Baker Hughes Incorporated Q3 2010 Earnings Call Transcript

Baker Hughes Incorporated (BHI)

Q3 2010 Earnings Call

November 01, 2010 8:30 am ET

Executives

Martin Craighead - President and Chief Operating Officer

Peter Ragauss - Chief Financial Officer and Senior Vice President

Chadwick Deaton - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee

Gary Flaharty - Vice President of Investor Relations

Analysts

David Anderson - Palo Alto Investors

William Herbert - Simmons

Scott Gruber - Bernstein Asset Management

Geoff Kieburtz - Weeden & Co. Research

James Crandell - Lehman Brothers

Joe Hill - Tudor, Pickering & Co. Securities, Inc.

J. Adkins - Raymond James & Associates

Kurt Hallead - RBC Capital Markets Corporation

Robin Shoemaker - Citigroup Inc

Presentation

Operator

Compare to:
Previous Statements by BHI
» Baker Hughes Incorporated Q2 2010 Earnings Call Transcript
» Baker Hughes Incorporated Q1 2010 Earnings Call Transcript
» Baker Hughes Incorporated Q4 2009 Earnings Call Transcript

Good morning. My name is Dennis, and I will be your conference facilitator. At this time, I would like to welcome, everyone to the Baker Hughes Third Quarter 2010 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Mr. Gary Flaharty, Vice President of Investor Relations. Sir, you may proceed.

Gary Flaharty

All right, thank you, Dennis, and good morning, everyone. Welcome to the Baker Hughes Third Quarter 2010 Earnings Conference Call. Here with me this morning are Chad Deaton, Baker Hughes' Chief Executive Officer and Chairman; Martin Craighead, President and Chief Operating Office; and Peter Ragauss, Baker Hughes' Senior Vice President and Chief Financial Officer. Following management's comments this morning, we'll open the lines for your questions.

Reconciliation of operating profits and non-GAAP measures to GAAP results for historic periods can be found on our website at www.bakerhughes.com in the Investor Relations section under Financial Information.

In addition, this morning, we're also including a slide presentation with our webcast. Slides are available on the Investor Relations homes page at bakerhughes.com. Finally, I caution you that any company outlooks discussed this morning are subject to various risk factors. We'll try to highlight the risk factors as we make these forward-looking statements. However, the format of the call prevents a more thorough discussion of these risk factors. For a complete and full discussion of these risk factors, please refer to our annual report, 10-K, 10-Q, and in particular, the Forward-looking Disclosure in this morning's news release.

With that, I'll conclude our discussion of the administrative details and turn the call over to Peter Ragauss. Peter?

Peter Ragauss

Thanks, Gary. Good morning. This morning, we reported net income on a GAAP basis of $255 million, or $0.59 per share. Earnings per share were up $0.41 compared to a year ago, and up $0.36 from last quarter. Revenue was $4.1 billion, up 83%, or almost $1.9 billion compared to a year ago, and up 21% or $700 million sequentially. And EBITDA per share was $1.64, which was up $0.71 or 76% compared to a year ago and up $0.26 or 19% from last quarter.

There were a couple of adjustments that should be made to compare results to our previous guidance. First, our tax rate before acquisition-related costs was 32.5%. Let me just point something out, that we had $12 million in tax benefits from acquisition-related costs in addition to the $12 million pretax charge, so the net result was about zero on the acquisition cost on a per share basis.

The overall decrease in the tax rate is primarily due to the actions we took in the third quarter to repatriate certain foreign earnings, ultimately resulting in a reduction of current and future U.S. taxes. The Federal tax rate in the middle of our 37% to 38% guidance, the favorable impact of the lower actual tax rate was approximately $0.04 per share.

Second, we've revised our estimate with the amortization associated with the BJ Services acquisition. This calculation will not be final until the end of the year. However, our best estimate is that the incremental amortization charge will now be $120 million per year, or approximately $30 million per quarter. As a result, the amortization expense associated with the step-up was $9 million lower than our guidance for the third quarter, approximately $0.01 a share.

So from the GAAP EPS of $0.59, subtract $0.04 from the impact of lower tax rate, subtract $0.01 for the impact of lower quarterly amortization charges, that brings you to $0.54.

To help you in understanding the moving pieces, I'll bridge the Q3 '09 EPS to Q3 '10 EPS. GAAP EPS for Q3 '09 was $0.18 per share, add $0.03 for lower corporate cost, subtract $0.02 for higher net interest cost, subtract $0.05 for the impact of the higher share count, offset partially by the effect of the lower effective tax rate, subtract $0.03 for the impact of the incremental amortization costs and last, to get to EPS this quarter, add $0.48 from operations, including the acquisition of BJ Services to arrive at $0.59 per share.

Bridging the sequential quarters, GAAP EPS for Q2 2010 was $0.23 per share, add back second quarter acquisition-related costs of $56 million before tax, $51 million after tax, or $0.13 per share. The impact of the lower tax rate, offset partially by the higher average share count, added about $0.04 per share, subtract $0.01 per share for higher net interest expense. Last, to get to EPS this quarter, add about $0.20 per share from operations, including the impact of having BJ Services on-board for the entire quarter to arrive at $0.59 per share.

In Table 3 of our earnings release, we provide financial information on a pro forma combined basis, with revenue and profit before tax of BJ Services included into the prior period's results to allow meaningful comparisons between quarters. Because of the reduction in amortization, this morning, we also provide a revision to the pro forma supplemental information for Q1 2008 to Q3 2010 by quarter. This schedule is available on our website.

From this point on in the conference call, any comments on revenue, operating profit and operating profit margin refer explicitly to Table 3.

Revenue in North America was $2 billion, up 71% compared to a year ago, and up 16% sequentially. North America operating profits were $340 million, up $356 million year-over-year, and up 52% sequentially.

Read the rest of this transcript for free on seekingalpha.com