needs.
     Our capital planning process is focused on utilizing cash flows generated from operations in ways that enhance the value of our company. In the sixnine months ended JuneSeptember 30, 2011, we used cash to fund a variety of activities including working capital needs, capital expenditures, repayment of debt and dividends.

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Cash Flows
     Cash flows provided (used) by continuing operations, by type of activity, were as follows for the sixnine months ended JuneSeptember 30:
        
         2011 2010
 2011 2010 
Operating activities $397 $158  $682 $578 
Investing activities  (636)  (1,284)  (1,177)  (1,916)
Financing activities  (295) 473   (164) 1,344 
     Statements of cash flows for our entities with international operations that are local currency functional exclude the effects of the changes in foreign currency exchange rates that occur during any given period, as these are noncash charges.changes. As a result, changes reflected in certain accounts on the consolidated condensed statements of cash flows may not reflect the changes in corresponding accounts on the consolidated condensed balance sheets.
Operating Activities
     Cash flows from operating activities provided cash of $397$682 million and $158$578 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively. This increase in cash flows of $239$104 million was primarily due to an increase in net income, of $497 millionadjusted for noncash items, partially offset by a change in net operating assets and liabilities, which used more cash in the sixnine months ended JuneSeptember 30, 2011 compared to the same period in 2010.
     The underlying drivers of the significant changes in net operating assets and liabilities were as follows:
 • An increase in accounts receivable used cash of $512$1,107 million and $258$504 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively, resulting from revenue growth. The change in accounts receivable was primarily due to an increase in activity and an increase in the days sales outstanding (defined as the average number of days our net trade receivables are outstanding based on quarterly revenue) of approximately 5 days due primarily to temporary invoicing delays resulting from the implementation of our enterprise wide software for BJ Services in North America.
 
 • Inventory used cash of $314$463 million and $124$161 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively, driven by higher inventory levels required to support anticipated increases in production volume.
 
 • An increase in accounts payable provided cash of $57$183 million and $123$177 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively, resulting from an increase in operating assets to support increased activity.
 
 • A decrease in income taxes payable used cash of $160$189 million and $15$68 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively. This change is due primarily to an increase in income taxes paid of $305$418 million partially offset by the increase in the provision for income taxes in the first sixnine months of 2011 compared to the same period in 2010.
Investing Activities
     Our principal recurring investing activity was the funding of capital expenditures to ensure that we have the appropriate levels and types of rental tools and machinery and equipment in place to generate revenue from operations. Expenditures for capital assets totaled $1,023$1,651 million and $539$1,005 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively. While the majority of these expenditures were for rental tools and machinery and equipment, we have continued our spending on new facilities, expansions of existing facilities and other infrastructure projects.

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     Proceeds from the disposal of assets were $142$215 million and $89$152 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively. These disposals related to rental toolsequipment that werewas lost-in-hole, and property, machinery and equipment no longer used in operations that was sold during the period.
     We received proceeds from maturitiesDuring the nine months ended September 30, 2010, we purchased $250 million of short-term investments consisting of $250 million inU.S. Treasury Bills. The U.S. Treasury Bills that matured in May 2011.of 2011 and we received proceeds of $250 million.
     We routinely evaluate potential acquisitions of businesses of third parties that may enhance our current operations or expand our operations into new markets or product lines. InDuring the second quarter ofnine months ended September 30, 2010, we paid cash of $680 million, net of cash acquired of $113 million, related to the BJ Services acquisition. We also paid $154acquisition, and $172 million, net of cash acquired of $5 million, for twoseveral other acquisitions that occurred during the second quarter of 2010.acquisitions.
Financing Activities
     We had net repayments of commercial paper and other short-term debt of $21$41 million compared to net borrowings of $555$9 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively. In addition, in August 2011, we completed a private placement of $750 million 3.2% senior notes that have registration rights and will mature in August 2021, resulting in net proceeds of approximately $742 million after deducting the underwriting discounts and expenses of the offering. The 3.2% notes may only be transferred or resold in a transaction registered under or exempt from registration requirements of federal and state securities laws. In September 2011, we used $563 million of the net proceeds to redeem our 6.5% notes. The remaining net proceeds from the offering will be used for general corporate purposes, which could include funding on-going operations, business acquisitions and repurchases of our common stock. In June 2011, we repaid $250 million of long-term debt related to our 5.75% notes that matured in June 2011.matured. Total debt outstanding at JuneSeptember 30, 2011 was $3.61$3.90 billion and $3.89 billion at

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December 31, 2010. The total debt to total capitalization (defined as total debt plus stockholders’ equity) ratio was 19%20% at JuneSeptember 30, 2011 and 21% at December 31, 2010.
     We received proceeds of $115$144 million and $28$29 million in the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively, from the issuance of common stock through the exercise of stock options and the employee stock purchase plan. Additionally, we paid dividends of $195 million and $175 million in the nine months ended September 30, 2011 and 2010, respectively.
     Our Board of Directors has authorized a program to repurchase our common stock from time to time. In the sixnine months ended JuneSeptember 30, 2011 and 2010, we did not repurchase any shares of our common stock. At JuneSeptember 30, 2011, we had authorization remaining to repurchase up to a total of $1.2 billion of our common stock.
     We paid dividends of $130 million and $111 million in the six months ended June 30, 2011 and 2010, respectively.
Available Credit Facilities
     At JuneSeptember 30, 2011, we had $1.7a $2.5 billion of committed revolving credit facilitiesfacility with commercial banks. These facilities containThis facility contains certain covenants which, among other things, require the maintenance of a funded indebtedness to total capitalization ratio (a defined formula per each agreement), 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 facilitiesfacility may be accelerated. Such events of default include payment defaults to lenders under the facilities,facility, covenant defaults and other customary defaults. At JuneSeptember 30, 2011, we were in compliance with all of the facilities’facility’s covenants. There were no direct borrowings under the committed credit facilities during the sixnine months ended JuneSeptember 30, 2011. We also have a commercial paper program under which we may issue up to $1.0 billion in commercial paper with maturity of no more than 270 days. To the extent we have outstanding commercial paper our ability to borrow under the facilitiesfacility is reduced. At JuneSeptember 30, 2011, we had no outstanding commercial paper.
     If market conditions were to change and revenue was to be significantly reduced 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 facilities. However, a downgrade in our credit ratings could increase the cost of borrowings under the facilities 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 facilities.
     We believe our current credit ratings would allow us to obtain interim financing over and above our existing credit facilities for any currently unforeseen significant needs or growth opportunities. We also believe that such interim financings could be funded with subsequent issuances of long-term debt or equity, if necessary.

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Cash Requirements
     In 2011, we believe cash on hand and operating cash flows will provide us with sufficient capital resources and liquidity to manage our working capital needs, meet contractual obligations, fund capital expenditures, and support the development of our short-term and long-term operating strategies. 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 2011, we expect capital expenditures to be between $2.3 billion and $2.7$2.4 billion, excluding any amount related to acquisitions. The expenditures are expected to be used primarily for normal, recurring items necessary to support the growth of our business and operations. A significant portion of our capital expenditures can be adjusted based on future activity of our customers. We will manage our capital expenditures to match market demand.
     In 2011, we expect to make interest payments of between $215 million and $225 million, based on our current expectations of debt levels. We anticipate making income tax payments of between $1.1 billion and $1.2 billion in 2011.
     We may repurchase our common stock depending on market conditions, applicable legal requirements, our liquidity and other considerations. We anticipate paying dividends of between $260$255 million and $270$265 million in 2011; however, the Board of Directors can change the dividend policy at any time.
     For 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. In 2011, we expect to contribute between $65 million and $85 million to our defined benefit pension plans. We also expect to make benefit payments related to postretirement welfare plans of between $16 million and $18 million, and we estimate we will contribute between $190$187 million and $205$203 million to our defined contribution plans.

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Accounting Standards Updates

     In May 2011, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“ASC”) 820,Fair Value Measurement. The Accounting Standards Update (“ASU”) conforms certain sections of ASC 820 to International Financial Reporting Standards in order to provide a single converged guidance on the measurement of fair value. This update also expands the existing disclosure requirements for fair value measurements. This ASU is effective for interim and annual periods beginning after December 15, 2011. We will adopt this ASU prospectively in the first quarter of 2012. We currently do not expect this ASU to have a material impact, if any, on our consolidated condensed financial statements.
     In June 2011, the FASB issued an update to ASC 220,Comprehensive Income. This ASU requires entities to present components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements that would include reclassification adjustments for items that are reclassified from other comprehensive income to net income on the face of the financial statements. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We will adopt the new presentation requirements of this ASU retrospectively in the first quarter of 2012.
     In September 2011, the FASB issued an update to ASC 350,Intangibles — Goodwill and Other. This ASU amends the guidance in ASC 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test annually for impairment. The ASU is limited to goodwill and does not amend the annual requirement for testing other indefinite-lived intangible assets for impairment. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We will adopt this ASU for our 2012 goodwill impairment testing. We do not expect this ASU to have a material impact, if any, on our consolidated condensed financial statements.
FORWARD-LOOKING STATEMENTS
     MD&A and certain statements in the Notes to Consolidated Condensed Financial Statements include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (each a “forward-looking statement”). The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “estimate,” “probable,” “project,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “would,” “may,” “probable,” “likely” and similar expressions, and the negative thereof, are intended to identify forward-looking statements. 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 transaction that could occur. We undertake no obligation to publicly update or revise any forward-looking statement. Our expectations regarding our

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business outlook and business plans; the business plans of our customers; oil and natural gas market conditions; costs and availability of resources; the on-going integration of BJ Services; economic, legal and regulatory conditions and other 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 II, Item 1A. Risk Factors” section contained herein, as well as the risk factors described in our 2010 Annual Report, this filing and those set forth from time to time in our filings with the SEC. These documents are available through our web site or through the SEC’s Electronic Data Gathering and Analysis Retrieval System (“EDGAR”) at http://www.sec.gov.www.sec.gov.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     We conduct operations around the world in a number of different currencies. A number of our significant foreign subsidiaries have designated the local currency as their functional currency. As such, future earnings are subject to change due to changes in foreign currency exchange rates when transactions are denominated in currencies other than our functional currencies. To minimize the need for foreign currency forward contracts to hedge this exposure, our objective is to manage foreign currency exposure by maintaining a minimal consolidated net asset or net liability position in a currency other than the functional currency.
Foreign Currency Forward Contracts
     At JuneSeptember 30, 2011, we had outstanding foreign currency forward contracts with notional amounts aggregating $150$157 million to hedge exposure to currency fluctuations in various foreign currencies. These contracts are designated and qualify as fair value hedging instruments. The fair value of the contracts outstanding at JuneSeptember 30, 2011, based on quoted market prices as of JuneSeptember 30, 2011, for contracts with similar terms and maturity dates, was $1$3 million included in other current assets and $1$8 million included in other accrued liabilities in the consolidated condensed balance sheet. The effect of foreign currency forward contracts on the consolidated condensed statement of operations for the three months and sixnine months ended JuneSeptember 30, 2011 was $2$3 million and $3$6 million, respectively, of foreign exchange losses, which were included in marketing, general and administrative expenses. These net losses offset designated foreign exchange net gains resulting from the underlying exposures of the hedged items.
Interest Rate Swaps
     We are subject to interest rate risk on our debt and investment of cash and cash equivalents arising in the normal course of our business, as we do not engage in speculative trading strategies. We maintain an interest rate management strategy, which primarily uses a mix of fixed and variable rate debt that is intended to mitigate the exposure to changes in interest rates in the aggregate for our investment portfolio. In addition, we are currently usingWe use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt when appropriate.
     In September 2011, we redeemed in full our senior notes so that the6.5% notes. Consequently, we terminated two related interest payablerate swap agreements resulting in a gain on the senior notes effectively becomes linkedswaps of $25 million. The two swap agreements were entered into in June 2009 for a notional amount of $250 million each in order to variable rates. Our interest rate swaps arehedge changes in the fair market value of the related notes. The swap agreements had been designated and each qualifiesqualified as a fair value hedging instrument. The fair value of our interest rate swaps was determined using a model with Level 2 inputs including quoted market prices for contracts with similar terms and maturity dates. The fair value of the swap agreements at June 30, 2011, was $24 million and was included in other assets in the consolidated condensed balance sheet. The effect of interest ratethe swaps on the consolidated condensed statement of operations for the three months and sixnine months ended JuneSeptember 30, 2011 was a reduction in interest expense of $3$2 million and $6$8 million, respectively.

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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”). 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 JuneSeptember 30, 2011, our disclosure controls and procedures, as defined by Rule 13a-15(e) of the Exchange Act, are effective at a reasonable assurance level. There has been no change in our internal controls over financial reporting during the quarter ended JuneSeptember 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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     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.
PART II.II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     We are subject to a number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. See a further discussion of litigation matters in Note 11 of Notes to Unaudited Consolidated Condensed Financial Statements.
     For additional discussion of legal proceedings see also, Item 3 of Part I of our 2010 Annual Report and Note 14 of the Notes to the Consolidated Financial Statements included in Item 8 of our 2010 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” in the 2010 Annual Report, and the Form 10-Q for the period ended March 31, 2011, and the Form 10-Q for the period ended June 30, 2011 as well as the following risk factor:
     Our business is subject to geopolitical, terrorism risks and other threats.
     Geopolitical and terrorism risks continue to grow in several key countries where we do business. Geopolitical and terrorism risks could lead to, among other things, a loss of our investment in the country, impair the safety of our employees and impair our ability to conduct our operations. During the first sixnine months ofended September 30, 2011, there was political unrest in North Africa, and in particular Libya, where our operations have currently ceased pending resolution of the conflict. During the quarter ended June 30, 2011, we incurred expenses of $70 million associated with increasing the allowance for doubtful accounts, and reserves for inventory and certain other assets in Libya. As of JuneSeptember 30, 2011, we have assets remaining in Libya totaling approximately $80$77 million.

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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 JuneSeptember 30, 2011.
Issuer Purchases of Equity Securities
                         
                      Maximum 
          Total Number          Number (or 
          of Shares          Approximate 
          Purchased as          Dollar Value) of 
          Part of a      Total Number  Shares that May 
  Total Number  Average Price  Publicly  Average Price  of Shares  Yet Be Purchased 
  of Shares  Paid Per Share  Announced  Paid Per Share  Purchased in  Under the 
Period Purchased(1)  (1)  Program(2)  (2)  the Aggregate  Program(3) 
 
April 1-30, 2011  31,378  $72.36   —  $—   31,378  $— 
May 1-31, 2011  3,140   74.55   —   —   3,140   — 
June 1-30, 2011  293   72.34   —   —   293   — 
 
Total  34,811  $72.56   —  $—   34,811  $1,197,127,803 
 
                         
Issuer Purchases of Equity Securities
                      Maximum
          Total Number         Number (or
          of Shares         Approximate
          Purchased as         Dollar Value) of
          Part of a     Total Number Shares that May
  Total Number Average Price Publicly Average Price of Shares Yet Be Purchased
  of Shares Paid Per Share Announced Paid Per Share Purchased in Under the
Period Purchased(1) (1) Program(2) (2) the Aggregate Program(3)
 
July 1-31, 2011  40,584  $78.86   —  $—   40,584  $— 
August 1-31, 2011  10,557   58.61   —   —   10,557   — 
September 1-30, 2011  1,120   52.20   —   —   1,120   — 
 
Total  52,261  $74.20   —  $—   52,261  $1,197,127,803 
 
 
(1) Represents shares purchased from employees to pay the option exercise price related to stock-for-stock exchanges in option exercises or to satisfy the tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock units.
 
(2) There were no share repurchases during the three months ended JuneSeptember 30, 2011.
 
(3) Our Board of Directors has authorized a plan to repurchase our common stock from time to time. During the three months ended JuneSeptember 30, 2011, we did not repurchase shares of our common stock. We had authorization remaining to repurchase up to a total of approximately $1.2 billion of our common stock.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
     None.
ITEM 4. [REMOVED AND RESERVED]
ITEM 5. OTHER INFORMATION
     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 the recently proposed Item 106 of Regulation S-K (17 CFR 229.106) is included in Exhibit 99.1 to this quarterly report.
     The following events occurred subsequent to the period covered by this Form 10-Q and is reportable under Form 8-K:
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
     On July 28, 2011, the Board of Directors of the Company appointed Martin S. Craighead to serve on the Board of Directors of the Company, effective August 1, 2011. His term will expire at the Annual Stockholders Meeting in 2012. Mr. Craighead is the current President and Chief Operating Officer of the Company and will assume the role of Chief Executive Officer on January 1, 2012 in addition to his role as President.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

     On July 28, 2011, our Board of Directors amended and restated the Bylaws of the Company effective as of August 1, 2011. The amended and restated Bylaws changed Article III, Section 1 to require the size of the Board of Directors to increase from 11 to 12 directors.
Item 5.07 Submission of Matters to a Vote of Security Holders
     At our Annual Meeting of Stockholders held on April 28, 2011, our stockholders voted on, among other matters, a proposal regarding the frequency of future advisory votes on executive compensation (say on pay). As previously reported on our Form 8-K filed on May 3, 2011, a majority of the votes cast on the frequency proposal were cast in favor of holding an advisory vote on

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executive compensation on an annual basis. Following consideration of the stockholder advisory vote on the frequency proposal, our Board of Directors decided at a meeting held on July 28, 2011, that we will hold an annual advisory vote on executive compensation in its future proxy materials until the next stockholder vote on the frequency of these votes.
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. Exhibit designated with a “+” is identified as a compensatory arrangement.
   
3.1*4.1 Restated Bylaws ofFirst Supplemental Indenture dated August 17, 2011 between Baker Hughes Incorporated dated August 1, 2011.
4.1  Fifth Supplemental Indenture, dated June 21, 2011, between BJ Servicesand The Bank of New York Mellon Trust Company, LLC, as company, Western Atlas Inc., as successor company, and Wells Fargo Bank, N.A., as trustee with respect to(including form of the 6% Senior Notes due 2018Notes) (filed as Exhibit 4.44.2 to the Current Report of Baker Hughes Incorporated on Form 8-K filed Juneon August 23, 2011).
   
4.2  10.1 Restated Bylaws ofPurchase Agreement dated August 10, 2011 among Baker Hughes Incorporated dated August 1, 2011 (filedand J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Exhibit 3.1 to this Quarterly Report on
Form 10-Q).
10.1+Restated and Superseding Employment Agreement between Chad C. Deaton and Baker Hughes Incorporated dated April 28, 2011representatives of the several initial purchasers named therein (filed as Exhibit 10.1 to the Current Report of Baker Hughes Incorporated on Form 8-K filed May 3,on August 15, 2011).
10.2Registration Rights Agreement dated August 17, 2011 among Baker Hughes Incorporated and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several initial purchasers named therein (filed as Exhibit 10.1 to the Current Report of Baker Hughes Incorporated on Form 8-K filed on August 23, 2011).
10.3Credit Agreement dated as of September 13, 2011, among Baker Hughes Incorporated, JPMorgan Chase Bank, N.A., as Administrative Agent and twenty-one lenders for $2.5 billion, in the aggregate for all banks (filed as Exhibit 10.1 to the Current Report of Baker Hughes Incorporated on Form 8-K filed on September 15, 2011).
 
31.1* Certification of Chad C. Deaton, Chief Executive Officer, furnished pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
 
31.2* Certification of Peter A. Ragauss, Chief Financial Officer, furnished pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
 
32* Statement of Chad C. Deaton, Chief Executive Officer, and Peter A. Ragauss, Chief Financial Officer, furnished pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.
 
99.1* Mine Safety Disclosure.
 
**101.INS101.INS* XBRL Instance Document
 
**101.SCH101.SCH* XBRL Schema Document
 
**101.CAL101.CAL* XBRL Calculation Linkbase Document
 
**101.LAB101.LAB* XBRL Label Linkbase Document
 
**101.PRE101.PRE* XBRL Presentation Linkbase Document
 
**101.DEF101.DEF* XBRL Definition Linkbase Document
**Furnished with this Form 10-Q, not filed

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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)
     
BAKER HUGHES INCORPORATED
(Registrant)
Date: November 2, 2011		 
Date: August 1, 2011 By: /s/ PETER A. RAGAUSS
  
  Peter A. Ragauss  
  Senior Vice President and Chief Financial Officer 
 
   
Date: August 1,November 2, 2011 By: /s/ ALAN J. KEIFER
  
  Alan J. Keifer  
  Vice President and Controller  

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