HOUSTON, Oct. 24 /PRNewswire-FirstCall/ -- Grant Prideco, Inc. today announced results for its 2007 third quarter. Net income was $124.2 million ($0.96 per diluted share) on a 20% increase in revenues to $539.9 million. These results compare to net income of $126.5 million ($0.95 per diluted share), which included a $20.0 million license and royalty fee ($0.10 per diluted share after tax) on revenues of $451.3 million in last year's third quarter.
"We are pleased to again report record quarterly revenues and strong operating income, led by a 43% growth in revenues from our Drilling Products segment over the same period last year," commented Michael McShane, Chairman, President and CEO of Grant Prideco. "Our ReedHycalog segment also reported strong revenue growth, up 16% over the same period last year. That growth was led by our Andergauge drilling tool product line, which was acquired in the fourth quarter of last year, and which has shown 32% proforma revenue growth since the acquisition."
Consolidated revenues increased by $88.5 million, or 20%, compared to last year's third quarter, while consolidated operating income margins decreased to 29.3% from 35.5% (31.1% excluding a $20.0 million license and royalty fee in 2006) for the same period last year. Excluding the license and royalty fee, operating income margins decreased as a result of manufacturing inefficiencies and other expenses related to the consolidation and relocation of four ReedHycalog facilities to a new headquarters in Conroe, Texas, totaling approximately $14 million.
Other Items
Interest expense decreased by $1.5 million compared to last year's third quarter as a result of capitalizing interest related to several large capital improvement projects the Company has in progress and other income improved to $0.9 million due to interest earned on the Company's cash and investment balances. Equity income from the Company's investment in Voest-Alpine Tubulars decreased by $2.3 million.
The Company's effective tax rate was 29.8% for the third quarter of 2007, flat with the 29.9% rate for last year's third quarter and in line with prior guidance.
SEGMENT RESULTS Drilling Products and Services
Revenues for the Drilling Products and Services segment were a record $305.9 million during the quarter, representing a 43% increase over last year's third quarter. Operating income increased by 49% to $117.9 million and operating income margins increased to 39% from 37% in last year's third quarter. Drill pipe footage sold increased by 25% and the average sales price per foot increased by 25% compared to last year's third quarter. These results reflect increased volumes, improved pricing and a richer product mix as this segment benefited from strong product demand and capacity additions completed since last year. These results also reflect lower tool joint sales of $13.5 million due to the Company shifting sales from third-party customers to internal use. This segment's backlog was $933.2 million at September 30, 2007.
ReedHycalog
Revenues for the ReedHycalog segment increased by 16% to $149.1 million primarily due to incremental revenues related to the Andergauge acquisition in October 2006 along with growth in its international markets. Operating income for ReedHycalog was $35.2 million compared to $66.4 million in last year's third quarter, which included a $20.0 million license and royalty fee. Operating income was also negatively impacted by approximately $14 million of manufacturing cost inefficiencies during the phase-out of production at four of its existing facilities and the startup of its new Conroe facility, an inventory valuation adjustment for PDC cutters transferred from its Provo facility and direct costs associated with moving equipment into the new Conroe facility.
Tubular Technology and Services
Revenues for the Tubular Technology and Services segment decreased by 22% to $84.1 million. Operating income decreased by 26% to $21.1 million, however, operating income margins decreased only slightly to 25% from 26% in last year's third quarter reflecting a more favorable product mix partially offsetting the decline in activity. Revenues and operating income are down primarily due to a continued destocking of distributor inventories due to softer Gulf of Mexico activity.
Corporate and Other
Corporate and Other operating loss for the third quarter of 2007 increased by $2.5 million year-over-year primarily due to increased Corporate legal costs related to patent litigation.
OUTLOOK
"Looking forward to the fourth quarter, we are expecting revenues to improve at all three of our divisions," commented Michael McShane. "While we will incur some further manufacturing inefficiencies and relocation expenses as we complete the ReedHycalog manufacturing consolidation, we expect fourth quarter earnings to improve to the range of $1.09 to $1.11 per diluted share."
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 and specialty tools, 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 Thursday, October 25, 2007 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 September 27, 2007.
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) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Income: (Unaudited) Revenues $539,865 $451,349 $1,558,506 $1,297,558 License and royalty income -- 20,000 -- 20,000 539,865 471,349 1,558,506 1,317,558 Operating Expenses: Cost of sales 296,861 239,486 814,944 695,380 Sales and marketing 45,226 38,803 136,237 112,088 General and administrative 29,574 23,613 96,433 79,943 Research and engineering 9,940 9,006 30,717 25,263 381,601 310,908 1,078,331 912,674 Operating Income 158,264 160,441 480,175 404,884 Interest Expense (2,209) (3,687) (11,337) (11,105) Other Income (Expense), Net 935 121 (864) (1,726) Equity Income in Unconsolidated Affiliate 24,290 26,619 98,929 91,280 Income Before Income Taxes and Minority Interests 181,280 183,494 566,903 483,333 Income Tax Provision (54,048) (54,865) (168,669) (150,922) Income Before Minority Interests 127,232 128,629 398,234 332,411 Minority Interests (2,993) (2,157) (7,494) (7,922) Net Income $124,239 $126,472 $390,740 $324,489 Basic Net Income Per Share $0.97 $0.97 $3.04 $2.47 Basic Weighted Average Shares Outstanding 128,585 130,606 128,365 131,158 Diluted Net Income Per Share $0.96 $0.95 $3.00 $2.43 Diluted Weighted Average Shares Outstanding 129,818 132,649 130,154 133,378 Cash Flow Data: Depreciation and amortization $15,063 $11,988 $44,916 $36,014 Cash provided by operating activities 105,474 78,575 375,136 265,028 Cash provided by (used in) investing activities 58,833 19,044 (90,509) (69,381) Cash used in financing activities (36,531) (85,703) (103,388) (125,718) Capital expenditures (a) 27,475 36,104 91,931 64,472 September 30, December 31, 2007 2006 Balance Sheet Data: (Unaudited) Cash and cash equivalents $240,395 $57,311 Total assets 2,342,305 2,022,067 Total debt 206,542 245,852 Total liabilities 632,323 659,184 Stockholders' equity 1,709,982 1,362,883 Backlog at Period End (Unaudited) $1,020,792 $1,181,952 (a) Capital expenditures for property, plant and equipment excludes acquisition of businesses. GRANT PRIDECO, INC. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 (Unaudited) Revenues: Drilling Products and Services $305,892 $214,375 $864,605 $622,220 ReedHycalog 149,115 128,001 449,364 361,031 Tubular Technology and Services 84,140 108,170 238,514 313,229 Corporate and Other 718 803 6,023 1,078 $539,865 $451,349 $1,558,506 $1,297,558 Operating Income (Loss): Drilling Products and Services $117,894 $78,910 $346,976 $222,671 ReedHycalog 35,185 66,386 127,809 142,758 Tubular Technology and Services 21,111 28,523 55,157 89,003 Corporate and Other (15,926) (13,378) (49,767) (49,548) $158,264 $160,441 $480,175 $404,884 Depreciation and Amortization: Drilling Products and Services $3,908 $3,349 $11,148 $9,926 ReedHycalog 6,895 4,397 20,427 12,478 Tubular Technology and Services 2,280 2,518 7,279 8,680 Corporate and Other 1,980 1,724 6,062 4,930 $15,063 $11,988 $44,916 $36,014 Capital Expenditures for Property, Plant and Equipment: Drilling Products and Services $6,558 $7,471 $26,195 $19,485 ReedHycalog 13,281 6,459 39,743 14,268 Tubular Technology and Services 430 5,914 1,477 10,178 Corporate and Other 7,206 16,260 24,516 20,541 $27,475 $36,104 $91,931 $64,472
