W-H Energy Services Announces Second Quarter 2008 Results

Friday, August 01, 2008 4:00 AM

W-H Energy Services, Inc. (NYSE:WHQ) announced second quarter net income of $45.8 million or $1.45 per share (excluding approximately $5.1 million or $0.16 per share of transaction costs related to the proposed acquisition of the Company by Smith International, Inc.) as compared to the $39.1 million or $1.25 per share reported for the same period in the prior year. In the preceding quarter, the Company reported net income of $37.1 million or $1.18 per share.

Revenues for the second quarter of $346.9 million were 25 percent higher than the second quarter of 2007 and were 15 percent higher than the preceding quarter. Domestic revenues increased 26 percent as compared to the second quarter of last year and were 17 percent higher than the preceding quarter. International revenues also increased 13 percent as compared to the second quarter of last year and were 1 percent higher than the preceding quarter.

The Company spent approximately $62.0 million in capital expenditures during the second quarter, resulting in a year-to-date capital spend of approximately $120.1 million.

QUARTERLY SEGMENT RESULTS

Drilling

Revenues in the drilling segment were $223.0 million in the second quarter, 25 percent higher than the comparable period in the prior year and 15 percent higher than the preceding quarter. Sequential increases in revenue from the Company’s drilling lines of business were 38 percent in rental tools, 17 percent in drilling fluids, and 10 percent in measurement/logging-while-drilling, directional drilling and motors.

Operating income from the drilling segment of $43.2 million was 5 percent higher than the comparable period in the prior year and 15 percent higher than the preceding quarter.

Completion and workover

Second quarter revenues in the completion and workover segment were $124.0 million, 26 percent higher than the comparable period in the prior year and 16 percent higher than the preceding quarter. Sequential increases in revenue from the Company’s completion and workover lines of business were 23 percent in completion fluids, 18 percent in rental tools, 17 percent in cased-hole wireline, and 12 percent in coiled tubing.

Operating income from the completion and workover segment of $34.8 million recorded in the second quarter was 34 percent higher than the comparable period in the prior year and 23 percent higher than the preceding quarter.

W-H Energy is a diversified oilfield service company that provides products and services used in connection with the drilling and completion of oil and natural gas wells and the production of oil and natural gas. The Company has operations in North America and select areas internationally.

Statements in this press release that are not strictly historical are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward-looking statements due to, among other things, the current and expected future prices of crude oil and natural gas, the level of exploration, development and production activity of, and the corresponding capital spending by, our customers, risks associated with events that result in personal injuries, loss of life, damage to or destruction of property, equipment or the environment and suspension of operations, unavailability of or costs associated with insurance, competition in our industry, difficulty in continuing to develop, produce and commercialize technologically advanced products and services, loss of use of certain technologies and weather conditions in offshore markets. These and other risks are more fully described in W-H Energy Services, Inc.'s Annual Report filed on Form 10-K with the Securities and Exchange Commission. The Company disclaims any obligation to update the statements in this press release.

Smith International, Inc. ("Smith") filed a registration statement on Form S-4 and a tender offer statement on Schedule TO with the SEC on June 24, 2008, as amended, and W-H filed a solicitation/recommendation statement on Schedule 14D-9 on June 24, 2008, as amended, in connection with Smith's pending exchange offer to acquire all the outstanding shares of W-H common stock. These documents contain important information about the exchange offer that should be read carefully before any decision is made with respect to the exchange offer. These materials will be made available to the shareholders of W-H at no expense to them. Investors and security holders may obtain the documents free of charge at the SEC’s web site, www.sec.gov. In addition, such materials (and all other documents filed with the SEC) may be obtained free of charge at www.smith.com or www.whes.com. You may also read and copy any reports, statements and other information filed by Smith or W-H with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or visit the SEC’s website for further information on its public reference room. Copies of the exchange offer materials may also be obtained at no charge from MacKenzie Partners, Inc., the information agent for the exchange offer, toll-free at 1-800-322-2885.

W-H ENERGY SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)


			Three Months Ended June 30,						Six Months Ended June 30,
			2008			2007			2008			2007

Revenues			$	346,937		$	277,752		$	647,905		$	550,639

Costs and Expenses:
	Cost of revenues			191,276			145,386			355,314			292,805
	Selling, general and administrative			50,874			44,964			97,044			88,244
	Transaction related costs ⁽¹⁾			5,350			-			5,350			-
	Research and development			6,849			5,485			12,943			10,201
	Depreciation and amortization			24,671			19,162			47,988			36,714
		Total costs and expenses		279,020			214,997			518,639			427,964

		Operating income		67,917			62,755			129,266			122,675

Other expenses:
	Interest expense, net			2,770			1,896			5,178			3,889
	Other income, net			(4	)		(70	)		(12	)		(41	)
		Income before income taxes		65,151			60,929			124,100			118,827

Provision for income taxes				24,405			21,855			46,294			43,929
		Net income	$	40,746		$	39,074		$	77,806		$	74,898



Earnings per common share:
	Basic		$	1.33		$	1.29		$	2.54		$	2.48
	Diluted		$	1.29		$	1.25		$	2.48		$	2.42



Weighted average shares outstanding:
	Basic			30,670			30,315			30,622			30,196
	Diluted			31,480			31,140			31,389			31,008


	(1) Transaction related costs for the three and six months ended June 30, 2008 includes costs related to the proposed acquisition of the Company by Smith International, Inc. For more information, see the reconciliation of non-GAAP measures presented elsewhere in this press release.

W-H ENERGY SERVICES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)


			June 30, 2008		December 31, 2007

Assets:
	Cash and cash equivalents		$	30,943	$	23,076
	Accounts receivable, net			281,437		252,313
	Inventory			119,232		102,584
	Other current assets			31,056		28,880
		Total current assets		462,668		406,853

	Property and equipment, net			516,302		448,913
	Other assets			199,603		151,264
		Total assets	$	1,178,573	$	1,007,030


Liabilities and Shareholders' Equity:
	Accounts payable and accrued liabilities		$	127,685	$	116,815
		Total current liabilities		127,685		116,815

	Long-term debt ⁽¹⁾			225,149		150,000
	Other liabilities			84,502		84,687
		Total liabilities		437,336		351,502

	Shareholders' equity			741,237		655,528
		Total liabilities and shareholders' equity	$	1,178,573	$	1,007,030


	(1) As of June 30, 2008, there was approximately $139.4 million available under the Company's revolving credit facility.

W-H ENERGY SERVICES, INC.
UNAUDITED SEGMENTED AND SELECTED FINANCIAL DATA
(in thousands)

				For the Three Months Ended:
				June 30, 2008			March 31, 2008			December 31, 2007			September 30, 2007			June 30, 2007
SEGMENTED INFORMATION:
	Revenue:
		Drilling		$	222,984		$	194,253		$	192,555		$	187,456		$	179,141
		Completion and workover			123,953			106,715			100,821			95,536			98,611
			Total revenue	$	346,937		$	300,968		$	293,376		$	282,992		$	277,752

	Depreciation and amortization:
		Drilling		$	14,899		$	14,063		$	13,737		$	12,542		$	11,600
		Completion and workover			9,709			9,190			8,352			7,825			7,493
		Corporate			63			64			66			50			69
			Total depreciation and amortization	$	24,671		$	23,317		$	22,155		$	20,417		$	19,162

	Operating income:
		Drilling		$	43,242		$	37,593		$	39,272		$	40,114		$	41,307
		Completion and workover			34,842			28,447			26,318			21,726			26,032
		Corporate ⁽¹⁾			(10,167	)		(4,691	)		(4,999	)		(5,147	)		(4,584	)
			Total operating income	$	67,917		$	61,349		$	60,591		$	56,693		$	62,755



		(1) Corporate operating expense for the three months ended June 30, 2008 includes costs of approximately $5.4 million related to the proposed acquisition of the Company by Smith International, Inc. For more information, see the reconciliation of non-GAAP measures presented elsewhere in this press release.

W-H ENERGY SERVICES, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES ⁽¹⁾
(in thousands, except per share amounts)


			Three Months Ended June 30,						Six Months Ended June 30,
			2008			2007			2008			2007

Net income (as reported)			$	40,746		$	39,074		$	77,806		$	74,898

	Transaction related costs			5,350			-			5,350			-
	Less: Tax impact of transaction related costs			(281	)		-			(281	)		-
		Transaction related costs, net of tax		5,069			-			5,069			-

		Net income before transaction related costs	$	45,815		$	39,074		$	82,875		$	74,898




Per diluted common share information:
	Net income (as reported)		$	1.29		$	1.25		$	2.48		$	2.42
		Transaction related costs, net of tax		0.16			-			0.16			-
		Net income before transaction related costs	$	1.45		$	1.25		$	2.64		$	2.42




Corporate segment operating expense (as reported)			$	(10,167	)	$	(4,584	)	$	(14,858	)	$	(9,498	)

	Transaction related costs			5,350			-			5,350			-

		Corporate segment operating expense before transaction related costs	$	(4,817	)	$	(4,584	)	$	(9,508	)	$	(9,498	)



	(1) Management believes that the non-GAAP financial measures included within this press release are used by financial analysts and investors to provide comparative financial information regarding the continuing operations of the Company, particularly with regard to transaction costs that have been incurred as a result of the proposed acquisition of the Company by Smith International, Inc. These measures should not be considered as an alternative to net income or any other measure of operating performance calculated in accordance with generally accepted accounting principles.

W-H Energy Services, Inc., Houston
Shawn M. Housley, 713-974-9071

(Source: Business Wire )

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