Baker Hughes Incorporated (BHI)

Q4 2010 Earnings Call

January 25, 2011 10:00 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

Kurt Hallead - RBC Capital Markets, LLC

William Herbert - Simmons

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

Robin Shoemaker - Citigroup Inc

Scott Gruber - Bernstein Research

Daniel Boyd - Goldman Sachs Group Inc.

Ole Slorer - Morgan Stanley

Presentation

Operator

Good morning. My name is Thia, and I will be the conference facilitator. At this time, I would like to welcome everyone to the Baker Hughes Fourth 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, Thia. Good morning, everyone. Welcome to the Baker Hughes Fourth 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 Officer; 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.

Finally, I would caution you this morning that any company outlooks discussed are subject to various risk factors. We'll try to highlight these factors as we make these forward-looking statements. However, the format of the call does prevent a thorough discussion of these risk factors. For a 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 $335 million or $0.77 per share. There are some adjustments that should be made to better compare our results to first call estimates.

First, we have incurred $56 million in acquisition-related costs this quarter. Net of taxes is $37 million or about $0.08 per share. Second, we also had a gain on investment of $6 million or $0.01 a share to another direction. So adjusting to these factors, the EPS that is more comparable to first call estimates was $0.84 per share. Revenue was $4.4 billion, up 82% or up almost $2 billion compared to a year ago and up 8% or $345 million sequentially. And EBITDA per share was $2.18, up $1.07 or 96% compared to a year ago, and up $0.54 or 33% from last quarter.

To help in your understanding of the moving pieces, I'll bridge Q4 '09 EPS to Q4 '10 EPS. GAAP EPS for Q4 '09 was $0.27 per share. Subtract a $0.01 for a gain on investment in the year-ago quarter, subtract $0.08 for the impact of the higher share count a and higher effective tax rate, subtract $0.03 for higher net interest costs, subtract $0.05 for the impact of the incremental amortization cost associated with the acquisition and add $0.02 for lower corporate expenses. Operations added $0.72 per share. That brings us to $0.84 EPS per share. Last, subtract $0.08 per share for the impact of the acquisition-related cost, and add the $0.01 gained on investment this quarter to get to the GAAP number of $0.77 per share.

Bridging the sequential quarters, GAAP EPS for Q3 2010 was $0.59 per share. Subtract the effect of the higher relative tax rate of $0.02 per share, subtract $0.03 per share for higher net interest and corporate expenses. Operations added $0.30 per share, which gets us to $0.84 per share. Again, subtract the $0.08 for the impact of acquisition-related cost and add the $0.01 of gain on investment to get to the GAAP EPS of $0.77 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. 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 $2.2 billion, up 69% compared to year ago and up 10% sequentially. North America operating profits were $478 million, up $434 million year-over-year and up $138 million sequentially. North America margins were at 22%, up almost 500 basis points sequentially and delivered 68% incremental margin. We saw a strong sequential improvement in all three geo markets: Canada; U.S. land and the Gulf of Mexico.

International revenue was $1.9 billion, up 7% compared to a year ago, and up 8% compared to the prior quarter. PBT was $175 million, down $38 million year-on-year and up $80 million from the prior quarter. PBT margin was 9%, up 375 basis points sequentially, and incremental margins were 58% sequentially. Fourth quarter international results were boosted by seasonally higher than normal product sales of about $70 million.

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