Baker Hughes said that net income for the first quarter 2009 comprises expenses of about $83 million before tax (or about $0.19 per share) comprised of $54 million (or about $0.12 per share) associated with employee severance and about $29 million (or about $0.07 per share) associated with increasing the company’s allowance for doubtful accounts. Net income for the first quarter 2008 comprised a pre-tax gain of $28 million (about $18 million after-tax or $0.06 per diluted share) from the sale of a product line and net income for the fourth quarter 2008 included an impairment of auction rate securities of $25 million after-tax ($0.08 per diluted share).

North America revenue was $1.08 billion, for the first quarter 2009, down 8% compared with the $1.18 billion for the year-ago quarter and down 23% compared to $1.41 billion for the fourth quarter 2008. Revenue outside of North America for the first quarter 2009 was $1.59 billion, up 6% compared to $1.49 billion for the first quarter 2008 and down 11% compared to $1.78 billion for the fourth quarter 2008.

Chad C. Deaton, Baker Hughes chairman, president and chief executive officer, said, Our first quarter results for North America reflect the severe contraction in customer spending and activity. Profit from North America operations was impacted by significantly lower activity levels, severance charges and price deterioration. Results from operations outside North America reflected the relative strength of international markets as contraction in the Saudi Arabia, Russia, Caspian and UK markets was partially offset by strength in the Latin America, Norway, and Africa markets. Profitability was also impacted negatively by changes in foreign exchange rates and charges related to severance and allowances for doubtful accounts.”

Looking forward, the fundamentals that drive our outlook are essentially unchanged. We expect customer activity in North America to continue to decline, and see little chance of a recovery before the end of the year. Internationally, oil prices and the strength of the global economy remain the most critical factors for determining international spending and activity.”

We have taken actions in North America to reduce our operating costs through workforce reductions, facility consolidations, and other cost control measures. Our financial strength allows us to continue our program of expanding our international infrastructure. Baker Hughes will exit this cycle as a stronger competitor, so we are continuing our investment in infrastructure, research and development, and training.

During the first quarter 2009, debt declined $520 million to $1.81 billion and cash and short-term investments decreased $776 million to $1.18 billion as compared with the fourth quarter 2008. In the first quarter 2009, Baker Hughes repaid about $525 million of maturing long-term debt. The next maturities of long-term debt amounting to $500 million are due in November 2013. In March 2009 the company effectively renewed a $500 million 364-day revolving credit facility. Capital expenditures were $281 million, depreciation and amortization expense was $173 million and dividend payments were $46 million in the first quarter 2009.

Operational Highlights

North America

Customer spending and drilling activity contracted in North America as customers adapted to a market characterized by lower natural gas and oil prices, scarce commercial credit, ample natural gas supplies and decreased natural gas demand. The pace of activity contraction, as measured by the rig count, has been faster than any other cyclical contraction post-1986. Completion and production segment revenue was less affected than Baker Hughes drilling and evaluation segment revenue. Comparing with the first quarter of 2009 to the year-ago quarter, completion and production segment revenue raised 8% while drilling and evaluation product line segment revenue declined 24%, as the North America rig count decreased 27%. Comparing first quarter of 2009 to fourth quarter of 2008, completion and production segment revenue declined 15% while drilling and evaluation segment revenue decreased 33%, as the North America rig count declined 28%.

The decline in North America profit before tax operating margin was mainly due to decreased activity levels, price deterioration, severance costs recognized in first quarter of 2009, and the weakness of the Canadian dollar.

Latin America

The year-over-year growth in Latin America revenue was led by directional drilling systems, logging-while-drilling, and drilling fluids in Brazil and completion systems in Mexico. Consecutively, revenue declined mainly due to the anticipated seasonal drop in large export orders from fourth quarter 2008 to first quarter of 2009.

Building on the company’s successes in Brazil, Baker Hughes was awarded a four year, $170 million contract for directional drilling, logging-while-drilling, upper completions, and artificial lift systems for a major oil company operating in Brazil. In Mexico, the Alma Marine integrated operations project for PEMEX began in first quarter of 2009, and Baker Hughes is currently operating on two offshore rigs.

The decrease in the Latin America profit before tax operating margin was impacted by start up costs associated with the new contracts in Mexico and Brazil, an increase in the company’s allowance for doubtful accounts in the region, and the seasonal decline in export shipments from fourth quarter of 2008 to first quarter of 2009.

Europe Africa Russia Caspian

The year-over-year growth in Europe Africa Russia Caspian revenue was led by directional drilling and logging-while-drilling in Norway, Libya and Angola; drilling fluids in Libya; wireline systems in Angola and Libya; and completion systems in Nigeria and Libya. Sequentially, the decrease in Europe Africa Russia Caspian revenue was attributable to decreased revenue from Russia, the Caspian and the UK, as well as the negative impact of unfavorable foreign currency changes relative to the US dollar.

Baker Hughes has been granted a major portion of a West African deepwater project by a major international oil company which will begin operations in second quarter of 2009. Product lines awarded comprise directional drilling, logging-while-drilling, wireline and completions.

Middle East Asia Pacific

The increase in Middle East Asia Pacific revenue in first quarter of 2009 compared to first quarter of 2008 was led by directional drilling systems, logging-while-drilling, and drilling fluids and artificial lift. Sequentially, comparing first quarter of 2009 to fourth quarter of 2008 the decrease in revenue was primarily in Saudi Arabia, Indonesia and Australia.