BHI Completes Review of Accounting Issues at INTEQ, Announces Intent to Sell Baker Process, Reports Fourth Quarter Results.Business Editors HOUSTON--(BUSINESS WIRE)--Feb. 17, 2000 Baker Hughes Baker Hughes NYSE: BHI is the world's third-largest oilfield services company behind Schlumberger & Halliburton, its main competitors. Baker Hughes provides the world's oil & gas industry with products and services for drilling, formation evaluation, completion and production. Incorporated (NYSE NYSE See: New York Stock Exchange :BHI BHI Baker Hughes Incorporated BHI Brain Heart Infusion (agar) BHI Better Hearing Institute BHI British Horological Institute (UK) BHI Boots Healthcare International BHI Branch If Higher )(PCX (1) A bitmapped graphics file format that handles monochrome, 2-bit, 4-bit, 8-bit and 24-bit color and uses RLE to achieve compression ratios of approximately 1.1:1 to 1.5:1. Images with large blocks of solid colors compress best under the RLE method. See PC Paintbrush. :BHI)(EBS See Swiss Electronic Bourse. EBS See electronic blue sheet (EBS). :BHI) announced today that it has completed its review of the accounting issues previously identified at its INTEQ division and will restate re·state tr.v. re·stat·ed, re·stat·ing, re·states To state again or in a new form. See Synonyms at repeat. re·state prior period results by $31.0 million on a cumulative after-tax basis After-tax basis The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. ($33.1 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta ) to address these issues. Completion of the review revealed that these misstatements occurred over a number of years, with approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $24.0 million (after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. ) of the adjustments relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc periods prior to 1995. All adjustments have been made to income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the . Although the amounts were attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to several INTEQ locations, $24.2 million of the after-tax amount was related to INTEQ's Venezuelan operations. Additional information on the INTEQ accounting issues can be found in Attachment See attach a file. 1. &uot;I am glad to be able to tell you that we have looked at these issues closely and have quantified them with certainty CERTAINTY, UNCERTAINTY, contracts. In matters of obligation, a thing is certain, when its essence, quality, and quantity, are described, distinctly set forth, Dig. 12, 1, 6. It is uncertain, when the description is not that of one individual object, but designates only the kind. Louis. ,&uot; said Joe B. Foster, interim chairman, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Baker Hughes. &uot;While the adjustments did not involve the loss of cash to the company, it is a serious matter that these misstatements and lapses in control occurred. We are now confident that we have the systems and controls in place to avoid similar accounting surprises in the future. This permits us to more intensely focus on issues and actions that will lead to improved growth and profitability for Baker Hughes.&uot; Baker Hughes Announces Intent to Sell Baker Process The company announced that it intends to sell its Baker Process division and that it will be seeking a buyer for the business and has therefore classified Baker Process as a discontinued operation discontinued operation A segment of a business that has been abandoned or sold or for which plans for one or another of these actions have been approved. See also continuing operations. . The decision was based on the company's objective of focusing on its oilfield operations. The company has retained the investment-banking firm of Credit Suisse First Boston Credit Suisse First Boston was originally the trading name of the Financière Crédit Suisse-First Boston, a London-based 50-50 investment banking joint venture formed in 1978 between the First Boston Corporation and Credit Suisse. to manage the sale process. Baker Process is a leader in process and separation technologies serving the mining, pulp and paper and industrial and municipal water and wastewater Wastewater is any water that has been adversely affected in quality by anthropogenic influence. It comprises liquid waste discharged by domestic residences, commercial properties, industry, and/or agriculture and can encompass a wide range of potential contaminants and industries. Baker Process revenues for the twelve months ended December December: see month. 31, 1999 were $389.8 million. Additional information on Baker Process can be found in Attachment 2. Mr. Foster commented, &uot;The sale of Baker Process, which is an excellent business, will permit Baker Hughes to reduce its debt and focus more intensely on what it does best, provide high quality products and services to the oil and gas industry.&uot; Results of Operations -- 1999 and Fourth Quarter Baker Hughes' net income for the twelve months ended December 31, 1999 was $0.10 per share (diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. ), as compared to a net loss of $(0.92) per share (diluted) for the twelve months ended December 31, 1998. The net loss for the three months ended December 31, 1999 was $(0.28) per share (diluted), as compared to net income of $0.02 per share (diluted) for the three months ended December 31, 1998. All current and prior period results have been restated for the effect of the INTEQ accounting issues and to treat Baker Process as a discontinued operation. Operating results, excluding the impact of non-recurring items, were $0.22 per share (diluted) for the twelve months ended December 31, 1999, as compared to $1.03 per share (diluted) in the twelve months ended December 31, 1998. Operating results, excluding the impact of non-recurring items, for the three months ended December 31, 1999 were $(.03) per share (diluted), as compared to $0.14 per share (diluted) for the three months ended December 31, 1998. Revenues for the twelve months ended December 31, 1999, were $4.547 billion, down 22% from the twelve months ended December 31, 1998. For the three months ended December 31, 1999, revenues were $1.104 billion, down 16% from the three months ended December 31, 1998. Commenting on the outlook for the year 2000, Mr. Foster added, &uot;My challenge to the Baker Hughes organization for 2000 is to double the 1999 operational earnings. This is consistent with my vow to define an achievable goal that will still stretch us. Our ability to meet this goal - or exceed it - is, of course, subject to a lot of factors beyond our control. Capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. by our customers needs to increase during the year, and there needs to be a recovery in drilling activity in the eastern hemisphere Eastern Hemisphere Part of the Earth east of the Atlantic Ocean. It includes Europe, Asia, Australia, and Africa. Longitudes 20° W and 160° E are often considered its boundaries. . During the first quarter of 2000, we expect to be almost breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations , so it is clear we are counting on an improved business outlook - as well as improved performance on the cost and productivity side - during the remainder of the year to meet our objectives.&uot; Search Committee Report Victor G. Beghini, chairman of the board's committee to select a new chief executive officer, announced that the firm of Spencer Spencer, city (1990 pop. 11,066), seat of Clay co., NW Iowa, on the Little Sioux River; inc. 1880. The city lies in a fertile farm area. Beef is processed, and Spencer's manufactures include work clothes, machinery, prefabricated buildings, and metal products. Stuart has been selected to assist the search committee. Attachments
-- Western Geophysical posted an operating loss in the quarter ended December
31, 1999, as lower pricing and low utilization of seismic assets impacted
results. Revenues at Western Geophysical were down 42% in the quarter ended
December 31, 1999, as compared to the same period a year ago. International
proprietary acquisition continues at depressed levels and multi-client sales
weakened during the fourth quarter 1999.
-- Baker Hughes INTEQ also posted a slight operating loss in the quarter ended
December 31, 1999 as US revenues were up 15% sequentially from the third
quarter but were more than offset by weaker non-US revenues. AutoTrak(TM), its
rotary closed looped drilling system, reached a milestone in the fourth quarter
of 1999 of one million feet drilled since introduction.
-- Baker Atlas improved its sequential revenues and operating margins in the
three months ended December 31, 1999, as compared to the three months ended
September 30, 1999, as price erosion in the Eastern Hemisphere was more than
offset by stronger cased hole activity and stabilizing prices in North America.
-- Baker Oil Tools expanded its sand control and fracturing services in the
quarter ended December 31, 1999 by bringing the vessel R.C. Baker into service
in the Gulf of Mexico joining the Republic Tide, which entered service a year
earlier. These state of the art vessels have augmented Baker Hughes leadership
in the deepwater completions market and have been key to the strong year on
year growth in the sand control product line from 1998 to 1999. Increased US
revenue in the quarter ended December 31, 1999 was offset by declining
international revenues, particularly in the North Sea, which has showed little
sign of recovery into early 2000. Baker Oil Tools operating margins declined
modestly in the three months ended December 31, 1999, as compared to the three
months ended September 30, 1999.
-- Hughes Christensen had a strong quarter ended December 31, 1999, improving
both revenue and operating margin sequentially, as compared to the quarter
ended September 30, 1999. Customer demand for the Spectrum product line was
important to results as fourth quarter drill bit sales in North American
approached 1998 levels. Hughes Christensen was Baker Value Added (BVA)
positive, that is it returned its cost of capital for both the quarter and the
year ended December 31 1999.
-- Centrilift also recorded positive BVA in the quarter ended December 31,
1999.
-- Baker Petrolite posted strong revenue gains in the three months ended
December 31, 1999, as compared to the three months ended December 31, 1998.
Operating margins improved in the quarter ended December 31, 1999, as compared
to both the quarter ended September 31, 1999 and the quarter ended December 31,
1998.
-- Project Renaissance continues on schedule and on budget. At the end of 1999
the company had converted much of Baker Oil Tools and INTEQ's US manufacturing
and field operations to SAP and established shared services for information
technology, human resources and selected financial functions. The majority of
Baker Hughes' US payroll and disbursement transactions are now processed on
SAP.
Financial Information
A table of comparative results follows:
(In millions, except Three Months Ended Twelve Months Ended
per share amounts) December 31, December 31,
UNAUDITED 1999 1998(1) 1999 1998(1)
-------- -------- -------- --------
Revenues $1,103.9 $1,307.3 $4,546.7 $5,820.6
-------- -------- -------- --------
Costs of revenues 974.0 1,031.0 3,677.7 4,745.7
Selling, general and
administrative 171.4 163.4 662.2 778.0
Merger related costs 17.2 217.5
Unusual charge, net 46.7 39.7 7.2 196.6
-------- -------- -------- --------
Total costs and expenses 1,192.1 1,251.3 4,347.1 5,937.8
-------- -------- -------- --------
Operating income (loss) (88.2) 56.0 199.6 (117.2)
Interest expense (40.0) (38.8) (159.0) (142.7)
Interest income 2.1 0.7 12.2 3.7
Realized gain on trading
securities 31.5 31.5
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes (94.6) 17.9 84.3 (256.2)
Income tax benefit (provision) 13.1 (10.0) (32.0) (24.7)
-------- -------- -------- --------
Income (loss) from continuing
operations (81.5) 7.9 52.3 (280.9)
Income (loss) from discontinued
operations, net of tax (11.3) (0.6) (19.0) (15.2)
-------- -------- -------- --------
Net income (loss) $ (92.8) $ 7.3 $ 33.3 $ (296.1)
-------- -------- -------- --------
Basic earnings per share:
Income (loss) from
continuing operations $ (0.25) $ 0.02 $ 0.16 $ (0.87)
Income (loss) from
discontinued operations (0.03) - (0.06) (0.05)
-------- -------- -------- --------
Net income (loss) $ (0.28) $ 0.02 $ 0.10 $ (0.92)
======== ======== ======== ========
Diluted earnings per share:
Income (loss) from
continuing operations $ (0.25) $ 0.02 $ 0.16 $ (0.87)
Income (loss) from
discontinued operations (0.03) - (0.06) (0.05)
-------- -------- -------- --------
Net income (loss) $ (0.28) $ 0.02 $ 0.10 $ (0.92)
======== ======== ======== ========
Depreciation, depletion
and amortization expense $ 177.8 $ 199.9 $ 778.4 $ 745.4
Capital expenditures $ 108.3 $ 341.4 $ 633.8 $1,301.0
Earnings before interest
expense and taxes (EBIT)(2) $ 27.7 $ 113.6 $ 270.8 $ 655.9
Earnings before interest
expense, taxes, depreciation,
depletion and amortization
(EBITDA)(2) $ 205.5 $ 313.5 $1,049.2 $1,401.3
(1) Restated for the effect of resolution of the INTEQ accounting
issues and to treat Baker Process as a discontinued operation.
(2) Computed excluding non-operational items.
Reconciliation of the Numerators and Denominators
of the Basic and Diluted EPS Computations
For The Three Months Ended
December 31, 1999 December 31, 1998
(In millions) Income Shares Income Shares
UNAUDITED (numerator)(denominator)(numerator)(denominator)
--------- ----------- --------- -----------
Basic EPS
Income (loss) from continuing
operations $ (81.5) 329.2 $ 7.9 326.9
Effect of dilutive securities:
Stock plans .4
-------- -------- -------- --------
Diluted EPS $ (81.5) 329.2 $ 7.9 327.3
======== ======== ======== ========
For The Twelve Months Ended
December 31, 1999 December 31, 1998
(In millions) Income Shares Income Shares
UNAUDITED (numerator)(denominator)(numerator)(denominator)
--------- ----------- --------- -----------
Basic EPS
Income (loss) from continuing
operations $ 52.3 328.2 $ (280.9) 321.7
Effect of dilutive securities:
Stock plans 1.7
-------- -------- -------- --------
Diluted EPS $ 52.3 329.9 $ (280.9) 321.7
======== ======== ======== ========
Conference Call The company has scheduled a conference call to discuss the results of today's earnings announcement. The call will begin at 10:00 a.m. eastern standard time, 9:00 a.m. central standard time. To access the call please call the conference call operator at 312/470-0009 or 712/257-3667, 10 to 15 minutes prior to the scheduled start time, and ask for the &uot;Baker Hughes Conference Call.&uot; A replay will be available through February February: see month. 23, 2000. The number for the replay is 402/220-0240. The call and replay will also be webcast on www.streetevents.com. Forward Looking Statements This press release and its attachments contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 27A of the Securities Act of 1933, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , and Section 21E of the Securities Exchange Act of 1934, as amended. The words &uot;future&uot;, &uot;focus&uot;, and &uot;will&uot; and similar expressions are intended to identify forward-looking statements. Baker Hughes expectations about the probability probability, in mathematics, assignment of a number as a measure of the "chance" that a given event will occur. There are certain important restrictions on such a probability measure. of having accounting issues surface again are only its strong expectations about this matter. Although Baker Hughes believes that it has adequate systems and controls in place to reduce the risk of accounting misstatements and Baker Hughes is in the process of further strengthening these controls, there can be no absolute degree of certainty that an accounting misstatement mis·state tr.v. mis·stat·ed, mis·stat·ing, mis·states To state wrongly or falsely. mis·state  ment n. will not
occur in the future even with adequate systems and controls. Baker
Hughes' expectations about the items of focus of its management are
only its expectations about these matters. Management focus may change,
depending on a changing industry, its effects on the company and a
changing business strategy to address the company's markets and the
needs of its shareholders. Baker Hughes' expectations regarding its
outlook for its business, improved profitability and growth in the
business 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 effect
of competition; the level of petroleum industry exploration and
production expenditures; world economic conditions, including (without
limitation) the ability of Asian countries Noun 1. Asian country - any one of the nations occupying the Asian continentAsian nation country, land, state - the territory occupied by a nation; "he returned to the land of his birth"; "he visited several European countries" to grow their respective economies; price of, and the demand for, crude oil and natural gas; drilling activity; weather; the legislative environment in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and other countries; OPEC OPEC: see Organization of Petroleum Exporting Countries. OPEC in full Organization of the Petroleum Exporting Countries Multinational organization established in 1960 to coordinate the petroleum production and export policies of its policy; conflict in the Middle East and other major petroleum-producing or consuming regions, the development of technology that lowers overall finding and development costs and the condition of the capital and equity markets and the timing of any of the foregoing. Baker Hughes is a leading supplier of reservoir-centered products, services and systems to the worldwide oil and gas industry. NOT INTENDED FOR BENEFICIAL HOLDERS Attachment 1 - Additional Information on the INTEQ Accounting Issues Baker Hughes announced on February 17, 2000 that it has completed its review of the accounting issues previously identified at its INTEQ division and will restate prior period results by $31.0 million on a cumulative after-tax basis ($33.1 million pre-tax) to address these issues. Completion of the review revealed that these misstatements occurred over a number of years, with approximately $24.0 million (after-tax) of the adjustments relating to periods prior to 1995. The company has restated its prior periods to adjust the unaudited financial information presented in this news release. The company is finalizing its audit of the timing of certain of the adjustments to be included in its audited financial statements to be filed in its Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. . All adjustments have been made to income from continuing operations. Although the amounts were attributable to several of INTEQ's locations, $24.2 million of the after-tax amount was related to INTEQ's Venezuelan operations. The adjustments to correct the misstatements include the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of uncollectable accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying and inventory shortages, the recognition of inventory pricing adjustments, adjustments to write off various other current and long-lived long-lived adj. 1. Having a long life: a long-lived aunt. 2. Lasting a long time; persistent: a long-lived rumor. 3. assets that no longer exist and the recognition of certain previously unrecorded liabilities, including trade accounts payable and employee compensation and benefits. The company believes that the misstatements were primarily the result of noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance with the company's accounting and operating procedures and that such noncompliance was isolated to INTEQ and primarily its operations in Venezuela Venezuela (vĕnəzwā`lə, Span. vānāswā`lä), officially the Bolivarian Republic of Venezuela, republic (2005 est. pop. 25,375,000), 352,143 sq mi (912,050 sq km), N South America. . The cumulative effect of the adjustments will be reflected in the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: statement of operations See Income statement. in the following categories: revenues, cost of revenues, selling, general and administrative and income taxes. The cumulative impact on revenues was $1.7 million. Attachment 2 - Additional Information on Baker Process Baker Process is an influential participant Participant A party of a funding. It usually refers to the lowest rank or smallest level of funding. in key applications within the market for mechanical equipment utilized in liquid/solid and liquid/liquid separation and filtration filtration: see sewerage; water supply. Filtration The separation of solid particles from a fluidsolids suspension of which they are a part by passage of most of the fluid through a septum or membrane that retains most of the solids . The company's global reputation as a leader in process equipment application design and engineering is reinforced re·in·force also re-en·force or re·en·force tr.v. re·in·forced, re·in·forc·ing, re·in·forc·es 1. To give more force or effectiveness to; strengthen: The news reinforced her hopes. by its direct operating presence in 19 countries. With fiscal 1999 revenue of $389.8 million, Baker Process designs, manufactures, markets and services a broad range of separation equipment and systems. The company's leading market positions and business lines include the widely recognized Bird Machine and EIMCO names, representing one of the largest installed equipment bases and active customer lists in the world. The company's principal product lines include a broad range of continuous and batch centrifuges, pressure filters (filter presses and belt presses), granular granular /gran·u·lar/ (gran´u-lar) made up of or marked by presence of granules or grains. gran·u·lar adj. 1. Composed or appearing to be composed of granules or grains. 2. media filters, sedimentation sedimentation In geology, the process of deposition of a solid material from a state of suspension or solution in a fluid (usually air or water). Broadly defined it also includes deposits from glacial ice and materials collected under the effect of gravity alone, as in talus equipment (thickeners thickeners, n.pl See binder. and clarifiers), flotation flotation or froth flotation Most widely used process for extracting many minerals from their ores. The method separates and concentrates ores by altering their surfaces so that they are either repelled or attracted by water. cells and aeration aeration /aer·a·tion/ (ar-a´shun) 1. the exchange of carbon dioxide for oxygen by the blood in the lungs. 2. the charging of a liquid with air or gas. aer·a·tion n. equipment used in a variety of applications and industries including the treatment of municipal water and wastewater. In addition, the company manufactures vacuum vacuum, theoretically, space without matter in it. A perfect vacuum has never been obtained; the best man-made vacuums contain less than 100,000 gas molecules per cc, compared to about 30 billion billion (30×1018) molecules for air at sea level. filters, such as drum, disc and horizontal horizontal /hor·i·zon·tal/ (hor?i-zon´t'l) 1. parallel to the plane of the horizon. 2. occupying or confined to a single level in a hierarchy. horizontal parallel to the plane of the horizon. belt, and specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. filters that are widely used in the environmental, chemical, minerals and pharmaceutical markets to dewater de·wa·ter tr.v. de·wa·tered, de·wa·ter·ing, de·wa·ters To remove water from (a waste product or streambed, for example). or clarify (company) Clarify - A software vendor, specialising in Customer Relationship Management software. Nortel Networks sold Clarify to Amdocs in 2002. http://amdocsclarify.com/. process and waste streams. The company also designs and manufactures process solutions for the oilfield and refinery markets, including equipment for the processing and conditioning of seawater seawater Water that makes up the oceans and seas. Seawater is a complex mixture of 96.5% water, 2.5% salts, and small amounts of other substances. Much of the world's magnesium is recovered from seawater, as are large quantities of bromine. for injection, desalting oil streams and separating oil from water in oil production streams, with products consisting of fine filters, coarse filters, nutshell filters, floating units, hydrocyclones, coalescers, deaeration Deaeration is the removal of air molecules from another gas, usually steam, using a deaerator. Deaeration also refers to degasification, the removal of dissolved gases, such as oxygen, from liquids. towers, electrochlorinators and electrostatic Stationary electrical charges in which no current flows. For example, laser printers and copier machines place a positive charge of the image on a drum, and negatively charged toner is attracted onto the drum. The toner is then transferred to positively charged paper and fused to the paper by heat. desalters. The company provides parts and service for all of its process equipment product lines through a global network of personnel and facilities strategically located to serve the customer community and also offers facilities operation services for processes that utilize many of the company's process equipment product and service lines. The company also provides a variety of services including Design, Build, Own and Operate, contract operations and equipment leases.
Attachment 3 - Operational Highlights
Operational Highlights for the three and twelve month periods
ended December 31, 1999.
Year over Year
(for the 12 months ended December 31, 1999 and 1998)
UNAUDITED
Operating Profit
Revenues Before Tax
Segment ($ millions) ($ millions)
--------------------- ------------------
1999 1998(1) 1999 1998(1)
---------- ---------- --------- --------
Oilfield Operations $ 4,546.7 $ 5,820.6 $ 360.8 $ 741.0
Corporate, interest and other 0.0 0.0 (249.0) (227.8)
---------- ---------- --------- --------
Total $ 4,546.7 $ 5,820.6 $ 111.8 $ 513.2
---------- ---------- --------- --------
(1) Restated for the effect of resolution of the INTEQ accounting
issues and to treat Baker Process as a discontinued operation.
Results for the year ended December 31, 1999 were impacted by
lower worldwide exploration and production spending, resulting in
lower revenues, lower prices and decreased utilization of fixed
overhead offset partially by cost reductions.
Year over Year
(for the 3 months ended December 31, 1999 and 1998)
UNAUDITED
Operating Profit
Revenues Before Tax
Segment ($ millions) ($ millions)
--------------------- -----------------
Dec 99 Dec 98(1) Dec 99 Dec 98(1)
---------- ---------- -------- --------
Oilfield Operations $ 1,103.9 $ 1,307.3 $ 51.0 $ 137.5
Corporate, interest and other 0.0 0.0 (63.3) (62.7)
---------- ---------- -------- --------
Total $ 1,103.9 $ 1,307.3 $ (12.3) $ 74.8
---------- ---------- -------- --------
Sequential Quarters
(for the 3 months ended December 31, 1999 and September 30, 1999)
UNAUDITED
Operating Profit
Revenues Before Tax
Segment ($ millions) ($ millions)
---------------------- -----------------
Dec 99 Sep 99(1) Dec 99 Sep 991
---------- ---------- -------- --------
Oilfield Operations $ 1,103.9 $ 1,117.6 $ 51.0 $ 81.6
Corporate, interest and other 0.0 0.0 (63.3) (61.9)
---------- ---------- -------- --------
Total $ 1,103.9 $ 1,117.6 $ (12.3) $ 19.7
---------- ---------- -------- --------
(1) Restated for the effect of resolution of the INTEQ accounting
issues and to treat Baker Process as a discontinued operation.
Fourth quarter 1999 results reflect increased exploration and production spending in the United States and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , primarily directed at natural gas, offset by decreased customer spending internationally and weaker results from Western Geophysical Western Geophysical was a company founded in California in 1933 by Henry Salvatori for the purpose of using reflection seismology to explore for petroleum. The company prospered and was sold by Salvatori to Litton Industries in the 1960s. . Lower pricing, particularly in international and offshore markets, and manufacturing under-absorption also impacted fourth quarter 1999 results. Corporate expenses, including interest expense, were $63.3 million for the three months ended December 31, 1999, compared to $62.7 million for the three months ended December 31, 1998. Increased expenses from Project Renaissance Renaissance (rĕnəsäns`, –zäns`) [Fr.,=rebirth], term used to describe the development of Western civilization that marked the transition from medieval to modern times. and higher net interest expense were the primary reasons for this increase. Attachment 4 - Division Highlights Division highlights for the three and twelve month periods ended December 31, 1999:
-- Western Geophysical posted an operating loss in the quarter ended December
31, 1999, as lower pricing and low utilization of seismic assets impacted
results. Revenues at Western Geophysical were down 42% in the quarter ended
December 31, 1999, as compared to the same period a year ago. International
proprietary acquisition continues at depressed levels and multi-client sales
weakened during the fourth quarter 1999.
-- Baker Hughes INTEQ also posted a slight operating loss in the quarter ended
December 31, 1999 as US revenues were up 15% sequentially from the third
quarter but were more than offset by weaker non-US revenues. AutoTrak(TM), its
rotary closed looped drilling system, reached a milestone in the fourth quarter
of 1999 of one million feet drilled since introduction.
-- Baker Atlas improved its sequential revenues and operating margins in the
three months ended December 31, 1999, as compared to the three months ended
September 30, 1999, as price erosion in the Eastern Hemisphere was more than
offset by stronger cased hole activity and stabilizing prices in North America.
-- Baker Oil Tools expanded its sand control and fracturing services in the
quarter ended December 31, 1999 by bringing the vessel R.C. Baker into service
in the Gulf of Mexico joining the Republic Tide, which entered service a year
earlier. These state of the art vessels have augmented Baker Hughes leadership
in the deepwater completions market and have been key to the strong year on
year growth in the sand control product line from 1998 to 1999. Increased US
revenue in the quarter ended December 31, 1999 was offset by declining
international revenues, particularly in the North Sea, which has showed little
sign of recovery into early 2000. Baker Oil Tools operating margins declined
modestly in the three months ended December 31, 1999, as compared to the three
months ended September 30, 1999.
-- Hughes Christensen had a strong quarter ended December 31, 1999, improving
both revenue and operating margin sequentially, as compared to the quarter
ended September 30, 1999. Customer demand for the Spectrum product line was
important to results as fourth quarter drill bit sales in North American
approached 1998 levels. Hughes Christensen was Baker Value Added (BVA)
positive, that is it returned its cost of capital for both the quarter and the
year ended December 31 1999.
-- Centrilift also recorded positive BVA in the quarter ended December 31,
1999.
-- Baker Petrolite posted strong revenue gains in the three months ended
December 31, 1999, as compared to the three months ended December 31, 1998.
Operating margins improved in the quarter ended December 31, 1999, as compared
to both the quarter ended September 31, 1999 and the quarter ended December 31,
1998.
-- Project Renaissance continues on schedule and on budget. At the end of 1999
the company had converted much of Baker Oil Tools and INTEQ's US manufacturing
and field operations to SAP and established shared services for information
technology, human resources and selected financial functions. The majority of
Baker Hughes' US payroll and disbursement transactions are now processed on
SAP.
Attachment 5 - Geographic Highlights
The table sets forth the geographic distribution of oilfield
revenue changes and the BHI rig count changes by geographic region.
UNAUDITED 12 months ended 3 months ended
Dec 99 vs. Dec 98 Dec 99 vs. Dec 98
----------------- -----------------
Geographic Region Revenue Rigs Revenue Rigs
-----------------------------------------------------------
North America -15% -20% -6% +24%
Latin America -33% -23% -14% -7%
Europe -20% -17% -29% -17%
Middle East -25% -16% -18% -15%
Asia Pacific -30% -20% -13% -18%
Africa -18% -43% -24% -43%
Outside North America -26% -22% -22% -16%
-----------------------------------------------------------
TOTAL -22% -21% -15% +7%
Weaker seismic revenues impacted regional results in the quarter ended December 31, 1999. Excluding Western Geophysical, North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. revenue was up 3% and revenue outside of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. was down 11% in the quarter ended December 31, 1999, compared to the quarter ended December 31, 1998. Sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen , oilfield revenue was down 1% in the three months ended December 31, 1999 from the three months ended September September: see month. 30, 1999. Weaker seismic revenues impacted all regions in the fourth quarter of 1999. North American revenue for the quarter ended December 31, 1999 fell 4%, but increased 7% excluding Western Geophysical, compared to the quarter ended September 30, 1999. Outside of North America fourth quarter 1999 revenue increased 1% reflecting little change in activity from the quarter ended September 30, 1999.
Attachment 6 - Impact of Non-Recurring Items
The following schedules detail the non-recurring items the
company recognized in the twelve month and three month periods ended
December 31, 1999.
Impact of Nonrecurring Items for the Twelve Months
Ended December 31, 1999
UNAUDITED
Profit Profit earnings
before tax Tax after tax per share
(millions) (millions) (millions) ($/share)
-----------------------------------------------------------------------
As reported income (loss)
from continuing
operations (including
impact of nonrecurring
items) $ 84.3 $ (32.0) $ 52.3 $ 0.16
Adjust for the following
nonrecurring items:
Net gain on sale of
properties resulting
in unusual credits (39.6) 14.6 (25.0) (0.08)
IRS settlement of 1994
and 1995 audit
reflected in income
taxes (18.1) (18.1) (0.05)
Net gain on the sale
of certain assets
related to a joint
venture reflected
in SG& (15.2) 5.8 (9.4) (0.03)
Western Geophysical -
disposition or idling
of certain marine,
ocean bottom cable
and land acquisition
assets reflected in
unusual charges
($35.2) and cost
of revenue ($72.1) 107.3 (18.9) 88.4 0.27
Contract termination
on a wellbore
construction unit
resulting in an
unusual charge 3.9 -- 3.9 0.01
Severance 11.6 (3.7) 7.9 0.02
Net adjustments to the
1998 nonrecurring
charge accruals (9.0) 2.4 (6.6) (0.02)
Realized gain on
trading securities (31.5) 11.1 (20.4) (0.06)
-----------------------------------------------------------------------
Operating results,
excluding impact of
nonrecurring items $ 111.8 $ (38.8) $ 73.0 $ 0.22
Impact of Nonrecurring Items for the Three Months
Ended December 31, 1999
UNAUDITED
Profit Profit earnings
before tax Tax after tax per share
(millions) (millions) (millions) ($/share)
-----------------------------------------------------------------------
As reported income (loss)
from continuing
operations (including
impact of nonrecurring
items) $ (94.6) $ 13.1 $ (81.5) $ (0.25)
Adjust for the following
nonrecurring items:
Western Geophysical -
disposition or idling
of certain marine,
ocean bottom cable
and land acquisition
assets reflected in
unusual charges
($35.2) and cost of
revenue ($72.1) 107.3 (18.9) 88.4 0.27
Contract termination
on a wellbore
construction unit
resulting in an
unusual charge 3.9 -- 3.9 0.01
Severance 11.6 (3.7) 7.9 0.02
Net adjustments to the
1998 nonrecurring
charge accruals (9.0) 2.4 (6.6) (0.02)
Realized gain on
trading securities (31.5) 11.1 (20.4) (0.06)
-----------------------------------------------------------------------
Operating results,
excluding impact
of nonrecurring items $ (12.3) $ 4.0 $ (8.3) $ (0.03)
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