SMITH INTERNATIONAL, INC. 
By Smith International, Inc. (NYSE:SII) today announced fourth quarter net income of $143.0 million, or 71 cents per share on a diluted basis, on revenues of $2.00 billion. The strong performance of the Eastern Hemisphere operations, which posted revenue growth of 40 percent over the prior year period due to the continuing expansion in drilling activity, contributed to the improved financial results. Net earnings for the comparable prior year quarter, which included a one-cent charge associated with a drill bit patent settlement, were $88.6 million, or 44 cents per share, on revenues of $1.53 billion.
Net income for the third quarter of 2006 totaled $132.9 million, or 66 cents per share, on revenues of $1.91 billion. The sequential revenue improvement was attributable to a 10 percent increase in Eastern Hemisphere business volumes, influenced by growth in West Africa, the Middle East and the Former Soviet Union. Sequential earnings grew five cents per share driven by higher sales of premium fluids in the international offshore market, increased environmental service equipment rentals and strong demand for drill pipe and other tubular products.
Doug Rock, Chairman and CEO, commented, ?Our Eastern Hemisphere operations showed strong sequential and year-over-year revenue and earnings growth in the fourth quarter of 2006, providing momentum for the current year. We believe 2007 will be a solid growth year for Smith and the recent surge in seismic survey sales and exploratory drilling provides further evidence that demand for Smith's products will continue to expand for years to come. Accordingly, we believe the current Thomson Financial 2007 consensus estimate for Smith's earnings per share is a reasonable expectation for our performance.?
M-I SWACO's fourth quarter revenues totaled $979.5 million, four percent above the third quarter of 2006 and 35 percent higher on a year-over-year basis. The sequential revenue growth was driven by the Eastern Hemisphere operations, influenced by higher offshore revenue volumes in West Africa and the Middle East markets. To a lesser extent, increased demand for environmental waste management services in the Former Soviet Union, the inclusion of a full quarter of revenues associated with the Specialised Petroleum Services acquisition and incremental product pricing also contributed to the period-to-period increase. After excluding the impact of acquisitions, base revenues grew three percent on a sequential quarter basis and were 31 percent above the comparable prior year period.
Smith Technologies reported fourth quarter revenues of $218.3 million, six percent above the September 2006 period and 30 percent higher than the prior year quarter. The majority of the sequential revenue improvement was generated outside of North America impacted by several factors, including increased diamond and three-cone product penetration in Europe/Africa, higher offshore activity in Asia and the inclusion of a number of large export orders. Excluding the impact of export sales, revenues were two percent above the third quarter's levels and 31 percent higher than the prior year quarter ? comparing favorably to the change in underlying drilling activity.
Smith Services' revenues totaled $288.3 million, nine percent higher on a sequential quarter basis and 47 percent above the December 2005 period. Approximately 80 percent of the revenue growth over the September quarter was reported in North America, driven by higher sales of drill pipe and other tubular products and services. Business volumes outside North America grew five percent, as increased demand for remedial product offerings in Latin America and the Middle East markets contributed to the period-to-period growth.
Wilson reported revenues of $512.9 million, two percent higher on a sequential basis and 16 percent above the prior year period. The revenue growth over the September quarter reflects higher business volumes in the energy sector operations related to new contract awards. The increase in energy sector revenues was partially offset by reduced downstream and industrial sales related to the timing of project spending in the engineering and construction sector.
Margaret Dorman, Chief Financial Officer, commented, ?In the December quarter, we benefited from our significant Eastern Hemisphere exposure and, looking forward, we believe that we'll continue to profit from a strengthening global business environment ? particularly in the offshore markets. Growth in key areas outside of North America helped increase the fourth quarter operating margins in our Oilfield segment to 19.5 percent of revenues, resulting in 30 basis points of sequential margin expansion.?
Smith International, Inc. is a leading worldwide supplier of premium products and services to the oil and gas exploration and production industry, the petrochemical industry and other industrial markets through its four principal business units ? M-I SWACO, Smith Technologies, Smith Services and Wilson. The Company will host a conference call today beginning at 10:00 a.m. Central to review the quarterly results. Participants may join the conference call by dialing (706) 634-6555 and requesting the Smith International, Inc. call. A replay of the conference call will also be available through Tuesday, February 6, 2007, by dialing (706) 645-9291 and entering conference call identification number ?5540239?.
Certain comments contained in this news release and today's scheduled conference call concerning the anticipated financial results of the Company constitute ?forward-looking statements? within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Whenever possible, the Company has identified these ?forward-looking? statements by words such as ?believe?, ?encouraged?, ?expect?, ?expected? and similar phrases. The forward-looking statements are based upon management's expectations and beliefs and, although these statements are based upon reasonable assumptions, actual results might differ materially from expected results due to a variety of factors including, but not limited to, overall demand for and pricing of the Company's products, changes in the level of oil and natural gas exploration and development, and variations in global business and economic conditions. The Company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. For a discussion of additional risks and uncertainties that could impact the Company's results, review the Smith International, Inc. Annual Report on Form 10-K for the year ended December 31, 2005 and other filings of the Company with the Securities and Exchange Commission.
Non-GAAP Financial Measures. The Company reports its financial results in accordance with generally accepted accounting principles (?GAAP?). However, management believes that certain non-GAAP performance measures and ratios utilized for internal analysis provide financial statement users meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Certain information discussed in this press release and in the scheduled conference call could be considered non-GAAP measures. See the Supplementary Data ? Schedule II in this release for the corresponding reconciliations to GAAP financial measures for the periods ended December 31, 2005 and 2006. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results.
Financial highlights follow:
SMITH INTERNATIONAL, INC. | |||||||||
| Three Months Ended | |||||||||
| December 31, | September 30, | ||||||||
| 2006 | 2005 | 2006 | |||||||
Revenues | $ | 1,998,991 | $ | 1,530,440 | $ | 1,914,184 | |||
| Costs and expenses: | |||||||||
| Costs of revenues | 1,344,549 | 1,054,456 | 1,295,971 | ||||||
| Selling expenses | 266,807 | 211,502 | 253,569 | ||||||
| General and administrative expenses |
| 77,857 | 68,890 | 76,919 | |||||
Total costs and expenses | 1,689,213 | 1,334,848 | 1,626,459 | ||||||
| Operating income | 309,778 | 195,592 | 287,725 | ||||||
| Interest expense | 18,159 | 12,113 | 17,287 | ||||||
| Interest income | (859) | (549) | (830) | ||||||
Income before income taxes and minority interests | 292,478 | 184,028 | 271,268 | ||||||
| Income tax provision | 94,502 | 58,799 | 88,600 | ||||||
| Minority interests | 54,944 | 36,640 | 49,743 | ||||||
Net income | $ | 143,032 | $ | 88,589 | $ | 132,925 | |||
| Earnings per share: | |||||||||
| Basic | $ | 0.72 | $ | 0.44 | $ | 0.66 | |||
| Diluted | $ | 0.71 | $ | 0.44 | $ | 0.66 | |||
| Weighted average shares outstanding: | |||||||||
| Basic | 199,564 | 200,427 | 200,009 | ||||||
| Diluted | 201,381 | 203,233 | 201,811 | ||||||
SMITH INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) | ||||||
| Year Ended December 31, | ||||||
| 2006 | 2005 | |||||
Revenues | $ | 7,333,559 | $ | 5,579,003 | ||
Costs and expenses: | ||||||
| Costs of revenues | 4,989,288 | 3,893,865 | ||||
| Selling expenses | 969,825 | 786,668 | ||||
| General and administrative expenses | 294,365 | 227,909 | ||||
| Total costs and expenses | 6,253,478 | 4,908,442 | ||||
| Operating income | 1,080,081 | 670,561 | ||||
| Interest expense | 62,967 | 44,446 | ||||
| Interest income | (2,982) | (1,692) | ||||
| Income before income taxes and minority interests | 1,020,096 | 627,807 | ||||
| Income tax provision | 326,674 | 202,743 | ||||
| Minority interests | 191,416 | 122,759 | ||||
| Net income | $ | 502,006 | $ | 302,305 | ||
| Earnings per share: | ||||||
| Basic | $ | 2.51 | $ | 1.50 | ||
| Diluted | $ | 2.49 | $ | 1.48 | ||
| Weighted average shares outstanding: | ||||||
| Basic | 200,252 | 201,651 | ||||
| Diluted | 202,008 | 204,522 | ||||
SMITH INTERNATIONAL, INC. | ||||||
December 31, |
December 31, | |||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 80,379 | $ | 62,543 | ||
| Receivables, net | 1,592,230 | 1,200,289 | ||||
| Inventories, net | 1,457,371 | 1,059,992 | ||||
| Other current assets | 141,047 | 114,407 | ||||
| Total current assets | 3,271,027 | 2,437,231 | ||||
| Property, Plant and Equipment, net | 887,044 | 665,389 | ||||
| Goodwill and Other Assets | 1,177,404 | 957,294 | ||||
| Total Assets | $ | 5,335,475 | $ | 4,059,914 | ||
| Current Liabilities: | ||||||
| Short-term borrowings | $ | 287,704 | $ | 133,650 | ||
| Accounts payable | 654,215 | 479,206 | ||||
| Other current liabilities | 437,549 | 320,297 | ||||
| Total current liabilities | 1,379,468 | 933,153 | ||||
| Long-Term Debt | 800,928 | 610,857 | ||||
| Other Long-Term Liabilities | 246,028 | 194,691 | ||||
| Minority Interests | 922,114 | 742,708 | ||||
| Stockholders' Equity | 1,986,937 | 1,578,505 | ||||
| Total Liabilities and Stockholders' Equity | $ | 5,335,475 | $ | 4,059,914 | ||
SMITH INTERNATIONAL, INC. Share
© Business Wire - 2007
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