EXHIBIT 99.1
Baker Hughes Announces Second Quarter Results
HOUSTON, Texas - July 24, 2003. Baker Hughes Incorporated (BHI - NYSE, PCX, EBS)
announced today that income from continuing operations in accordance with
generally accepted accounting principles (GAAP) for the second quarter of 2003
was $81.6 million or $0.24 per share (diluted) compared to $68.6 million or
$0.20 per share (diluted) for the second quarter of 2002 and $47.4 million or
$0.14 per share (diluted) for the first quarter of 2003. Net income for the
second quarter of 2003 was $81.6 million or $0.24 per share (diluted) compared
to $72.4 million or $0.21 per share (diluted) for the second quarter of 2002 and
$44.5 million or $0.13 per share (diluted) for the first quarter of 2003.
In the first quarter of 2003, the company recorded a after-tax charge of $5.6
million or $0.02 per share (diluted) related to the cumulative effect of an
accounting change resulting from the adoption of SFAS 143, Asset Retirement
Obligations. In the second quarter of 2002, the company recorded a $1.2 million
after-tax credit, or $0.00 per share (diluted), related to the reversal of an
excess restructuring accrual for the German operation of Bird Machine in the
company's Process segment.
Operating profit, which is a non-GAAP measure for income from continuing
operations excluding the impact of non-operational items, was the same in the
first and second quarters of 2003 as income from continuing operations.
Operating profit for the second quarter of 2002, excluding the credit referenced
above, was $67.4 million or $0.20 per share (diluted). 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
the calculation of operating profit internally as a measure of the performance
of the company's divisions. (See Reconciliation of GAAP Results and Operating
Results below.)
Revenue for the second quarter of 2003 was $1,341.4 million, compared to
$1,245.1 million for the second quarter of 2002 and $1,226.5 million for the
first quarter of 2003. Oilfield Operations revenue for the second quarter of
2003 was $1,314.8 million, up 8.5% compared to $1,211.8 million for the second
quarter of 2002, and up 9.6% compared to $1,200.1 million for the first quarter
of 2003.
Michael E. Wiley, Baker Hughes' Chairman, President, and Chief Executive
Officer, said, "International market conditions impacting the first quarter
improved in the second quarter and domestic land activity continued to increase.
Baker Hughes is positioned to take advantage of further improvements in the
market as the balance between supply and demand for our products and services
continues to tighten."
FINANCIAL FLEXIBILITY
As previously announced, the company entered into a $500 million three-year
revolving credit facility in July 2003, which will be used for commercial paper
back-up and general corporate purposes. The facility replaces an aggregate of
$594 million in credit lines that were scheduled to mature in the fall of 2003.
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 2003, approximately 2.2 million shares were purchased at an average price of
$28.69 per share and retired. The company has authorization remaining to
purchase up to $153.0 million in stock. During the second quarter of 2003, debt
increased $89.1 million to $1,606.3 million, and cash increased $19.3 million to
$71.0 million.
<Table>
<Caption>
FINANCIAL INFORMATION Three Months Ended
-------------------------------------------
(In millions, except per share amounts) June 30, March 31,
-------------------------- ---------
UNAUDITED 2003 2002 2003
--------- --------- ---------
Revenues $ 1,341.4 $ 1,245.1 $ 1,226.5
--------- --------- ---------
Costs and Expenses:
Cost of revenues 970.7 901.2 923.3
Selling, general and administrative 213.4 219.8 201.8
Restructuring charge reversal -- (1.9) --
--------- --------- ---------
Total costs and expenses 1,184.1 1,119.1 1,125.1
--------- --------- ---------
Operating income 157.3 126.0 101.4
Equity in income (loss) of affiliates (3.6) 5.9 (0.4)
Interest expense (24.6) (27.4) (28.4)
Interest income 0.5 1.1 2.6
--------- --------- ---------
Income from continuing operations before income taxes 129.6 105.6 75.2
Income taxes (48.0) (37.0) (27.8)
--------- --------- ---------
Income from continuing operations 81.6 68.6 47.4
Discontinued operations:
Income from operations of E&P and EIMCO -- 3.8 1.1
Gain on disposal of E&P -- -- 4.1
Loss on disposal of EIMCO -- -- (2.5)
--------- --------- ---------
Income from discontinued operations, net of tax -- 3.8 2.7
--------- --------- ---------
Income before cumulative effect of accounting change 81.6 72.4 50.1
Cumulative effect of accounting change, net of tax -- -- (5.6)
--------- --------- ---------
Net income $ 81.6 $ 72.4 $ 44.5
========= ========= =========
Basic earnings per share:
Income from continuing operations $ 0.24 $ 0.20 $ 0.14
Income from discontinued operations -- 0.01 0.01
Cumulative effect of accounting change -- -- (0.02)
--------- --------- ---------
Net income $ 0.24 $ 0.21 $ 0.13
========= ========= =========
Diluted earnings per share:
Income from continuing operations $ 0.24 $ 0.20 $ 0.14
Income from discontinued operations -- 0.01 0.01
Cumulative effect of accounting change -- -- (0.02)
--------- --------- ---------
Net income $ 0.24 $ 0.21 $ 0.13
========= ========= =========
Shares outstanding, basic 335.4 337.3 336.7
Shares outstanding, diluted 336.3 338.8 337.7
Depreciation and amortization expense $ 81.9 $ 74.2 $ 79.5
Capital expenditures $ 74.8 $ 73.9 $ 76.2
</Table>
<Table>
<Caption>
FINANCIAL INFORMATION Six Months Ended
--------------------------
(In millions, except per share amounts) June 30,
--------------------------
UNAUDITED 2003 2002
--------- ---------
Revenues $ 2,567.9 $ 2,448.1
--------- ---------
Costs and Expenses:
Cost of revenues 1,894.0 1,776.4
Selling, general and administrative 415.2 424.8
Restructuring charge reversal -- (1.9)
--------- ---------
Total costs and expenses 2,309.2 2,199.3
--------- ---------
Operating income 258.7 248.8
Equity in income (loss) of affiliates (4.0) 19.0
Interest expense (53.0) (55.8)
Interest income 3.1 2.2
--------- ---------
Income from continuing operations before income taxes 204.8 214.2
Income taxes (75.8) (75.0)
--------- ---------
Income from continuing operations 129.0 139.2
Discontinued operations:
Income from operations of E&P and EIMCO 1.1 9.0
Gain on disposal of E&P 4.1 --
Loss on disposal of EIMCO (2.5) --
--------- ---------
Income from discontinued operations, net of tax 2.7 9.0
--------- ---------
Income before cumulative effect of accounting change 131.7 148.2
Cumulative effect of accounting change, net of tax (5.6) (42.5)
--------- ---------
Net income $ 126.1 $ 105.7
========= =========
Basic earnings per share:
Income from continuing operations $ 0.38 $ 0.41
Income from discontinued operations 0.01 0.03
Cumulative effect of accounting change (0.02) (0.13)
--------- ---------
Net income $ 0.37 $ 0.31
========= =========
Diluted earnings per share:
Income from continuing operations $ 0.38 $ 0.41
Income from discontinued operations 0.01 0.02
Cumulative effect of accounting change (0.02) (0.12)
--------- ---------
Net income $ 0.37 $ 0.31
========= =========
Shares outstanding, basic 336.0 337.1
Shares outstanding, diluted 337.0 338.4
Depreciation and amortization expense $ 161.4 $ 147.8
Capital expenditures $ 151.0 $ 136.0
</Table>
CALCULATION OF EBIT AND EBITDA (NON-GAAP MEASURES)(1)
<Table>
<Caption>
Three Months Ended
-----------------------------------
(In millions) June 30, March 31,
------------------- ---------
UNAUDITED 2003 2002 2003
------ ------ ---------
Income from continuing operations before income taxes $129.6 $105.6 $ 75.2
Interest expense 24.6 27.4 28.4
Reversal of excess restructuring accrual -- (1.9) --
------ ------ ------
Earnings before interest expense and taxes (EBIT) 154.2 131.1 103.6
Total depreciation and amortization expense 81.9 74.2 79.5
------ ------ ------
Earnings before interest expense, taxes, depreciation
and amortization (EBITDA) $236.1 $205.3 $183.1
====== ====== ======
</Table>
<Table>
<Caption>
Six Months Ended
-------------------
(In millions) June 30,
-------------------
UNAUDITED 2003 2002
------ ------
Income from continuing operations before income taxes $204.8 $214.2
Interest expense 53.0 55.8
Reversal of excess restructuring accrual -- (1.9)
------ ------
Earnings before interest expense and taxes (EBIT) 257.8 268.1
Total depreciation and amortization expense 161.4 147.8
------ ------
------ ------
Earnings before interest expense, taxes, depreciation
and amortization (EBITDA) $419.2 $415.9
====== ======
</Table>
(1) 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
some investors and others to make informed investment decisions.
CONSOLIDATED CONDENSED BALANCE SHEETS
<Table>
<Caption>
UNAUDITED
June 30, AUDITED
(In millions) 2003 December 31, 2002
========================================================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 71.0 $ 143.9
Accounts receivable, net 1,174.1 1,110.6
Inventories 1,081.4 1,032.0
Other current assets 209.8 204.7
Assets of discontinued operations - 64.3
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 2,536.3 2,555.5
- ------------------------------------------------------------------------------------------------------------------------
Investment in affiliates 899.5 872.0
Property, net 1,362.4 1,354.7
Goodwill 1,234.0 1,226.6
Intangible assets, net 142.8 136.8
Other assets 262.4 255.2
- ------------------------------------------------------------------------------------------------------------------------
Total assets $ 6,437.4 $ 6,400.8
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 396.3 $ 389.2
Short-term borrowings and current portion of
long-term debt 34.7 123.5
Accrued employee compensation 217.3 254.0
Other accrued liabilities 280.4 267.4
Liabilities of discontinued operations - 46.0
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 928.7 1,080.1
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,571.6 1,424.3
Deferred income taxes 117.0 166.7
Other long-term liabilities 360.3 332.5
Stockholders' equity:
Common stock 334.7 335.8
Capital in excess of par value 3,074.7 3,111.6
Retained earnings 245.1 196.3
Accumulated other comprehensive loss (194.7) (246.5)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,459.8 3,397.2
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 6,437.4 $ 6,400.8
========================================================================================================================
</Table>
RECONCILIATION OF GAAP RESULTS AND OPERATING RESULTS
The following table reconciles 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 three months ended June 30, 2002)
- ---------------------------------------------------------------------------------------------------------------------
PROFIT PROFIT DILUTED
UNAUDITED RECORDED BEFORE AFTER EARNINGS
(in millions except earnings per share) AS TAX TAX TAX PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations (GAAP) $ 105.6 $ (37.0) $ 68.6 $ 0.20
Non-operational item:
Reversal of excess restructuring accrual for Restructuring
Bird Machine's German operation charge reversal (1.9) 0.7 (1.2) (0.00)
- ---------------------------------------------------------------------------------------------------------------------
Operating profit, excluding impact of
non-operational item $ 103.7 $ (36.3) $ 67.4 $ 0.20
=====================================================================================================================
</Table>
SEGMENT HIGHLIGHTS
Operational highlights for the three months ended June 30, 2003, June 30, 2002,
and March 31, 2003 are detailed below. All results are unaudited and shown in
millions.
COMPARISON OF QUARTERS -- YEAR OVER YEAR
(for the three months ended June 30, 2003 and 2002)
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------
Revenue Operating Profit Before Tax
Q2 2003 Q2 2002 Q2 2003 Q2 2002
- --------------------------------------- ------------------- ------------------- ------------------ -------------------
Oilfield Operations, excluding
WesternGeco $ 1,314.8 $ 1,211.8 $ 198.6 $ 163.4
WesternGeco - - (5.8) 4.0
- --------------------------------------- ------------------- ------------------- ------------------ -------------------
Oilfield Operations 1,314.8 1,211.8 192.8 167.4
Process Operations 26.6 33.3 (1.6) (1.1)
Corporate, net interest and other - - (61.6) (62.6)
Restructuring charge reversal - 1.9
- --------------------------------------- ------------------- ------------------- ------------------ -------------------
Total $ 1,341.4 $ 1,245.1 $ 129.6 $ 105.6
======================================= =================== =================== ================== ===================
COMPARISON OF QUARTERS -- SEQUENTIAL
(for the three months ended June 30, 2003 and March 31, 2003)
- ----------------------------------------------------------------------------------------------------------------------
Revenue Operating Profit Before Tax
Q2 2003 Q1 2003 Q2 2003 Q1 2003
- --------------------------------------- ------------------- ------------------- ------------------ -------------------
Oilfield Operations, excluding
WesternGeco $ 1,314.8 $ 1,200.1 $ 198.6 $ 141.4
WesternGeco - - (5.8) (1.3)
- --------------------------------------- ------------------- ------------------- ------------------ -------------------
Oilfield Operations 1,314.8 1,200.1 192.8 140.1
Process Operations 26.6 26.4 (1.6) (4.8)
Corporate, net interest and other - - (61.6) (60.1)
- --------------------------------------- ------------------- ------------------- ------------------ -------------------
Total $ 1,341.4 $ 1,226.5 $ 129.6 $ 75.2
======================================= =================== =================== ================== ===================
</Table>
OILFIELD OPERATIONS SEGMENT
Unless otherwise noted, all comments in this section refer to Baker Hughes'
Oilfield Operations, excluding WesternGeco, the company's seismic venture with
Schlumberger Ltd.
The following table details the percentage change in revenue in the June 2003
quarter compared to the June 2002 quarter and the March 2003 quarter.
COMPARISON OF REVENUE
for the three months ended June 30, 2003 compared to the three months ended:
UNAUDITED
<Table>
<Caption>
Product Line June 30, 2002 March 31, 2003
- ----------------------------------------------- ----------------------------------- ----------------------------------
INTEQ 2% 3%
Baker Atlas 17% 19%
Baker Oil Tools 5% 11%
Baker Petrolite 10% 5%
Centrilift 12% 22%
Hughes Christensen 18% 3%
Geography
- ----------------------------------------------- ----------------------------------- ----------------------------------
North America 16% 4%
Western Hemisphere 12% 7%
Eastern Hemisphere 5% 12%
</Table>
Oilfield Operations revenue for the second quarter of 2003 increased 8.5%
compared to the second quarter of 2002 and increased 9.6% compared to the first
quarter of 2003. Revenue increased both sequentially and compared to the same
period a year ago at every division. Substantially all of the product shipments
delayed in the first quarter of 2003 were shipped in the second quarter.
The non-GAAP measure of operating profit before tax margin ("operating margin")
was 15.1% for the second quarter of 2003 compared to 13.5% in the second quarter
of 2002, and 11.8% in the first quarter of 2003. Operating margins improved
sequentially at all divisions and improved compared to the same period a year
ago at all divisions except INTEQ. Every division except INTEQ reported
operating margins of at least 10% in the second quarter of 2003.
PROCESS OPERATIONS SEGMENT
Process Operations revenues were $26.6 million in the second quarter of 2003,
compared to $33.3 million in the second quarter of 2002, and $26.4 million in
the first quarter of 2003. The operating loss was ($1.6) million, which compares
to a loss of ($1.1) million in the same period a year ago, and a loss of ($4.8)
million in the first quarter of 2003. Demand for capital equipment in the
chemical market remains depressed. In response, Bird Machine incurred costs in
the first and second quarters of 2003 associated with reductions made to its
workforce to more closely match decreased market demand.
CORPORATE, NET INTEREST AND OTHER
Corporate, net interest and other expenses were $61.6 million in the June 2003
quarter, down $1.0 million when compared to the June 2002 quarter and up $1.5
million when compared to the March 2003 quarter. The increase in the June 2003
quarter, as compared to the March 2003 quarter, was due primarily to increased
corporate spending offset by a reduction in net interest expense.
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. Statements made regarding WesternGeco are based upon information
provided by WesternGeco, and therefore, are subject to the accuracy of that
information. Additionally, any forward-looking statements relating to
WesternGeco are also subject to the factors listed in Forward-Looking Statements
in this news release.
o Oilfield revenues are expected to be up 6% to 8% for the year 2003 as
compared to the year 2002. Oilfield revenues are expected to be up 6%
to 8% in the third quarter of 2003 compared to the third quarter of
2002 and up 1% to 3% in the third quarter of 2003 compared to the
second quarter of 2003.
o WesternGeco is expected to be breakeven for both the year 2003 and the
third quarter of 2003.
o Process is expected to post a ($10) to ($15) million operating loss
before tax for the year 2003. Process is expected to lose ($2) to ($3)
million in the third quarter of 2003.
o 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.
o Net interest expense is expected to be between $95 and $100 million
for the year 2003 or approximately $23 to $25 million per quarter.
o Income from continuing operations per share (diluted) is expected to
be between $0.97 and $1.07 for the year 2003. Income from continuing
operations per share (diluted) is expected to be between $0.26 and
$0.29 for the three months ended September 30, 2003.
o Capital spending is expected to be between $310 and $330 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.
o Depreciation and amortization expense is expected to be between $320
and $340 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.
o The tax rate on operating results for the year 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.
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 on Thursday, July 24, 2003. 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, July 31, 2003.
The number for the replay is 706-645-9291 and the access code is 1225572. 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," "could be," "could," 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, its minority
interest in WesternGeco and other similar businesses), 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 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; world economic conditions; the price of,
and the demand for, crude oil and natural gas; drilling activity; weather
conditions that affect the demand for energy and severe weather conditions, such
as hurricanes, that affect exploration and production activities; the
legislative and regulatory environment in the United States and other countries
in which the company operates; 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; 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 forecasts 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