SMITH INTERNATIONAL, INC. 
By Smith International, Inc. (NYSE:SII) today announced second quarter net income of $153.1 million, or 76 cents per share, on revenues of $2.11 billion. On a comparative basis, operating earnings grew 34 percent above the prior year period, which included a two-cent benefit related to the settlement of a U.S. tax audit. Additionally, the Company reported a slight improvement in revenue and operating earnings over the March 2007 quarter, despite the impact of lower Canadian drilling activity which resulted in the loss of high-margin product sales. The performance of the Oilfield segment operations, which reported revenue growth of three percent over the March 2007 quarter and 26 percent higher on a year-over-year basis, influenced the period-to-period comparison.
Land-based drilling activity in the Canadian market fell 74 percent on a sequential quarter basis, impacted by the seasonal drilling slowdown and weather-related project delays. The substantial reduction in Western Canadian business volumes, which contributed to a seven-cent per share earnings decline from the March 2007 quarter, was more than offset by higher fluid sales in the global offshore sector and increased customer demand for drill bit products in the U.S. market. Excluding the impact of the Canadian land-based operations, revenues rose six percent over the first quarter of 2007 while earnings increased 11 percent between the comparable periods.
Commenting on the results, Chairman and CEO, Doug Rock stated, ?The second quarter of 2007 was our eighteenth consecutive quarter of revenue improvement, and we've got more to go. Second quarter revenue growth for our Oilfield segment outside of North America was eight percent on a sequential quarter basis and 32 percent year-over-year. The long term nature of our Eastern Hemisphere and Latin American service contracts give us good visibility for the next two to five years, and what we see is impressive. Based on our prospects for the remainder of this year, we believe 2007 annual earnings per share of $3.15 to $3.25 is a reasonable expectation for Smith.?
M-I SWACO's second quarter revenues totaled $1.09 billion, five percent above the March 2007 quarter and 28 percent higher on a year-over-year basis. The majority of the sequential revenue improvement was reported in Latin America, Europe and Asia, driven by improved business volumes in the offshore market. Offshore revenues increased 16 percent on a sequential quarter basis, more than offsetting the decline experienced in the Western Canada region. From a product perspective, increased premium drilling fluid sales volumes and higher demand for completion fluids and tools accounted for the majority of the sequential revenue improvement.
Smith Technologies reported revenues of $248.3 million, two percent above the first quarter of 2007 and 16 percent higher on a year-over-year basis. The sequential revenue growth was primarily influenced by the U.S. operations, which reported higher drill bit volumes and improved pricing. A favorable customer mix in the Middle East/Asia region and continuing demand for borehole enlargement product offerings helped offset the seasonal decline in Canada. To a lesser extent, increased export orders for the Eastern Hemisphere market contributed to the sequential revenue improvement.
Smith Services' revenues totaled $280.1 million in the second quarter of 2007, comparable with the March 2007 period and 31 percent above the year-ago level. Lower drill pipe sales volumes, which fell 17 percent due to temporary supplier delays encountered during the quarter, influenced the sequential comparison. Excluding the impact of tubular sales, sequential revenues grew four percent as increased demand for the HYDRA-JAR® tool and other high-performance drilling products in the U.S. and Europe/Africa was partially offset by lower Canadian activity levels.
Wilson reported revenues of $499.5 million, nine percent lower on a sequential quarter basis and eight percent above the prior year period. The sequential comparison reflects the impact of the seasonal drilling slowdown in Canada ? partially offset by increased project business in Europe/Africa and the Middle East. Eastern Hemisphere business volumes grew 35 percent above the prior quarter level, largely influenced by increased customer activity in the North Sea region and higher export sales related to engineering and construction projects in West Africa.
Margaret Dorman, Chief Financial Officer, commented, ?Our people did an outstanding job this quarter ? evidenced by improved Oilfield segment margins and significant free cash flow generation. We achieved solid results for the quarter in spite of the seasonal drilling decline in Canada which resulted in lower sales of premium products and services. In the second quarter of 2007, Smith's Oilfield segment operating margins improved to 20.0 percent and, after excluding the impact of the Canadian land-based operations, sequential incremental margins were 32 percent.?
Smith International, Inc. is a leading supplier of premium products and services to the oil and gas exploration and production industry 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 call. A replay of the conference call will also be available through Tuesday, July 31, 2007, by dialing (706) 645-9291 and entering conference call identification number 5050946.
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, 2006 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 III in this release for the corresponding reconciliations to GAAP financial measures for the periods ended March 31, 2007 and June 30, 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. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| June 30, | March 31, | ||||||||||
| 2007 | 2006 | 2007 | |||||||||
Revenues | $ | 2,114,373 | $ | 1,738,263 | $ | 2,107,724 | |||||
| Costs and expenses: | |||||||||||
| Costs of revenues | 1,417,827 | 1,193,250 | 1,431,759 | ||||||||
| Selling expenses | 287,162 | 228,255 | 272,333 | ||||||||
| General and administrative expenses | 76,935 | 71,298 | 72,504 | ||||||||
Total costs and expenses | 1,781,924 | 1,492,803 | 1,776,596 | ||||||||
| Operating income | 332,449 | 245,460 | 331,128 | ||||||||
| Interest expense | 17,605 | 14,685 | 18,534 | ||||||||
| Interest income | (895 | ) | (696 | ) | (764 | ) | |||||
|
Income before income taxes and
minority interests | 315,739 | 231,471 | 313,358 | ||||||||
| Income tax provision | 100,891 | 70,910 | 93,099 | ||||||||
| Minority interests | 61,795 | 41,728 | 60,101 | ||||||||
Net income | $ | 153,053 | $ | 118,833 | $ | 160,158 | |||||
| Earnings per share: | |||||||||||
| Basic | $ | 0.76 | $ | 0.59 | $ | 0.80 | |||||
| Diluted | $ | 0.76 | $ | 0.59 | $ | 0.80 | |||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 200,499 | 200,457 | 199,980 | ||||||||
| Diluted | 202,097 | 202,162 | 201,426 | ||||||||
SMITH INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) | |||||||
| Six Months Ended June 30, | |||||||
| 2007 | 2006 | ||||||
Revenues | $ | 4,222,097 | $ | 3,420,384 | |||
| Costs and expenses: | |||||||
| Costs of revenues | 2,849,586 | 2,348,768 | |||||
| Selling expenses | 559,495 | 449,449 | |||||
| General and administrative expenses | 149,439 | 139,589 | |||||
Total costs and expenses | 3,558,520 | 2,937,806 | |||||
| Operating income | 663,577 | 482,578 | |||||
| Interest expense | 36,139 | 27,521 | |||||
| Interest income | (1,659 | ) | (1,293 | ) | |||
|
Income before income taxes and
minority interests | 629,097 | 456,350 | |||||
| Income tax provision | 193,990 | 143,572 | |||||
| Minority interests | 121,896 | 86,729 | |||||
Net income | $ | 313,211 | $ | 226,049 | |||
| Earnings per share: | |||||||
| Basic | $ | 1.56 | $ | 1.13 | |||
| Diluted | $ | 1.55 | $ | 1.12 | |||
| Weighted average shares outstanding: | |||||||
| Basic | 200,241 | 200,725 | |||||
| Diluted | 201,815 | 202,371 | |||||
SMITH INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | ||||||||||||||||||||||||||||||||||
|
June 30,
2007 |
December 31,
2006 | |||||||||||||||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 94,903 | $ | 80,379 | ||||||||||||||||||||||||||||||
| Receivables, net | 1,597,371 | 1,592,230 | ||||||||||||||||||||||||||||||||
| Inventories, net | 1,564,345 | 1,457,371 | ||||||||||||||||||||||||||||||||
| Other current assets | 155,724 | 141,047 | ||||||||||||||||||||||||||||||||
| Total current assets | 3,412,343 | 3,271,027 | ||||||||||||||||||||||||||||||||
| Property, Plant and Equipment, net | 986,422 | 887,044 | ||||||||||||||||||||||||||||||||
| Goodwill and Other Assets | 1,198,457 | 1,177,404 | ||||||||||||||||||||||||||||||||
| Total Assets | $ | 5,597,222 | Share
© Business Wire - 2007
| |||||||||||||||||||||||||||||||
