HOUSTON, Oct. 23 /PRNewswire-FirstCall/ -- Grant Prideco, Inc. today announced results for its third quarter 2006. Net income increased to $126.5 million ($0.95 per diluted share) on a 34% increase in revenues to $471.3 million, which includes a $20 million license and royalty fee ($0.10 per diluted share, net of tax) from a recently announced drill bit license agreement with Smith International, Inc. These results compare to net income of $48.1 million ($0.37 per diluted share) on revenues of $352.2 million in last year's third quarter. Last year's third quarter includes refinancing charges of $21.7 million ($0.11 per diluted share, net of tax) related to the Company repurchasing its 9% Senior Notes.
"We are pleased to report another record quarter for Grant Prideco and the achievement of several important milestones," commented Michael McShane, Chairman and CEO of Grant Prideco. "Each of our three segments generated record revenues during the quarter. Our Drilling Products and Services segment continued to increase its record backlog, introduced its new TurboTorque(TM) line of drill pipe and completed the installation of a new weld line in its U.S. manufacturing facility. ReedHycalog continued to make gains in both fixed cutter and roller cone drill bits and, shortly after quarter end, completed the acquisition of Andergauge which will expand and complement its existing suite of downhole products. Finally, Tubular Technology and Service's XL business continued to expand sales of its Viper(TM) product line into international markets."
Operating Income Margins Increased
Consolidated revenues increased by $119.1 million, or 34%, compared to last year's third quarter, as worldwide drilling activity increased 13%. Consolidated operating income margins increased to 34% from 24% for the same prior-year period. Other operating expenses (sales and marketing, general and administrative and research and engineering), while increasing $5.5 million on a year-over-year basis, were reduced to 15% of revenues from 19% for the same prior-year period primarily due to increased revenue base.
Other Items
Interest expense decreased by $1.5 million, reflecting lower year-over- year debt balances due to significant free cash flow and a debt restructuring in 2005, which reduced the Company's average interest rate. Equity income from the Company's unconsolidated affiliates increased to $26.6 million from $15.9 million in last year's third quarter reflecting higher earnings at Voest-Alpine Tubulars (VAT) due to increased volumes and pricing of its seamless tubulars. In addition, losses from the Company's IntelliServ division, previously accounted for as an equity investment, are now included in operating income following the acquisition of the remaining 50% interest in September 2005. Sequentially, equity income decreased by $10.7 million primarily due to longer than expected VAT plant shutdown for summer maintenance. Other income decreased by $2.8 million primarily due to foreign exchange losses from a weakened U.S. dollar.
The Company's effective tax rate improved to 29.9% for the third quarter of 2006 (31.2% year-to-date) compared to 33.1% in last year's third quarter primarily due to additional utilization of foreign tax credits, research and development credits and the domestic manufacturing deduction.
SEGMENT RESULTS
Drilling Products and Services
Revenues for the Drilling Products and Services segment were a record $214.4 million during the quarter, representing a 40% increase over last year's third quarter. Operating income increased by 68% to $78.9 million, and operating income margins increased to 37% from 31% in last year's third quarter. These results reflect increased volumes and improved pricing across all of this segment's product lines, including drill pipe, tool joints and drill collars. Drill pipe footage sold increased by 21% and average sales price per foot increased by 14%. International revenues of approximately $11.0 million were deferred until the fourth quarter 2006 primarily due to unexpected shipping delays. Backlog for this segment increased to a record $1.2 billion at September 30, 2006, which includes 19.0 million feet of drill pipe orders.
Drill Bits
Revenues for the Drill Bits segment increased by 48% to $148.0 million, which reflects the $20.0 million license and royalty fee mentioned above, and operating income increased by 158% to a record $66.4 million. Operating income margins increased to 45% (36% excluding the license and royalty fee) from 26% in last year's third quarter. Excluding the license and royalty fee, these improvements reflect the 13% increase in worldwide rig count, strong market penetration of its Raptor(TM) product line and incremental revenues for coring services resulting from its acquisition of Corion in July 2005. International revenues (excluding Canada) increased by 24%, excluding the license and royalty fee, with the largest increases in the Middle East and Russia. Additionally, this segment continues to benefit from overall improved pricing and better rental fleet management.
Tubular Technology and Services
Revenues for the Tubular Technology and Services segment increased by 9% to $108.2 million during the third quarter of 2006. Operating income increased by 11% to $28.5 million and operating income margins remained relatively flat at 26%. These results reflect improved pricing across all of this segment's product lines partially offset by a decrease in casing sales at TCA's heat- treating facility as distributor purchases have declined while they focus on reducing inventory levels.
Corporate/Other
Corporate/Other expenses for the third quarter of 2006 decreased to $13.4 million from $13.6 million for the same period last year. This decrease is due to lower Corporate expenses offset by increased operating costs related to the Company's IntelliServ division. The decrease in Corporate expenses is primarily due to incentive stock-based compensation that is valued based on the Company's current stock price.
Subsequent Events
On October 13, 2006, the Company acquired Anderson Group Limited and related companies (Andergauge) for $115.7 million, plus the assumption of net debt of approximately $39.9 million. Andergauge is a provider of specialized downhole drilling tools, including the well known AnderReamer and AG-itator, and provides services related to these tools. This business will be included in the Drill Bits segment from the date of acquisition.
In October 2006, the Company announced that its Board of Directors approved an increase in its stock repurchase program by $200 million (to $350 million from $150 million). The Company has repurchased approximately $150 million since the inception of this program.
OUTLOOK
Chairman and CEO, Michael McShane commented, "While demand for certain products and services, such as premium connections, casings, tubular processing and VAT's North America OCTG, has experienced some softening in the near term, this has been offset by continued growth in the Drilling Products and Services and Drill Bits segments, which should result in another record quarter in the fourth quarter 2006. We expect fourth quarter earnings to be in the range of $0.93 to $0.95 per share, which would result in $3.36 to $3.38 per share for the full year 2006, including $0.10 per share for the drill bit technology license."
Grant Prideco (http://www.grantprideco.com/ ), headquartered in Houston, Texas, is the world leader in drill stem technology development and drill pipe manufacturing, sales and service; a global leader in drill bit technology, manufacturing, sales and service; and a leading provider of high-performance engineered connections and premium tubular products and services.
Conference Call
Grant Prideco's conference call to discuss third quarter financial results is scheduled for Tuesday, October 24, 2006 at 8:30 a.m. EDT, (7:30 a.m. CDT, 5:30 a.m. PDT) and is accessible by dialing (800) 374-1805. For further information on the call or the webcast, please visit the Company's website at http://www.grantprideco.com/ or see the Company's press release announcing the earnings conference call dated October 3, 2006.
To the extent not provided in the call, reconciliations of any non-GAAP financial measures discussed in the call will be available on the Investor Relations page of Grant Prideco's website.
This press release contains, and statements made during our conference call relating to this press release may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, Grant Prideco's prospects for its operations and future demand for its products and services, all of which are subject to certain risks, uncertainties and assumptions. These risks, uncertainties and assumptions, which are more fully described in Grant Prideco, Inc.'s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission, include the impact of changes in oil and natural gas prices and worldwide and domestic economic conditions on drilling activity and demand for and pricing of Grant Prideco's products, expectations for modestly improving demand for our drill stem products, increased competition in the Company's premium connection markets, expectations relating to Grant Prideco's ability to maintain and increase pricing in its various product lines, expectations that we will be able to pass through raw material price increases to our customers, foreign currency issues and unexpected changes in exchange rates, impact of geo-political and other events affecting international markets and trade, Grant Prideco's ability to remain on the leading edge of technology in its products and successfully introduce and integrate new products and processes, the impact of international and domestic trade laws, unforeseen or unexpected litigation or claims, manufacturing difficulties and disruptions, and Grant Prideco's assumptions relating thereto. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material respects from those currently anticipated and reflected in Grant Prideco's forward-looking statements. These results should be considered preliminary until the Company files its Form 10-Q with the Securities and Exchange Commission.
GRANT PRIDECO, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Revenues $471,349 $352,228 $1,317,558 $961,271
Operating Expenses:
Cost of sales 239,486 201,438 695,380 549,631
Sales and marketing 38,803 34,824 112,088 101,182
General and administrative 23,613 25,150 79,943 74,226
Research and engineering 9,006 5,965 25,263 17,917
310,908 267,377 912,674 742,956
Operating Income 160,441 84,851 404,884 218,315
Interest Expense (3,687) (5,138) (11,105) (24,378)
Other Income (Expense), Net 121 2,920 (1,726) 7,513
Equity Income in
Unconsolidated Affiliates 26,619 15,927 91,280 33,849
Refinancing Charges --- (21,654) --- (57,086)
Income Before Income Taxes
and Minority Interests 183,494 76,906 483,333 178,213
Income Tax Provision (54,865) (25,453) (150,922) (59,646)
Income Before Minority
Interests 128,629 51,453 332,411 118,567
Minority Interests (2,157) (3,339) (7,922) (7,959)
Net Income $126,472 $48,114 $324,489 $110,608
Basic Net Income Per Share $0.97 $0.37 $2.47 $0.87
Basic Weighted Average
Shares Outstanding 130,606 128,373 131,158 126,511
Diluted Net Income Per
Share $0.95 $0.37 $2.43 $0.85
Diluted Weighted Average
Shares Outstanding 132,649 131,657 133,378 129,658
Cash Flow Data:
Depreciation and
amortization $11,988 $11,750 $36,014 $33,956
Cash provided by operating
activities 78,575 38,996 265,028 125,689
Cash provided by (used in)
investing activities 19,044 (36,905) (69,381) (50,115)
Cash used in financing
activities (85,703) (2,332) (125,718) (99,509)
Capital expenditures (a) 36,104 6,361 64,472 20,324
September 30, December 31,
2006 2005
Balance Sheet Data: (Unaudited)
Total assets $1,815,513 $1,540,284
Total debt 206,701 224,529
Total liabilities 571,562 544,129
Stockholders' equity 1,243,951 996,155
Backlog at Period Ended $1,334,361 $813,582
(a) Capital expenditures for property, plant, and equipment excludes
acquisitions of businesses.
GRANT PRIDECO, INC.
SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Revenues:
Drilling Products and Services $214,375 $153,173 $622,220 $425,879
Drill Bits 148,001 100,132 381,031 283,847
Tubular Technology and
Services 108,170 98,923 313,229 251,545
Corporate and Other 803 --- 1,078 ---
$471,349 $352,228 $1,317,558 $961,271
Operating Income (Loss):
Drilling Products and Services $78,910 $47,008 $222,671 $126,559
Drill Bits 66,386 25,735 142,758 67,925
Tubular Technology and
Services 28,523 25,753 89,003 60,239
Corporate and Other (13,378) (13,645) (49,548) (36,408)
$160,441 $84,851 $404,884 $218,315
Depreciation and Amortization:
Drilling Products and Services $3,349 $3,361 $9,926 $10,346
Drill Bits 4,397 4,176 12,478 11,577
Tubular Technology and
Services 2,518 2,900 8,680 8,812
Corporate and Other 1,724 1,313 4,930 3,221
$11,988 $11,750 $36,014 $33,956
Capital Expenditures for
Property, Plant and Equipment:
Drilling Products and Services $7,471 $3,262 $19,485 $8,032
Drill Bits 6,459 1,275 14,268 4,887
Tubular Technology and Services 5,914 1,266 10,178 4,584
Corporate and Other 16,260 558 20,541 2,821
$36,104 $6,361 $64,472 $20,324
