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Chad฀C.฀Deaton฀
Chairman฀and฀
Chief฀Executive฀Officer
Houston,฀Texas฀
February฀24,฀2005
G.฀Stephen฀Finley฀
Senior฀Vice฀President฀–฀
Finance฀and฀Administration,฀
and฀Chief฀Financial฀Officer
Alan฀J.฀Keifer฀
Vice฀President฀and฀
Controller
ITEM฀8.฀FINANCIAL฀STATEMENTS฀AND฀SUPPLEMENTARY฀DATA
Management’s฀Report฀on฀Internal฀Control฀Over฀Financial฀Reporting
Our฀management฀is฀responsible฀for฀establishing฀and฀maintaining฀adequate฀internal฀control฀over฀our฀financial฀reporting,฀as฀such฀
term฀is฀defined฀in฀Exchange฀Act฀Rules฀13a-15(f).฀Our฀internal฀control฀over฀financial฀reporting฀is฀a฀process฀designed฀to฀provide฀rea-
sonable฀assurance฀regarding฀the฀reliability฀of฀financial฀reporting฀and฀the฀preparation฀of฀financial฀statements฀for฀external฀purposes฀in฀
accordance฀with฀generally฀accepted฀accounting฀principles.฀Our฀control฀environment฀is฀the฀foundation฀for฀our฀system฀of฀internal฀con-
trol฀and฀is฀embodied฀in฀our฀Business฀Code฀of฀Conduct,฀which฀sets฀the฀tone฀of฀our฀company฀and฀includes฀our฀Core฀Values฀of฀Integ-
rity,฀Teamwork,฀Performance฀and฀Learning.฀Included฀in฀our฀system฀of฀internal฀control฀are฀written฀policies,฀an฀organizational฀structure฀
providing฀division฀of฀responsibilities,฀the฀selection฀and฀training฀of฀qualified฀personnel฀and฀a฀program฀of฀financial฀and฀operations฀
reviews฀by฀a฀professional฀staff฀of฀corporate฀auditors.฀Our฀internal฀control฀over฀financial฀reporting฀includes฀those฀policies฀and฀proce-
dures฀that฀(i)฀pertain฀to฀the฀maintenance฀of฀records฀that,฀in฀reasonable฀detail,฀accurately฀and฀fairly฀reflect฀the฀underlying฀transac-
tions,฀including฀the฀acquisition฀and฀disposition฀of฀assets;฀(ii)฀provide฀reasonable฀assurance฀that฀our฀assets฀are฀safeguarded฀and฀
transactions฀are฀executed฀in฀accordance฀with฀management’s฀and฀our฀directors’฀authorization฀and฀are฀recorded฀as฀necessary฀to฀per-
mit฀preparation฀of฀our฀financial฀statements฀in฀accordance฀with฀generally฀accepted฀accounting฀principles;฀and฀(iii)฀provide฀reasonable฀
assurance฀regarding฀prevention฀or฀timely฀detection฀of฀unauthorized฀acquisition,฀use,฀or฀disposition฀of฀our฀assets฀that฀could฀have฀a฀
material฀effect฀on฀the฀financial฀statements.
Under฀the฀supervision฀and฀with฀the฀participation฀of฀our฀management,฀including฀our฀principal฀executive฀officer฀and฀principal฀
financial฀officer,฀we฀conducted฀an฀evaluation฀of฀the฀effectiveness฀of฀our฀internal฀control฀over฀financial฀reporting.฀Our฀evaluation฀was฀
based฀on฀the฀framework฀in฀Internal฀Control฀–฀Integrated฀Framework฀issued฀by฀the฀Committee฀of฀Sponsoring฀Organizations฀of฀the฀
Treadway฀Commission.
Based฀on฀our฀evaluation฀under฀the฀framework฀in฀Internal฀Control฀–฀Integrated฀Framework,฀our฀principal฀executive฀officer฀and฀prin-
cipal฀financial฀officer฀concluded฀that฀our฀internal฀control฀over฀financial฀reporting฀was฀effective฀as฀of฀December฀31,฀2004.฀The฀conclu-
sion฀of฀our฀principal฀executive฀officer฀and฀principal฀financial฀officer฀is฀based฀on฀the฀recognition฀that฀there฀are฀inherent฀limitations฀in฀all฀
systems฀of฀internal฀control.฀Because฀of฀its฀inherent฀limitations,฀internal฀control฀over฀financial฀reporting฀may฀not฀prevent฀or฀detect฀mis-
statements.฀Also,฀projections฀of฀any฀evaluation฀of฀effectiveness฀to฀future฀periods฀are฀subject฀to฀the฀risk฀that฀controls฀may฀become฀
inadequate฀because฀of฀changes฀in฀conditions,฀or฀that฀the฀degree฀of฀compliance฀with฀the฀policies฀or฀procedures฀may฀deteriorate.
Our฀management’s฀assessment฀of฀the฀effectiveness฀of฀our฀internal฀control฀over฀financial฀reporting฀as฀of฀December฀31,฀2004฀
has฀been฀audited฀by฀Deloitte฀&฀Touche฀LLP,฀an฀independent฀registered฀public฀accounting฀firm,฀as฀stated฀in฀their฀report฀which฀is฀
included฀herein.
36฀฀฀฀฀Baker฀Hughes฀Incorporated