Baker Hughes Announces Second Quarter Results

HOUSTON, Jul 29, 2004 /PRNewswire-FirstCall via COMTEX/ -- Baker Hughes Incorporated (NYSE: BHI) announced today that, in accordance with generally accepted accounting principles (GAAP), income from continuing operations for the second quarter of 2004 was $116.3 million or $0.35 per share (diluted), up 41% compared to $82.4 million or $0.24 per share (diluted) for the second quarter of 2003, and up 23% compared to $94.4 million or $0.28 per share (diluted) for the first quarter of 2004.

Yesterday, the company announced that it had entered into an agreement with Atlas Copco North America, Inc. for the sale of Baker Hughes Mining Tools, "BHMT". The closing, which is subject to satisfaction of certain closing conditions, is expected to occur by the end of the third quarter. Accordingly the company has classified and is now reporting BHMT as a discontinued business for all current and prior periods. Revised revenue, operating profit (see definition below in Operational Highlights), capital spending and depreciation and amortization for prior quarters, beginning with the March 2001 quarter, can be found on the company's website at http://www.bakerhughes.com/investor .

Net income for the second quarter of 2004 was $116.5 million or $0.35 per share (diluted) compared to $81.6 million or $0.24 per share (diluted) for the second quarter of 2003 and $94.6 million or $0.28 per share (diluted) for the first quarter of 2004.

Revenue for the second quarter of 2004 was $1,499.0 million, up 15% compared to $1,305.7 million for the second quarter of 2003 and up 8% compared to $1,387.6 million for the first quarter of 2004.

Michael E. Wiley, Baker Hughes' chairman and chief executive officer, said, "Total operating profit before tax was up 36% compared to the second quarter a year ago and each of our divisions reported double digit operating margins. Continued improvement in many of our non-North American markets more than offset seasonally weak results from Canada."

Commenting on the outlook for 2004, Mr. Wiley continued, "Our outlook for the balance of the year is positive. Expected strong activity in the North American land market and growth in international markets should continue to improve capacity utilization, resulting in margin growth. Our optimism regarding activity levels and the potential pricing and margin improvement are reflected in our increased guidance for the year."

Financial Flexibility

During the second quarter of 2004, debt decreased $140.0 million to $1,311.9 million, and cash decreased $108.3 million to $47.4 million. The company repaid fixed-rate debt issues that came due in May 2004 and June 2004 for $100.0 million and $250.0 million, respectively, from cash on hand and short-term commercial paper borrowings. In the second quarter of 2004, the company's capital expenditures were $82.1 million, depreciation and amortization was $91.2 million and dividend payments were $38.3 million.

In September 2002, the company's Board of Directors authorized the company to repurchase up to $275.0 million of its common stock. During the second quarter of 2004, the company did not purchase any shares. In total, the company has purchased approximately 8.1 million shares at a cost of $230.5 million and has authorization remaining to purchase up to $44.5 million in stock.


     Financial Information
     (In millions, except per
      share amounts)                      Three Months Ended
                                     ----------------------------------------
                                             June 30,              March 31,
                                     --------------------------    ----------
     UNAUDITED                          2004            2003          2004
                                     ----------     -----------    ----------
    Revenues                          $1,499.0        $1,305.7      $1,387.6
                                     ----------     -----------    ----------
    Costs and Expenses:
      Cost of revenues                 1,071.1           939.6       1,015.2
      Selling, general and
       administrative                    233.7           207.6         213.1
                                     ----------     -----------    ----------
        Total costs and expenses       1,304.8         1,147.2       1,228.3
                                     ----------     -----------    ----------
    Operating income                     194.2           158.5         159.3
    Equity in income (loss) of
     affiliates                            3.5            (3.6)          8.9
    Interest expense                     (21.8)          (24.6)        (25.3)
    Interest income                        1.6             0.5           1.2
                                     ----------     -----------    ----------
    Income from continuing
     operations before income taxes      177.5           130.8         144.1
    Income taxes                         (61.2)          (48.4)        (49.7)
                                     ----------     -----------    ----------
    Income from continuing
     operations                          116.3            82.4          94.4
    Discontinued operations:
      Income (loss) from operations
       of BIRD and BHMT                    0.2            (0.8)          0.7
      Loss on disposal of BIRD             ---             ---          (0.5)
                                     ----------     -----------    ----------
      Income (loss) from
       discontinued operations,
       net of tax                          0.2            (0.8)          0.2
                                     ----------     -----------    ----------
    Net income                          $116.5           $81.6         $94.6
                                     ==========     ===========    ==========
    Basic earnings per share:
      Income from continuing
       operations                        $0.35           $0.24         $0.28
      Income (loss) from
       discontinued operations             ---             ---           ---
                                     ----------     -----------    ----------
      Net income                         $0.35           $0.24         $0.28
                                     ==========     ===========    ==========
    Diluted earnings per share:
      Income from continuing
       operations                        $0.35           $0.24         $0.28
      Income (loss) from
       discontinued operations             ---             ---           ---
                                     ----------     -----------    ----------
      Net income                         $0.35           $0.24         $0.28
                                     ==========     ===========    ==========
    Shares outstanding, basic            333.0           335.4         332.4
    Shares outstanding, diluted          334.7           336.3         334.1

    Depreciation and amortization
     expense                             $91.2           $84.4         $93.3

    Capital expenditures                 $82.1           $87.7         $82.3


     Financial Information                             Six Months Ended
     (In millions, except per share amounts)                June 30,
                                                   -------------------------
     UNAUDITED                                        2004           2003
                                                   ----------    -----------
    Revenues                                        $2,886.6       $2,495.6
                                                   ----------    -----------
    Costs and Expenses:
      Cost of revenues                               2,086.3        1,830.8
      Selling, general and administrative              446.8          401.8
                                                   ----------    -----------
        Total costs and expenses                     2,533.1        2,232.6
                                                   ----------    -----------
    Operating income                                   353.5          263.0
    Equity in income (loss) of affiliates               12.4           (4.0)
    Interest expense                                   (47.1)         (53.0)
    Interest income                                      2.8            3.1
                                                   ----------    -----------
    Income from continuing operations before
     income taxes                                      321.6          209.1
    Income taxes                                      (110.9)         (77.3)
                                                   ----------    -----------
    Income from continuing operations                  210.7          131.8
    Discontinued operations:
      Income (loss) from operations of E&P,
       BIRD and BHMT                                     0.9           (1.7)
      Gain on disposal of E&P                            ---            4.1
      Loss on disposal of EIMCO                          ---           (2.5)
      Loss on disposal of BIRD                          (0.5)           ---
                                                   ----------    -----------
      Income (loss) from discontinued
       operations, net of tax                            0.4           (0.1)
                                                   ----------    -----------
    Income before cumulative effect of
     accounting change                                 211.1          131.7
    Cumulative effect of accounting change,
     net of tax                                          ---           (5.6)
                                                   ----------    -----------
    Net income                                        $211.1         $126.1
                                                   ==========    ===========
    Basic earnings per share:
      Income from continuing operations                $0.63          $0.39
      Income (loss) from discontinued operations         ---            ---
      Cumulative effect of accounting change             ---          (0.02)
                                                   ----------    -----------
      Net income                                       $0.63          $0.37
                                                   ==========    ===========
    Diluted earnings per share:
      Income from continuing operations                $0.63          $0.39
      Income (loss) from discontinued operations         ---            ---
      Cumulative effect of accounting change             ---          (0.02)
                                                   ----------    -----------
      Net income                                       $0.63          $0.37
                                                   ==========    ===========
    Shares outstanding, basic                          332.7          336.0
    Shares outstanding, diluted                        334.4          337.0

    Depreciation and amortization expense             $184.5         $168.2

    Capital expenditures                              $164.4         $174.2


     Calculation of EBIT and EBITDA (non-GAAP measures) (A):

                                                  Three Months Ended
                                     -----------------------------------------
     (In millions)                            June 30,             March 31,
                                     ---------------------------
     UNAUDITED                          2004            2003          2004
                                     ----------       ----------    ----------
    Income from continuing
     operations before
     income taxes                       $177.5          $130.8        $144.1
    Interest expense                      21.8            24.6          25.3
                                     ----------       ----------    ----------
    Earnings before interest
     expense and taxes (EBIT)            199.3           155.4         169.4
    Total depreciation and
     amortization expense                 91.2            84.4          93.3
                                     ----------       ----------    ----------
    Earnings before interest
     expense, taxes, depreciation
     and amortization (EBITDA)          $290.5          $239.8        $262.7
                                     ==========       ==========    ==========

                                           Six Months Ended
     (In millions)                             June 30,
                                     ---------------------------
     UNAUDITED                          2004            2003
                                     ----------       ----------
    Income from continuing
     operations before income
     taxes                              $321.6          $209.1
    Interest expense                      47.1            53.0
                                     ----------       ----------
    Earnings before interest
     expense and taxes (EBIT)            368.7           262.1
    Total depreciation and
     amortization expense                184.5           168.2
                                     ----------       ----------
    Earnings before interest
     expense, taxes, depreciation
     and amortization (EBITDA)          $553.2          $430.3
                                     ==========       ==========

     (A)  EBIT and EBITDA are non-GAAP measurements.  Management uses EBIT and
          EBITDA because it believes that such measurements are widely
          accepted financial indicators used by investors and analysts to
          analyze and compare companies on the basis of operating performance
          and that these measurements may be used by investors to make
          informed investment decisions.


     Consolidated Condensed Balance Sheets
                                                   UNAUDITED       AUDITED
                                                    June 30,     December 31,
     ========================================================================
     (In millions)                                    2004           2003
     ========================================================================
    ASSETS
    Current Assets:
      Cash and cash equivalents                       $47.4          $98.4
      Accounts receivable, net                      1,234.1        1,141.8
      Inventories                                   1,036.1        1,013.4
      Deferred income taxes                           149.0          170.8
      Other current assets                             51.1           58.1
      Assets of discontinued operations                23.4           48.7
     ------------------------------------------------------------------------
        Total current assets                        2,541.1        2,531.2
     ------------------------------------------------------------------------

    Investments in affiliates                         671.2          691.3
    Property, net                                   1,358.5        1,395.1
    Goodwill                                        1,242.4        1,239.4
    Intangible assets, net                            156.3          163.4
    Other assets                                      300.3          281.8
     ------------------------------------------------------------------------
    Total assets                                   $6,269.8       $6,302.2
     ========================================================================

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                               $425.2         $386.4
      Short-term borrowings and current portion
       of long-term debt                              197.6          351.4
      Accrued employee compensation                   265.6          277.8
      Other accrued liabilities                       296.0          279.3
      Liabilities of discontinued operations            2.8           29.5
     ------------------------------------------------------------------------
        Total current liabilities                   1,187.2        1,324.4
     ------------------------------------------------------------------------

    Long-term debt                                  1,114.3        1,133.0
    Pensions and postretirement benefit
     obligations                                      299.0          311.1
    Other liabilities                                 177.5          183.3

    Stockholders' equity:
      Common stock                                    333.2          332.0
      Capital in excess of par value                3,025.7        2,998.6
      Retained earnings                               305.5          170.9
      Accumulated other comprehensive loss           (172.6)        (151.1)
     ------------------------------------------------------------------------
    Total stockholders' equity                      3,491.8        3,350.4
     ------------------------------------------------------------------------
    Total liabilities and stockholders' equity     $6,269.8       $6,302.2
     ========================================================================

Operational Highlights

Operational highlights for the three months ended June 30, 2004, June 30, 2003 and March 31, 2004 are detailed below. WesternGeco is our seismic joint venture with Schlumberger Limited. All results are unaudited and shown in millions.

                   Comparison of Quarters -- Year over Year
             (for the three months ended June 30, 2004 and 2003)
     ------------------------------------------------------------------------
                                   Revenue            Operating Profit(A)
                                                           Before Tax
                            Q2 2004      Q2 2003      Q2 2004      Q2 2003
     ------------------------------------------------------------------------
    Oilfield Operations,
     excluding WesternGeco  $1,497.9     $1,305.7       $247.5       $197.9
    WesternGeco                  ---          ---          3.8         (5.8)
     ------------------------------------------------------------------------
    Oilfield Operations      1,497.9      1,305.7        251.3        192.1
    Corporate, net
     interest and other          1.1          ---        (73.8)       (61.3)
     ------------------------------------------------------------------------
    Total                   $1,499.0     $1,305.7       $177.5       $130.8
     ========================================================================

                     Comparison of Quarters -- Sequential
        (for the three months ended June 30, 2004 and March 31, 2004)
     ------------------------------------------------------------------------
                                  Revenue              Operating Profit(A)
                                                           Before Tax
                            Q2 2004      Q1 2004      Q2 2004      Q1 2004
     ------------------------------------------------------------------------
    Oilfield Operations,
     excluding WesternGeco  $1,497.9     $1,387.3       $247.5       $203.4
    WesternGeco                  ---          ---          3.8          9.0
     ------------------------------------------------------------------------
    Oilfield Operations      1,497.9      1,387.3        251.3        212.4
    Corporate, net interest
     and other                   1.1          0.3        (73.8)       (68.3)
     ------------------------------------------------------------------------
    Total                   $1,499.0     $1,387.6       $177.5       $144.1

     (A)  Operating profit is a non-GAAP measure comprised of income from
          continuing operations excluding the impact of certain non-
          operational items.  The company did not have any such non-
          operational items for exclusion in the second quarter of 2004, the
          second quarter of 2003 or the first quarter of 2004.  Operating
          profit was the same as income from continuing operations for the
          three periods referenced in this news release.  The company believes
          that operating profit is useful to investors because it is a
          consistent measure of the underlying results of the company's
          business.  Furthermore, management uses operating profit internally
          as a measure of the performance of the company's operations.
          Reconciliation of GAAP and operating results for applicable
          historical periods can be found on the company's website at
          http://www.bakerhughes.com/investor .  Further, the "investor
          relations/financial information" section of the Company's website
          includes a disclosure and reconciliation of non-GAAP financial
          measures that are used in this release and that may be used
          periodically by management when discussing the Company's financial
          results with investors and analysts.

Oilfield Operations

Unless otherwise noted, all comments in this section refer to our Oilfield Operations, excluding WesternGeco.

On July 12, 2004 the company announced that it had formed a separate division, Baker Hughes Drilling Fluids. The new division is comprised of the oilfield drilling fluids, completion fluids and fluids environmental services businesses that were formerly part of INTEQ. These product lines accounted for approximately one-third of INTEQ's revenue and a little more than one- fifth of INTEQ's pre-tax operating profit in 2003. INTEQ will continue to offer best-in-class drilling and evaluation products and services. All references to "INTEQ" in this news release refer to INTEQ as it existed at the end of the second quarter of 2004 before the split, unless explicitly specified otherwise.

The following table details the percentage change in revenue in the June 2004 quarter compared to the June 2003 quarter and March 2004 quarter.

Comparison of Revenue (for the three months ended June 30, 2004 compared to the three months ended)

                                  UNAUDITED

     Product Line                  June 30, 2003           March 31, 2004
     ----------------------------------------------------------------------
       INTEQ                            14%                        9%
       Baker Atlas                      -4%                       -4%
       Baker Oil Tools                  16%                       11%
       Baker Petrolite                  15%                        5%
       Centrilift                       44%                       26%
       Hughes Christensen               14%                       ---
     Geography
     ----------------------------------------------------------------------
       North America                    10%                       ---
       Western Hemisphere               11%                        1%
       Eastern Hemisphere               19%                       16%

Revenue for the second quarter of 2004 increased 15% compared to the second quarter of 2003 and increased 8% compared to the first quarter of 2004. At INTEQ, sequential increases in revenue from Russia and the CIS, and Gulf of Mexico were partially offset by seasonally lower Canadian revenue. Sequential revenue increases at Baker Oil Tools were driven by Eastern Hemisphere activity and US land revenue, offset by seasonally weak revenue from Canada. At Baker Petrolite, sequential increases in Eastern Hemisphere and US land revenue more than offset seasonal weakness in Canada and sequentially weaker revenues from the balance of the Western Hemisphere. At Centrilift, record revenues resulted from strong activity levels in Venezuela and the Eastern Hemisphere, particularly Russia. At Hughes Christensen, sequentially higher revenues from the Eastern Hemisphere offset seasonally weak revenues from Canada. At Baker Atlas, the primary driver of the sequential decrease was the shipment of a large export order in the first quarter that did not repeat in the second quarter. Excluding this shipment, revenues declined from the first quarter of 2004 as weaker revenues from Canada and the US offshore were only partially offset by improved revenues from the Middle East, Latin America and Europe. The decline in revenues at Baker Atlas from the second quarter of last year was primarily a result of reduced activity in the Gulf of Mexico

The non-GAAP measure of pre-tax operating margin, which is operating profit before tax divided by revenue, was 16.5% for the second quarter of 2004 compared to 15.2% for the second quarter a year ago and 14.7% in the first quarter of 2004. Every division had double-digit operating margins in the second quarter. INTEQ, Baker Oil Tools, Baker Petrolite, Centrilift and Hughes Christensen reported improved margins compared to the same quarter last year and INTEQ, Baker Oil Tools, Baker Petrolite and Centrilift reported improved margins compared to the first quarter of 2004.

Operating profits were all-time records at both Centrilift and Baker Petrolite and operating margins at Baker Petrolite were also at all-time record levels.

Corporate, Net Interest and Other

Corporate, net interest and other expenses were $73.8 million in the June 2004 quarter, up $12.5 million from the June 2003 quarter and up $5.5 million from the March 2004 quarter. The increase in the June 2004 quarter, compared to both the June 2003 and March 2004 quarters, was primarily from increased costs associated with our focus on compliance, including our Sarbanes-Oxley implementation, legal investigations, and increased staffing in our legal, compliance, and audit groups; higher annual employee bonus expense; costs related to retained assets and liabilities from the Baker Process segment; and net foreign currency exchange losses. This was offset partially by reduced net interest expense as a result of lower debt levels.

Outlook

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Factors affecting these forward-looking statements are detailed below under the section titled "Forward-Looking Statements" in this news release. These statements do not include the potential impact of any acquisition, disposition, merger, joint venture or other transaction that could occur in the future. Statements regarding WesternGeco are based on information provided by WesternGeco and, therefore, are subject to the accuracy of that information. Additionally, forward-looking statements relating to WesternGeco are also subject to the factors listed under "Forward-Looking Statements" in this news release.

     --  Revenues for the year 2004 are expected to be up 10% to 12% compared
         to the year 2003.  Revenues in the third quarter 2004 are expected to
         be up 14% to 16% compared to the third quarter 2003 and to be up 1%
         to 3% compared to the second quarter 2004.

     --  WesternGeco is expected to contribute $25 to $30 million in equity in
         income of affiliates for the year 2004 (compared to a loss of
         $10.3 million in 2003) and $3 to $7 million for the third quarter
         2004.

     --  Corporate and other expenses, excluding interest expense, are
         expected to be between $195 and $205 million for the year 2004 and
         approximately $48 to $52 million in the third quarter 2004.

     --  Net interest expense is expected to be between $75 and $80 million
         for the year 2004 and approximately $15 to $20 million in the third
         quarter 2004.

     --  Income from continuing operations per diluted share is expected to be
         between $1.39 and $1.45 for the year 2004.  Income from continuing
         operations per diluted share is expected to be between $0.36 and
         $0.39 in the third quarter 2004.

     --  Capital spending is expected to be between $330 and $350 million for
         the year 2004.  Baker Hughes' expectation regarding its level of
         capital expenditures is only its forecast regarding this matter.
         This forecast may be substantially different from actual results.  In
         addition to the factors described under "Forward-Looking Statements"
         below, the following factors could affect levels of capital
         expenditures:  the accuracy of the company's estimates regarding its
         spending requirements; the occurrence of any unanticipated
         transaction or research and development opportunities; changes in the
         company's strategic direction; and the need to replace any
         unanticipated losses in capital assets.

     --  Depreciation and amortization expense is expected to be between $370
         and $390 million for the year 2004.  Baker Hughes' expectation
         regarding its depreciation and amortization expense is only its
         forecast regarding this matter.  This forecast may be substantially
         different from actual results, which could be impacted by an
         unexpected increase in the company's assets that are subject to
         depreciation or amortization or an unexpected casualty, impairment or
         other loss in those assets.

     --  The tax rate on operating results for the year 2004 is expected to be
         approximately 34.5%.  Baker Hughes' expectation regarding its tax
         rate is only its forecast regarding this matter.  This forecast may
         be substantially different from actual results.  In addition to the
         factors described under "Forward-Looking Statements" below, the
         following factors could affect the tax rate: the level and sources of
         the profitability of the company; changes in tax laws or tax rates in
         the jurisdictions in which the company operates; resolution of audits
         by various tax authorities; and the ability of the company to fully
         utilize tax loss carry-forwards and credits in various jurisdictions.

Conference Call

The company has scheduled a conference call today to discuss the results of this earnings announcement. The call will begin at 8:30 A.M. Eastern time, 7:30 A.M. Central time, on Thursday July 29, 2004. To access the call, which is open to the public, please contact the conference call operator at 800-374-2469, 20 minutes prior to the scheduled start time, and ask for the "Baker Hughes Conference Call." A replay will be available through Thursday, August 12, 2004. The number for the replay is 706-645-9291 and the access code is 8089982. The call and replay will also be webcast on http://www.bakerhughes.com/investor .

Forward-Looking Statements

This news release (and oral statements made regarding the subjects of this release, including on the conference call announced herein) contain 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. The words "expect," "expected," "will," "plans," "planning," and similar expressions are intended to identify forward-looking statements.

General Outlook - Oilfield Operations: Baker Hughes' expectation regarding its outlook for its oilfield businesses (including, without limitation, the company's oilfield operations), changes in profitability and growth in those businesses and the oil and gas industry are only its forecasts regarding these matters. These forecasts may be substantially different from actual results, which are affected by the following factors: the level of petroleum industry exploration and production expenditures; drilling rig and oil and gas industry manpower and equipment availability; the company's ability to implement and effect price increases for its products and services; the company's ability to control its costs; the availability of sufficient manufacturing capacity and subcontracting capacity at forecasted costs to meet the company's revenue goals; the effect of competition, particularly the ability of the company to introduce new technology on its forecasted schedule and at its forecasted cost; the ability of the company's competitors to capture market share; the company's ability to retain or increase its market share; potential impairment of long-lived assets; world economic conditions; the price of, and the demand for, crude oil and natural gas; drilling activity; seasonal and other weather conditions, such as hurricanes, that affect the demand for energy, and severe weather conditions that affect exploration and production activities; the legislative and regulatory environment in the United States and other countries in which the company operates; outcome of government and internal investigations and legal proceedings; changes in environmental regulations; unexpected, adverse outcomes or material increases in liability with respect to sites where the company has been named as a potentially responsible party; the discovery of new environmental sites; the discharge of hazardous materials or hydrocarbons into the environment; Organization of Petroleum Exporting Countries ("OPEC") policy and the adherence by OPEC nations to their OPEC production quotas; war, military action or extended period of international conflict, particularly involving the United States, Middle East or other major petroleum-producing or consuming regions; any future acts of war, armed conflicts or terrorist activities; civil unrest or in-country security concerns where the company operates; expropriation; the development of technology by Baker Hughes or its competitors that lowers overall finding and development costs; new laws and regulations that could have a significant impact on the future operations and conduct of all businesses; labor-related actions, including strikes, slowdowns and facility occupations; the condition of the capital and equity markets in general; adverse foreign exchange fluctuations and adverse changes in the capital markets in international locations where the company operates; satisfaction of the closing conditions for the sale of BHMT, consummation of the sale of BHMT, material adverse changes in the mining business; the timing of any of the foregoing; and other factors described in the Company's public reports filed with the Securities and Exchange Commission. The Company assumes no responsibility to update any of the information referenced in this news release.

Oilfield Pricing Changes: Baker Hughes' expectations regarding pricing changes for its products and services are only its expectations regarding pricing. Actual pricing changes could be substantially different from the company's expectations, which are affected by many of the factors listed above in "General Outlook - Oilfield Operations," as well as existing legal and contractual commitments to which the company is subject.

Baker Hughes is a leading provider of drilling, formation evaluation, completion and production products and services to the worldwide oil and gas industry.

                     NOT INTENDED FOR BENEFICIAL HOLDERS

     Contact:
     Gary R. Flaharty (713) 439-8039
     H. Gene Shiels (713) 439-8822

SOURCE Baker Hughes Incorporated

Gary R. Flaharty, +1-713-439-8039, or H. Gene Shiels,
+1-713-439-8822, both of Baker Hughes Incorporated
http://www.bakerhughes.com