Weatherford International plc (WFT)

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Weatherford International Ltd. (WFT)

Q4 2009 Earnings Call

January 26, 2010 8:30 am ET

Executives

Bernard Duroc-Danner - Chairman & Chief Executive Officer

Andy Becnel - Chief Financial Officer

Analysts

Jim Crandell - Barclays

Bill Herbert - Simmons & Co.

Andrew Sheridan - UBS

Dan Boyd - Goldman Sachs

Mike Urban - Deutsche Bank

Jeff Tillery - Tudor Pickering

Stephen Gengaro - Jefferies

Ole Slorer - Morgan Stanley

Presentation

Operator

Good day, ladies and gentlemen and welcome to the fourth quarter 2009, Weatherford International earnings conference call. My name is Heather, and I’ll be your operator for today. (Operator Instructions)

I’d now like to turn the call over to your host for today’s presentation, Mr. Bernard Duroc-Danner, Chairman and Chief Executive Officer; please proceed.

Bernard Duroc-Danner

Thank you. Good morning. Andy, will you start with your prepared comments, please.

Andy Becnel

For the final quarter of 2009, our reported EPS numbers is $0.02 before excluded items, our performance, which on its face is considerably weaker than our own expectations. First, I’ll cover the excluded items. Excluded items totaled $46 million after tax. First, $9 million in after tax cost incurred in connection with our ongoing government investigations. Two, $13 million in after tax charges for severance and facility closures, and three a $24 million charge incurred in connection with the finalization of our tax reorganization, which was completed during the quarter.

To understand more fully the $0.02 number, you should take note of a number of discrete items that influenced the quarter’s financial performance, but did not reflect actual operating performance. On the negative side, four items. One, $21 million in inventory write-offs; two, $12 million in fees associated with business process and supply chain improvement projects. These should be ongoing for the next nine quarters. Three, an $8 million settlement of the multiyear legal dispute; and four, $4 million on fees associated with our global tax restructuring.

Startup costs were significant in the quarter. We acknowledge their existence, but don’t seek to calibrate these costs for you. They’re consistently incurred in connection with the growth of the company. On the positive side, two items of note, a net $3 million gain on acquisition and divestiture activity. Two, a $3 million tax benefit for operations. The net impact of all the above items is a negative $0.05 hit to the reported number.

Operating performance, on a consolidated basis, revenue grew $276 million sequentially or 13% with North America up 19% and international up 10%. Consolidated EBIT before corporate and R&D was $216 million, down $45 million sequentially with operating margins at 8.9%. While North American operating income was up $9 million, international was down $54 million as margin slid 460 basis points. Recall that the sequential swing alone on the OFS put was a negative $33 million.

Before moving on to geographic performance, we will take a look at full year results. Companywide revenue fell 8% compared to ‘08 with North American revenue down 38% and international revenue up 18% or $921 million. All international regions grew other than Middle East, North Africa, Asia, which was down 1% year-on-year. Major contributors to the growth were Mexico and FSU, the latter due largely to the OFS acquisition completed at the end of July.

Companywide EBIT before corporate and R&D fell 50%. With 55% decrementals for the year, North American operating income fell 82%. While the North American market was considerably weaker than initially expected for the year, the decrementals suggest, we did a fair job of managing down our cost structure to adapt to market conditions.

On the international side, operating income fell $245 million. The two most significant factors weighing on international profitability during the year were pricing declines and costs associated with startups and operating delays, as well as our decision early in the year to maintain intact our international infrastructure and workforce.

Geographic performance, financial performance within our four regions was as follows. North America, 30% of total revenue, revenue up $116 million sequentially or 19% on a 20% increase in rig count, EBIT was $42 million, up $9 million sequentially with margins of 5.7%. Dampening margin improvement were inventory write-offs of $8.5 million, as well as an allocation of $6 million of the business process improvement costs referred to earlier.

For 2009 North American revenue was down $1.7 billion or 38% compared to 2008, while average rig count was down 42% over these two periods. EBIT was down $928 million or 82%. Sequentially all product lines showed growth with the exception of pipeline. Stimulation and Chemicals, Artificial Lift, Well Construction and Directional and Underbalanced were the strongest contributors to the sequential growth in the top line. Latin America 26% of total revenue.

Revenue rose $93 million or 18% sequentially on the back of a 1% increase in rig count. EBIT was $49 million, down $5 million sequentially, as decreased activity and natural gas projects in Mexico prevented adequate fixed cost absorption. Inventory adjustments in this region were $3 million. Margins came in at 8%, down 240 basis points.

Full year revenue was up 72% and EBIT was up 2%. Heavy concentrations of pass-through revenue, together with unforeseen delays, shifts in customer focus and market declines in Venezuela, Argentina and Colombia negatively impacted profitability. For the quarter Mexico, Brazil, Colombia and Ecuador posted strong top line improvements.

Directional and Underbalanced, Integrated Drilling and Well Construction were top performers by product line. Middle East/North Africa/Asia/Pacific, 24% of total revenue. Revenue declined $7 million or 1% sequentially against a 4% increase in rig count. EBIT was $82 million, down $19 million sequentially with operating margins at 13.9%, down 310 basis points.

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