Baker Hughes Announces First Quarter Results

...$179.6 million or $0.53 per diluted share for the fourth quarter of 2004.

Revenue for the first quarter of 2005 was $1,650.6 million, up 19% compared to $1,387.6 million for the first quarter of 2004 and down 2% compared to $1,679.1 million for the fourth quarter of 2004.

Chad C. Deaton, Baker Hughes chairman and chief executive officer, said, "Stronger than anticipated price realization and productivity, coupled with activity increases in the United States and Russia and favorable product and geographic mix changes resulted in strong first quarter results for Baker Hughes."

Mr. Deaton continued, "We expect market conditions to remain favorable for both additional revenue growth and price improvements over the balance of the year. Our customers around the globe continue to increase their exploration, development and production activity to meet the world's demand for energy. In response to the anticipated increase in demand for our products and services we have updated our guidance for the balance of the year. We have also increased our rental tool capital spending modestly to support the anticipated growth in revenues while maintaining our financial discipline."

During the first quarter of 2005, debt decreased $60.0 million to $1,102.3 million, and cash decreased $32.9 million to $286.1 million. In the first quarter of 2005, the company's capital expenditures were $85.6 million, depreciation and amortization was $92.4 million and dividend payments were $38.7 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 first quarter of 2005, 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.

Operational Highlights

During the first quarter of 2005, we reorganized our operating divisions into two separate groups; the Drilling and Evaluation group, which consists of the Baker Atlas, Baker Hughes Drilling Fluids, Hughes Christensen and INTEQ divisions and the Completion and Production group, which consists of the Baker Oil Tools, Baker Petrolite and Centrilift divisions. Accordingly, beginning with the first quarter of 2005, we are reporting our results under three segments; Drilling and Evaluation, Completion and Production and WesternGeco, our seismic joint venture with Schlumberger Limited. In this news release "Oilfield Operations" refers to the combination of the Drilling and Evaluation and the Completion and Production segments. The results of Oilfield Operations and WesternGeco are reported as Total Oilfield. Historical information on these segments from the first quarter of 2001 through the first quarter of 2005 is attached to this news release and can be found on our website at http://www.bakerhughes.com in the investor relations/financial information section.

North American revenue increased 21% in the first quarter of 2005 compared to the first quarter of 2004. INTEQ, Baker Hughes Drilling Fluids, and Baker Oil Tools benefited from a strong US offshore market, and all divisions benefited from a stronger than anticipated US land market. Canadian revenue for the first quarter of 2005 was a record high for the company but was below our expectations due to a weather-shortened winter drilling season.

Latin American revenue increased 12% in the first quarter of 2005 compared to the first quarter of 2004 with revenue increases in Brazil, Colombia and Ecuador.

Europe, Africa, CIS revenues were up 15% in the first quarter of 2005 compared to the first quarter of 2004. Revenues from INTEQ, Baker Atlas and Hughes Christensen were up broadly throughout the region and revenues from INTEQ and Baker Oil Tools in the U.K. sector of the North Sea were also strong. Hughes Christensen benefited from export sales into Russia and the Caspian area.

Middle East, Asia Pacific revenues were up 24% in the first quarter of 2005 compared to the first quarter of 2004. The largest increases were driven by sales of products and services by Baker Oil Tools and INTEQ in Saudi Arabia, Egypt and Australia.

Sequentially, total revenues were down slightly less than 2% in the first quarter of 2005 compared to the fourth quarter of 2004. Seasonal increases in North American revenue were more than offset by modest revenue declines outside of North America. Excluding the $24.8 million in intellectual property license fees recorded at Baker Atlas as US revenue in the fourth quarter of 2004, revenue for the first quarter of 2005 was flat compared to the fourth quarter of 2004.

Revenue for the first quarter of 2005 increased 19% compared to the first quarter of 2004 and decreased 2% compared to the fourth quarter of 2004. Every division increased revenue compared to the same period a year ago. In addition revenues increased sequentially at Hughes Christensen, Baker Petrolite and Baker Hughes Drilling Fluids. Baker Petrolite and Hughes Christensen reported record revenues.

Every division reported improved profits in the first quarter of 2005 compared to the first quarter of 2004 and Baker Oil Tools, Baker Petrolite and Hughes Christensen reported record operating profits in the first quarter of 2005.

The non-GAAP measure of pre-tax operating margin, which is operating profit before tax divided by revenue, was 18.9% for the first quarter of 2005 compared to 14.7% for the first quarter of 2004 and 19.0% for the fourth quarter of 2004. Hughes Christensen reported record operating profit margins in the first quarter of 2005 and every division, except Baker Hughes Drilling Fluids, reported at least double digit operating margins.

Corporate, Net Interest and Other

Corporate, net interest and other expenses were $59.1 million in the first quarter of 2005, down $9.2 million from the first quarter of 2004 and down $11.9 million from the fourth quarter of 2004. The decrease in corporate, net interest and other costs compared to the first quarter a year ago was primarily due to lower net interest costs, and compared to the fourth quarter of 2004 the decrease was primarily due to delayed corporate spending and lower costs associated with assets retained from the discontinued Process segment offset by changes in foreign currency.

Outlook

• Revenues for the year 2005 are expected to be up 14% to 16% compared to the year 2004. Revenues in the second quarter of 2005 are expected to be up 14% to 16% compared to the second quarter of 2004 and up 3% to 5% compared to the first quarter of 2005.
• WesternGeco is expected to contribute $60 to $70 million in equity in income of affiliates for the year 2005 and $10 to $15 million for the second quarter of 2005.
• Corporate and other expenses, excluding interest expense, are expected to be between $175 and $185 million for the year 2005 and approximately $48 to $51 million in the second quarter of 2005.
• Net interest expense is expected to be between $55 and $60 million for the year 2005 and approximately $15 to $17 million in the second quarter of 2005.
• Net income per diluted share is expected to be between $2.20 and $2.30 for the year 2005. Net income per diluted share is expected to be between $0.51 and $0.53 in the second quarter of 2005.
• Capital spending is expected to be between $460 and $480 million for the year 2005.
• Depreciation and amortization expense is expected to be between $410 and $430 million for the year 2005.
• The tax rate on operating results for the year 2005 is expected to be approximately 34.0%.

The outlook for corporate and other expenses and income from continuing operations per diluted share do not consider the impact from the adoption of the revised FAS 123R, Accounting for Stock-Based Compensation, which the company now expects to adopt in the first quarter of 2006.