Baker Hughes Announces Year End Results

HOUSTON, Feb 13, 2003 /PRNewswire-FirstCall via COMTEX/ -- Baker Hughes Incorporated (NYSE: BHI; PCX; EBS) announced today that income from continuing operations in accordance with generally accepted accounting principles (GAAP) for the year 2002 was $223.7 million or $0.66 per share (diluted) compared to $418.1 million or $1.24 per share (diluted) for the year 2001. The loss from continuing operations for the fourth quarter of 2002 was ($2.3) million or ($0.01) per share (diluted) compared to net income of $115.8 million or $0.34 per share (diluted) in the fourth quarter of 2001 and $86.8 million or $0.26 per share (diluted) in the third quarter of 2002. Net income for the year 2002 was $168.9 million or $0.50 per share (diluted) compared to $438.0 million or $1.30 per share (diluted) for the year 2001. Net loss for the fourth quarter of 2002 was ($1.5) million or ($0.01) per share (diluted) compared to net income of $126.0 million or $0.37 per share (diluted) in the fourth quarter of 2001 and $64.7 million or $0.19 per share (diluted) in the third quarter of 2002.

In December 2002, the company entered into exclusive negotiations for the sale of its interest in its oil producing operations in West Africa, and received $10 million as a deposit. The sale is subject to the execution of a definitive sale agreement and is expected to close in the first quarter of 2003. Also, the company successfully completed the sale of the EIMCO division of the company's Baker Process segment in November of 2002. Accordingly, the company has classified and is now reporting both of these operations as discontinued businesses.

Income from continuing operations excluding the impact of non-operational items ("operating profit") was $309.3 million or $0.92 per share (diluted) for the year 2002 compared to $472.7 million or $1.40 per share (diluted) for the year 2001. Operating profit for the fourth quarter 2002 was $84.5 million or $0.25 per share (diluted) compared to $86.8 million or $0.26 per share (diluted) in the third quarter of 2002 and $134.6 million or $0.40 per share (diluted) in the fourth quarter of 2001. The prior year results have been adjusted to exclude the impact of goodwill amortization for comparative purposes. The non-operational item in the fourth quarter was a $90.2 million pre-tax charge ($86.8 million after-tax or $0.26 per share), which is the company's 30% share of a restructuring charge announced by Schlumberger Ltd. in December 2002 relating to the companies' seismic joint venture, WesternGeco. Income from continuing operations is reconciled to operating profit in the section titled Reconciliation of GAAP Results and Operating Results in this news release.

Revenue for the year 2002 was $5,020.4 million, compared to $5,139.6 million for 2001. Revenue for the fourth quarter of 2002 was $1,292.1 million, compared to $1,315.5 million for the fourth quarter of 2001 and $1,280.2 million for the third quarter of 2002. Oilfield Operations revenue for the year 2002 was $4,901.5 million, compared to $5,001.9 million for the year 2001. Oilfield Operations revenue for the fourth quarter of 2002 was $1,262.5 million, down 2%, compared to $1,287.7 million for the fourth quarter of 2001, and up 1% compared to $1,251.1 million for the third quarter of 2002.

Michael E. Wiley, Baker Hughes Chairman, President, and Chief Executive Officer, said, "I was pleased with our fourth quarter operating results considering the relatively flat drilling and workover activity in the US, the impact of Tropical Storm Isidore and Hurricane Lili, and the ongoing turmoil in Venezuela."

Mr. Wiley continued, "We expect overall business activity to improve in 2003, although the timing of a North American recovery and the possibility of military action in Iraq and its impact remain uncertain. The situation in Venezuela will certainly have a negative impact on the first part of the year. Regardless of market conditions in 2003, we will continue to focus on delivering differential growth at superior margins by entering new growth markets, maintaining our focus on financial flexibility and discipline, and adding value for our customers through best-in class technology, performance and reliability."

Financial Flexibility

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 fourth quarter 2002, approximately 500,000 shares were purchased at an average price of $28.76 per share and retired. The company has authorization remaining to purchase from time to time up to $225.9 million in stock. During the fourth quarter, debt decreased slightly to $1,547.8 million, and cash increased to $143.9 million.


     Financial Information
     (In millions, except per share amounts)      Three Months Ended
                                         ------------------------------------
                                              December 31,       September 30,
                                         ----------------------  ------------
    UNAUDITED                               2002       2001           2002
                                         ---------- -----------  ------------
    Revenues                              $1,292.1   $1,315.5       $1,280.2
                                         ---------- -----------  ------------
    Costs and Expenses:
        Costs of revenues                    940.1      927.6          909.2
        Selling, general and
         administrative                      201.7      192.6          214.1
        Restructuring charge                   ---       (4.2)           ---
                                         ---------- -----------  ------------
            Total costs and expenses       1,141.8    1,116.0        1,123.3
                                         ---------- -----------  ------------
    Operating income                         150.3      199.5          156.9
    Equity in income (loss) of affiliates    (90.2)       6.9            1.5
    Interest expense                         (28.1)     (29.7)         (27.3)
    Interest income                            1.6        9.2            1.5
                                         ---------- -----------  ------------
    Income from continuing operations
     before income taxes                      33.6      185.9          132.6
    Income taxes                             (35.9)     (70.1)         (45.8)
                                         ---------- -----------  ------------
    Income (loss) from continuing
     operations                               (2.3)     115.8           86.8
    Discontinued operations:
        Income (loss) from operations of
         EIMCO and E&P                         1.8       10.2           (0.9)
        Loss on disposal of EIMCO             (1.0)       ---          (21.2)
                                         ---------- -----------  ------------
        Income (loss) from discontinued
         operations                            0.8       10.2          (22.1)
                                         ---------- -----------  ------------
    Net income (loss)                        $(1.5)    $126.0          $64.7
                                         ========== ===========  ============
    Basic earnings per share:
         Income (loss) from continuing      $(0.01)     $0.34          $0.26
          operations
         Income (loss) on discontinued
          operations                          0.00       0.03          (0.07)
                                         ---------- -----------  ------------
         Net income (loss)                  $(0.01)     $0.37          $0.19
                                         ========== ===========  ============
    Diluted earnings per share:
         Income (loss) from continuing      $(0.01)     $0.34          $0.26
          operations
         Income (loss) on discontinued
          operations                          0.00       0.03          (0.07)
                                         ---------- -----------  ------------
         Net income (loss)                  $(0.01)     $0.37          $0.19
                                         ========== ===========  ============
    Shares outstanding, basic (millions)     335.8      335.9          337.3
    Shares outstanding, diluted (millions)   336.8      337.0          338.1

    Depreciation, depletion and
     amortization expense (excluding
     amortization of goodwill in 2001)       $77.0      $74.0          $76.8
                                         ========== ===========  ============
    Capital expenditures                    $105.7     $114.5          $75.1
                                         ========== ===========  ============
    Calculation of EBIT and EBITDA:
    Income from continuing operations
     before income taxes                     $33.6     $185.9         $132.6
    Interest expense                          28.1       29.7           27.3
    Restructuring charges                      ---       (4.2)           ---
    Restructuring charge recorded in
     equity income of affiliates              90.2       10.3            ---
                                         ---------- -----------  ------------
    Earnings before interest expense
     and taxes (EBIT)                        151.9      221.7          159.9
    Total depreciation, depletion and
     amortization expense (A)                 77.0       88.2           76.8
                                         ---------- -----------  ------------
    Earnings before interest expense,
     taxes, depreciation, depletion and
     amortization (EBITDA)                  $228.9     $309.9         $236.7
                                         ========== ===========  ============

    (A)  Prior periods have been adjusted to include amortization of goodwill
         associated with equity method investments.


     Financial Information                             Twelve Months Ended
                                                    -------------------------
     (In millions, except per share amounts)               December 31,
                                                    -------------------------
    UNAUDITED                                          2002           2001
                                                    ----------     ----------
    Revenues                                         $5,020.4       $5,139.6
                                                    ----------     ----------
    Costs and Expenses:
        Costs of revenues                             3,625.7        3,655.9
        Selling, general and administrative             840.6          781.7
        Restructuring charge                             (1.9)           1.8
        Gain on disposal of assets                        ---           (2.4)
                                                    ----------     ----------
            Total costs and expenses                  4,464.4        4,437.0
                                                    ----------     ----------
    Operating income                                    556.0          702.6
    Equity in income (loss) of affiliates               (69.7)          45.8
    Interest expense                                   (111.2)        (126.4)
    Interest income                                       5.3           11.9
                                                    ----------     ----------
    Income from continuing operations
     before income taxes                                380.4          633.9
    Income tax                                         (156.7)        (215.8)
                                                    ----------     ----------
    Income from continuing operations                   223.7          418.1
    Discontinued operations:
        Income from operations of EIMCO and E&P          10.0           20.6
        Loss on disposal of EIMCO                       (22.3)           ---
                                                    ----------     ----------
        Income (loss) from discontinued operations      (12.3)          20.6
                                                    ----------     ----------
    Income before extraordinary loss and cumulative
     effect of accounting change                        211.4          438.7
    Extraordinary loss, net of tax                        ---           (1.5)
    Cumulative effect of accounting change, net of
     tax                                                (42.5)           0.8
                                                    ----------     ----------
    Net income                                         $168.9         $438.0
                                                    ==========     ==========
    Basic earnings per share:
         Income from continuing operations              $0.66          $1.25
         Income (loss) from discontinued
          operations, net of tax                        (0.04)          0.06
         Extraordinary loss, net of tax                   ---            ---
         Cumulative effect of accounting change,
          net of tax                                    (0.12)           ---
                                                    ----------     ----------
         Net income                                     $0.50          $1.31
                                                    ==========     ==========
    Diluted earnings per share:
         Income from continuing operations,
          net of tax                                    $0.66          $1.24
         Income (loss) from discontinued
          operations, net of tax                        (0.04)          0.06
         Extraordinary loss, net of tax                   ---            ---
         Cumulative effect of accounting change,
          net of tax                                    (0.12)           ---
                                                    ----------     ----------
         Net income                                     $0.50          $1.30
                                                    ==========     ==========
    Shares outstanding, basic (millions)                336.8          335.6
    Shares outstanding, diluted (millions)              337.9          337.4

    Depreciation, depletion and amortization expense
     (excluding amortization of goodwill in 2001)      $301.6         $278.3
                                                    ==========     ==========
    Capital expenditures                               $316.7         $303.5
                                                    ==========     ==========
    Calculation of EBIT and EBITDA:
    Income from continuing operations
     before income taxes                               $380.4         $633.9
    Interest expense                                    111.2          126.4
    Restructuring charges                                (1.9)           1.8
    Gain on disposal of assets                            ---           (2.4)
    Restructuring charge recorded in equity income
     of affiliates                                       90.2           10.3
                                                    ----------     ----------
    Earnings before interest expense and taxes
     (EBIT)                                             579.9          770.0
    Total depreciation, depletion and amortization
     expense(A)                                         301.6          329.9
                                                    ----------     ----------
    Earnings before interest expense, taxes,
     depreciation, depletion and
     amortization (EBITDA)                             $881.5       $1,099.9
                                                    ==========     ==========

    (A)  Prior periods have been adjusted to include amortization of goodwill
         associated with equity method investments.


     Consolidated Condensed Balance Sheets

                                                 UNAUDITED          AUDITED
     (In millions)                              December 31,      December 31,
                                                    2002              2001
    =========================================================================
    ASSETS
    Current Assets:
        Cash and cash equivalents                   $143.9             $38.7
        Accounts receivable, net                   1,110.6           1,268.8
        Inventories                                1,032.0           1,031.9
        Other current assets                         204.7             235.4
        Assets of discontinued operations             64.3             231.9
    --------------------------------------------------------------------------
            Total current assets                   2,555.5           2,806.7
    --------------------------------------------------------------------------
    Investment in affiliates                         872.0             929.0
    Property, net                                  1,354.7           1,297.0
    Goodwill                                       1,226.6           1,248.3
    Intangible assets, net                           136.8             136.5
    Other assets                                     255.2             258.7
    --------------------------------------------------------------------------
        Total assets                              $6,400.8          $6,676.2
    ==========================================================================

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
        Accounts payable                            $389.2            $537.2
        Short-term borrowings and current
         portion of long-term debt                   123.5              12.2
        Accrued employee compensation                254.0             311.4
        Other current liabilities                    267.4             272.2
        Liabilities of discontinued
         operations                                   46.0              85.6
    --------------------------------------------------------------------------
            Total current liabilities              1,080.1           1,218.6
    --------------------------------------------------------------------------
    Long-term debt                                 1,424.3           1,682.4
    Deferred income taxes                            166.7             204.4
    Other long-term liabilities                      332.5             243.0

    Stockholders' equity:
        Common stock                                 335.8             336.0
        Capital in excess of par value             3,111.6           3,119.3
        Retained earnings                            196.3             182.3
        Accumulated other comprehensive loss        (246.5)           (309.8)
    --------------------------------------------------------------------------
            Total stockholders' equity             3,397.2           3,327.8
    --------------------------------------------------------------------------
                Total liabilities and
                 stockholders' equity             $6,400.8          $6,676.2
    ==========================================================================

Segment Highlights

Operational highlights for the three months and years ended December 31, 2002 and December 31, 2001 and the three months ended September 30, 2002 are detailed below. All results are unaudited and shown in millions.

                   Comparison of Quarters -- Year over Year
           (for the three months ended December 31, 2002 and 2001)
    --------------------------------------------------------------------------
                                    Revenue        Operating Profit Before Tax
                              Q4 2002      Q4 2001     Q4 2002      Q4 2001
    --------------------------------------------------------------------------
    Oilfield Operations,
     excluding WesternGeco    $1,262.5     $1,287.7      $193.5       $239.9
    WesternGeco                    ---          ---        (0.8)        17.1
    --------------------------------------------------------------------------
    Oilfield Operations        1,262.5      1,287.7       192.7        257.0
    Process Operations            29.6         27.8        (4.1)        (6.3)
    Corporate, net interest
     and other                     ---          ---       (64.8)       (58.7)
    Non-operational items (A)      ---          ---       (90.2)        (6.1)
    --------------------------------------------------------------------------
    Total                     $1,292.1     $1,315.5       $33.6       $185.9
    ==========================================================================

                     Comparison of Quarters -- Sequential
    (for the three months ended December 31, 2002 and September 30, 2002)
    --------------------------------------------------------------------------
                                    Revenue        Operating Profit Before Tax
                              Q4 2002      Q3 2002     Q4 2002      Q3 2002
    --------------------------------------------------------------------------
    Oilfield Operations,
     excluding WesternGeco    $1,262.5     $1,251.1      $193.5       $196.8
    WesternGeco                    ---          ---        (0.8)        (0.5)
    --------------------------------------------------------------------------
    Oilfield Operations        1,262.5      1,251.1       192.7        196.3
    Process Operations            29.6         29.1        (4.1)        (3.5)
    Corporate, net interest
     and other                     ---          ---       (64.8)       (60.2)
    Non-operational items (A)      ---          ---       (90.2)         ---
    --------------------------------------------------------------------------
    Total                     $1,292.1     $1,280.2       $33.6       $132.6
    ==========================================================================

                               Comparison of Years
             (for the twelve months ended December 31, 2002 and 2001)
    --------------------------------------------------------------------------
                                      Revenue      Operating Profit Before Tax
                                 2002         2001        2002         2001
    --------------------------------------------------------------------------
    Oilfield Operations,
     excluding WesternGeco    $4,901.5     $5,001.9      $715.8       $847.3
    WesternGeco                    ---          ---        14.6         55.6
    --------------------------------------------------------------------------
    Oilfield Operations        4,901.5      5,001.9       730.4        902.9
    Process Operations           118.9        137.7       (12.0)       (15.1)
    Corporate, net interest
     and other                     ---          ---      (249.7)      (244.2)
    Non-operational items (A)      ---          ---       (88.3)        (9.7)
    --------------------------------------------------------------------------
    Total                     $5,020.4     $5,139.6      $380.4       $633.9
    ==========================================================================

    (A)  See Reconciliation of GAAP Results and Operating Results.

Oilfield Operations Segment

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

The following table details the percentage change in revenue in the December 2002 quarter compared to the December 2001 quarter and September 2002 quarter.

                            Comparison of Revenue
         For the Three Months Ended December 31, 2002 Compared to the
                              Three Months Ended
                                  UNAUDITED

                                  December 31, 2001    September 30, 2002
    Product Line
    --------------------------------------------------------------------------
       INTEQ                             -2%                   -3%
       Baker Atlas                       -2%                    2%
       Baker Oil Tools                   -5%                   -2%
       Baker Petrolite                    5%                    3%
       Centrilift                        -1%                   12%
       Hughes Christensen               -11%                   -1%
    Geography
    --------------------------------------------------------------------------
       North America                     -9%                   -1%
       Western Hemisphere               -11%                   -2%
       Eastern Hemisphere                 9%                    4%

Revenue for the fourth quarter of 2002 decreased 2% compared to the fourth quarter of 2001 and increased 1% compared to the third quarter of 2002. Sequentially, revenues increased at Baker Atlas, Baker Petrolite and Centrilift. The sequential improvement at Centrilift was particularly noteworthy, as strong sales of ESP equipment continue in this relatively high crude oil price environment.

The pre-tax operating margin was 15.3% for the fourth quarter of 2002 compared to 15.7% in the third quarter of 2002 as sequential improvements at Hughes Christensen and Centrilift were offset by modest declines at the other divisions. The operating margin was 18.6% for the fourth quarter a year ago. Centrilift showed an improvement in operating profits offset by declines in the other divisions compared to the fourth quarter a year ago. The operating margin for the year 2002 was 14.6% compared to 16.9% in 2001.

In February 2003 the company completed the second step of a two part transaction which resulted in Baker Atlas acquiring certain assets and intellectual property of the borehole seismic acquisition business of Compagnie Generale Geophysique ("CGG") and the formation of a venture for processing and interpreting borehole seismic data. Baker Hughes owns 51% of the venture.

Process Operations Segment

Process revenues were $29.6 million in the fourth quarter of 2002, compared to $27.8 million the fourth quarter of 2001, and $29.1 million in the third quarter of 2002. Operating profit before tax was lower primarily because of delays on a large municipal order and manufacturing variances. The sale of the EIMCO division of Process Operations was completed in November 2002.

Corporate, Net Interest and Other

Corporate, net interest and other expenses were $64.8 million in the December 2002 quarter, up $6.1 million from the December 2001 quarter and up $4.6 million from the September 2002 quarter. The increase in the December 2002 quarter, as compared to the December 2001 quarter, was due primarily to decreased interest income in the fourth quarter of 2002. The increase in the December 2002 quarter, compared to the September 2002 quarter, was due to increased corporate general and administrative expenses and foreign exchange losses.

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 Forward-Looking Statements. These statements do not include the potential impact of any acquisition, disposition, merger or joint venture that could occur in the future. Information regarding WesternGeco is based upon information that WesternGeco has provided to Baker Hughes. Information derived from this information is subject to the accuracy of the information that WesternGeco provided. Additionally, any forward-looking statements relating to WesternGeco are also subject to the factors listed in Forward- Looking Statements in this news release.

    --  Oilfield revenues are expected to be up 4% to 6% for the year 2003 as
        compared to the year 2002.  Oilfield revenues are expected to be up 1%
        to 3% in the first quarter of 2003 compared to the first quarter of
        2002 and down 4% to 6% in the first quarter of 2003 compared to the
        fourth quarter of 2002.
    --  WesternGeco is expected to contribute $15 to $20 million in pre-tax
        profit for the year 2003 (compared to $14.6 million in 2002) and $0 to
        $3 million in the three months ended March 31, 2003.
    --  Process is expected to post a $10 to $15 million pre-tax loss for the
        year 2003.  Process is expected to lose $4 to $6 million in the first
        quarter of 2003.
    --  Corporate and other expenses, excluding interest expense, are expected
        to be between $150 and $160 million for the year 2003 or approximately
        $37 to $42 million per quarter.
    --  Net interest expense is expected to be between $100 and $108 million
        for the year 2003 or approximately $25 to $27 million per quarter.
    --  Income from continuing operations per share (diluted) is expected to
        be between $1.00 and $1.10 for the year 2003.  Income from continuing
        operations per share (diluted) is expected to be between $0.17 and
        $0.20 for the three months ended March 31, 2003.
    --  Capital spending is expected to be between $330 and $350 million for
        the year 2003.  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 in Forward-Looking Statements-
        General Outlook 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 acquisition 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 $330
        and $350 million for 2003.  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 12 months ended
        December 31, 2003 is expected to be approximately 37.0%.  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 in Forward-
        Looking Statements-General Outlook 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; and the ability of the company to fully
        utilize tax loss carry-forwards and credits in various jurisdictions.
Impact of SFAS 142 on Prior Year Operating Results

The following table is a reconciliation of previously reported operating profit and earnings per share to the pro forma amounts, which are adjusted for the exclusion of amortization related to goodwill and goodwill associated with equity method investments. The table also reflects the impact of classifying EIMCO and the oil producing property in West Africa as discontinued.

    (in millions, except earnings  Operating             Operating
     per share)                     Profit                Profit    Diluted
                                    Before     Income      After    Earnings
    UNAUDITED                        Tax        Taxes       Tax     per Share
    --------------------------------------------------------------------------
    Q1 2001  Operating profit       $108.7      $(34.9)    $73.8       $0.22
             Goodwill amortization    10.6        (1.3)      9.3        0.03
             Goodwill amortization
              associated with
              equity method
              investments              2.0        (0.1)      1.9        0.01
                                   ---------   ---------  ---------  ---------
             Pro forma operating
              profit                $121.3      $(36.3)    $85.0       $0.26
                                   =========   =========  =========  =========

    Q2 2001  Operating profit       $150.0      $(48.4)   $101.6       $0.30
             Goodwill amortization    10.5        (1.3)      9.2        0.03
             Goodwill amortization
              associated with
              equity method
              investments              2.0        (0.1)      1.9        0.01
                                   ---------   ---------  ---------  ---------
             Pro forma operating
              profit                $162.5      $(49.8)   $112.7       $0.34
                                   =========   =========  =========  =========

    Q3 2001  Operating profit       $192.9      $(63.5)   $129.4       $0.38
             Goodwill amortization    10.4        (1.2)      9.2        0.03
             Goodwill amortization
              associated with
              equity method
              investments              1.9        (0.1)      1.8         ---
                                   ---------   ---------  ---------  ---------
             Pro forma operating
              profit                $205.2      $(64.8)   $140.4       $0.41
                                   =========   =========  =========  =========

    Q4 2001  Operating profit       $192.0      $(70.1)   $121.9       $0.36
             Goodwill amortization    12.2        (1.4)     10.8        0.03
             Goodwill amortization
              associated with
              equity method
              investments              2.0        (0.1)      1.9        0.01
                                   ---------   ---------  ---------  ---------
             Pro forma operating
              profit                $206.2      $(71.6)   $134.6       $0.40
                                   =========   =========  =========  =========

    2001     Operating profit       $643.6     $(216.9)   $426.7       $1.27
             Goodwill amortization    43.7        (5.2)     38.5        0.11
             Goodwill amortization
              associated with
              equity method
              investments              7.9        (0.4)      7.5        0.02
                                   ---------   ---------  ---------  ---------
             Pro forma operating
              profit                $695.2     $(222.5)   $472.7       $1.40
                                   =========   =========  =========  =========

Reconciliation of GAAP Results and Operating Results

The following tables reconcile GAAP and operating results referenced in this news release. Reconciliation of other prior periods can be found on the company's website at www.bakerhughes.com/investor .

         Reconciliation of GAAP Results and Operating Results for the
                      12 Months Ended December 31, 2002
    --------------------------------------------------------------------------
     UNAUDITED                               Profit          Profit   Diluted
     (in millions except         Recorded    Before           After  Earnings
      earnings per share)           As         Tax     Tax     Tax   Per Share
    --------------------------------------------------------------------------
    Income from continuing
     operations                               $380.4 $(156.7) $223.7   $0.66
    Non-operational items:
      Reversal of excess       Restructuring
       severance accrual          charges       (1.9)    0.7    (1.2)   0.00
       at Bird Machine in
       Germany
      BHI share of the           Equity in
       WesternGeco venture       income of
       restructuring charge      affiliates     90.2    (3.4)   86.8    0.26

    --------------------------------------------------------------------------
    Operating profit,
     excluding impact of
     non-operational items                    $468.7 $(159.4) $309.3   $0.92
    ==========================================================================

           Reconciliation of GAAP Results and Operating Results for the
                        12 Months Ended December 31, 2001
    --------------------------------------------------------------------------
     UNAUDITED                               Profit           Profit  Diluted
     (in millions except        Recorded     Before            After  Earnings
      earnings per share)          As          Tax      Tax     Tax  Per Share
    --------------------------------------------------------------------------
    Income from continuing
     operations                               $633.9 $(215.8) $418.1   $1.24
    Non-operational items:
      Reversal of excess E&P   Restructuring    (4.2)    ---    (4.2)  (0.01)
       charges                    charges

      Gain on sale of interest    Gain on       (3.4)    1.0    (2.4)  (0.01)
       in joint venture         disposal of
                                   assets

      Severance at Bird        Restructuring     6.0    (2.2)    3.8    0.01
       Machine in Germany          charges

      Loss on sale of Baker       Gain on        1.0     0.1     1.1    0.01
       Atlas product line       disposal of
                                   assets

      BHI share of the           Equity in
       WesternGeco               income of      10.3     ---    10.3    0.03
       non-recurring charge      affiliates
    --------------------------------------------------------------------------
    Operating profit,
     excluding impact of
     non-operational items                    $643.6 $(216.9) $426.7   $1.27
    ==========================================================================

           Reconciliation of GAAP Results and Operating Results for the
                         3 Months Ended December 31, 2002
    --------------------------------------------------------------------------
     UNAUDITED                               Profit           Profit  Diluted
     (in millions except        Recorded     Before            After  Earnings
      earnings per share)          As         Tax      Tax     Tax  Per Share
    --------------------------------------------------------------------------
    Income from continuing
     operations                                $33.6  $(35.9)  $(2.3) $(0.01)
    Non-operational items:
      BHI share of the           Equity in
       WesternGeco venture       income of      90.2    (3.4)   86.8    0.26
       restructuring charge      affiliates
    --------------------------------------------------------------------------
    Operating profit,
     excluding impact of
     non-operational items                    $123.8  $(39.3)  $84.5   $0.25
    ==========================================================================

           Reconciliation of GAAP Results and Operating Results for the
                         3 Months Ended December 31, 2001
    --------------------------------------------------------------------------
     UNAUDITED                               Profit           Profit  Diluted
     (in millions except        Recorded     Before            After  Earnings
      earnings per share)           As         Tax      Tax     Tax  Per Share
    --------------------------------------------------------------------------
    Income from continuing
     operations                               $185.9  $(70.1) $115.8   $0.34
    Non-operational items:
      Reversal of excess E&P   Restructuring    (4.2)    ---    (4.2)  (0.01)
       charges                    charges

      BHI share of the           Equity in
       WesternGeco               income of      10.3     ---    10.3    0.03
       non-recurring charge      affiliates
    --------------------------------------------------------------------------
    Operating profit, excluding
     impact of non-operational
     items                                    $192.0  $(70.1) $121.9   $0.36
    ==========================================================================

Conference Call

The company has scheduled a conference call to discuss the results of today's earnings announcement. The call will begin at 8:30 A.M. Eastern time, 7:30 A.M. Central time. To access the call, which is open to the public, please contact the conference call operator at 706-643-3468, 20 minutes prior to the scheduled start time, and ask for the "Baker Hughes Conference Call." A replay will be available through Thursday, February 20, 2003. The number for the replay is 706-645-9291 and the access code is 7196856. The call and replay will also be webcast on 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 be," "will," and similar expressions are intended to identify forward-looking statements.

General Outlook -- Oilfield Segment: Baker Hughes' expectation regarding its outlook for its oilfield businesses (including, without limitation, the company's oilfield operations and its minority interest in its production and refining process equipment venture), 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; the completion of the company's proposed West African disposition; world economic conditions; the price of, and the demand for, crude oil and natural gas; drilling activity; seasonal weather conditions 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; OPEC policy and the adherence by OPEC nations to their OPEC production quotas; war or extended period of international conflict, particularly involving the United States, Middle East or other major petroleum-producing or consuming regions; acts of war or terrorism; civil unrest or in-country security concerns where the company operates; 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 as a result of the financial deterioration and bankruptcies of large U.S. entities; 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; and the timing of any of the foregoing.

Oilfield Pricing Changes: Baker Hughes expectation's 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 Segment," as well as existing legal and contractual commitments to which the company is subject.

General Outlook -- Process Segment: Baker Hughes' expectations in this news release regarding its outlook for its process segment and improvement and growth in Process' businesses and its markets are only its forecasts regarding these matters. These forecasts may be substantially different from actual results, which are affected by the following factors: the effect of competition; the health of the markets of the company's customers, including, without limitation, the production and refining, industrial, chemical, municipal wastewater and mining markets; the level of customer expenditures and investment, especially in the oil and gas, industrial, chemical, municipal wastewater and mining markets; the company's ability to control its costs; the ability of the company's competitors to capture market share; the company's ability to retain or increase its market share; world economic conditions; the legislative and regulatory environment in the United States and other countries in which the company operates; the condition of the capital and equity markets and the timing of any of the foregoing.

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
     gary.flaharty@bakerhughes.com
     Kyle J. Leak (713) 439-8042
     kyle.leak@bakerhughes.com
SOURCE Baker Hughes Incorporated

CONTACT:          Gary R. Flaharty, +1-713-439-8039, or
                  gary.flaharty@bakerhughes.com , or Kyle J. Leak, +1-713-439-8042, or
                  kyle.leak@bakerhughes.com , both of Baker Hughes Incorporated

URL:              http://www.bakerhughes.com/investor
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