(Source: Business Wire)
Smith International, Inc. (NYSE:SII) today announced second quarter income from continuing operations of $32.1 million, or $0.15 per diluted share, after excluding a $7.7 million after-tax charge related to severance and other cost reduction efforts. Reported results for the second quarter of 2009 totaled $24.4 million, or $0.11 cents per diluted share, on revenues of $1.94 billion. On a comparative basis, second quarter 2008 earnings from continuing operations totaled $183.3 million on revenues of $2.49 billion, while first quarter 2009 earnings from continuing operations, net of charges, totaled $114.5 million on revenues of $2.41 billion.
The second quarter financial performance reflects reductions in North American exploration and production spending attributable to unfavorable natural gas fundamentals. Moreover, lower activity levels have contributed to excess industry capacity in the U.S. land drilling market
-- leading to higher discounting in a number of the Company's product and service offerings. These factors, combined with the seasonal drilling downturn in Canada, had a significant impact on the quarter's results.
Consolidated revenues declined 19 percent from the March 2009 period, which compares to a 25percent reduction in global drilling activity. The revenue decrease was concentrated in the Western Hemisphere market driven by a 31 percent reduction in the U.S. land rig count and, to a lesser extent, the annual break-up in Canada and offshore activity declines in Mexico. Eastern Hemisphere revenues fell five percent from the March period influenced by the timing of offshore projects in the West Africa region. On year-on-year basis, after adjusting for the retained W-H Energy operations, pro forma revenues declined 30 percent versus a 36 percent decline in comparable activity levels.
Commenting on the results, Chief Executive Officer, John Yearwood stated, "Our second quarter results reflect the unprecedented collapse in North American drilling activity which has led to lower volumes and a very competitive pricing environment. While we believe it's unlikely that natural gas fundamentals will support U.S. activity growth in the back half of 2009, we do believe pricing in our oilfield-related product lines has stabilized. During the quarter we spent a considerable amount of effort right-sizing our U.S. operations while simultaneously expanding our business base in selected markets by offering new technology and providing superior drilling performance. I am very pleased with the overwhelming customer acceptance of our proprietary i-DRILL drilling optimization offering, the start of Pathfinder operations in three new countries and the improved drilling performance from our recently commercialized ONYX drill bit cutter technology."
Margaret Dorman, Chief Financial Officer, added, "The North American business mix combined with higher debt costs contributed to the sequential decline in profitability levels. Margins in our oilfield-related operations slipped 370 basis points on a sequential quarter basis, translating into decremental margins of 34 percent. While profitability levels in our Eastern Hemisphere operations held up relatively well last quarter, supported by the performance of the M-I SWACO operations -- lower volumes and weak pricing in the U.S. market influenced the overall margins. Our working capital performance showed improvement in the second quarter, contributing to just over $300 million of free cash generation. Excess cash was used to repay outstanding borrowings reducing our leverage ratio to 28.9 percent at June 30, 2009."
M-I SWACO segment revenues were $1.01 billion for the second quarter of 2009, a 13 percent decrease on a sequential basis and 21 percent below the prior year period. Just over half of the sequential quarter revenue reduction was reported in the segment's North American operations -- influenced by lower U.S. land-based activity, a 24 percent decline in U.S. offshore business levels and the seasonal downturn in Canadian drilling. Revenues in markets outside North America fell eight percent below the March quarter impacted by the timing of offshore projects in West Africa and the decline in offshore drilling activity in Mexico.
Smith Oilfield segment revenues were $520.5 million for the three months ended June 30, 2009 - 24 percent lower on a sequential quarter basis and, due to the addition of the W-H operations, 12 percent below the amounts reported in the prior year quarter. The reported sequential period revenue decrease was concentrated in North America -- as the lower number of land-based drilling programs impacted demand for tubular products as well as high-margin drill bits, directional services and other drilling-related product offerings. Additionally, increased competitive pricing pressure in the U.S. market impacted the sequential revenue comparison. Smith Oilfield revenues outside North America were seven percent below the March quarter driven by lower sales volumes in the Middle East and West African markets.
The Distribution segment's second quarter revenues were $410.8 million, 28 percent below the March 2009 quarter and 33 percent lower on a year-on-year basis. Approximately two-thirds of the revenue decline from the prior period resulted from lower customer demand and, to a lesser extent, market pricing for line pipe in the U.S. market. The Distribution segment's reported decline in sales also reflects the effect of the Canadian spring break-up and the reduction in U.S. land-based drilling projects on maintenance, repair and operating ("MRO") product sales.
Smith International, Inc. is one of the largest global providers of products and services used by operators during the drilling, completion and production phases of oil and natural gas development activities. 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 (800) 233-1182 and requesting the Smith International call hosted by John Yearwood. A replay of the conference call will also be available through Tuesday, August 4, 2009, by dialing (888) 843-8996 and entering conference call identification number "24933950".
Certain comments contained in this news release and today's scheduled conference call concerning among other things, our outlook, financial projections and business strategies 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 "anticipate," "believe," "could," "estimate," "expect," "project," "should" and similar terms. 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 and services, general economic and business conditions, the level of oil and natural gas exploration and development activities, global economic growth and activity, political stability of oil-producing countries, finding and development costs of operations, decline and depletion rates for oil and natural gas wells, seasonal weather conditions, industry conditions, and changes in laws or regulations, many of which are beyond the control of the Company. 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, 2008 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 three-month periods ended June 30, 2009 and March 31, 2009 and the six-month period ended June 30, 2009. 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 CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended June 30, March 31, 2009 2008 2009 Revenues $ 1,944,289 $ 2,494,158 $ 2,411,479 Costs and expenses: Costs of revenues 1,415,259 1,686,706 1,719,177 Selling, general and administrative expenses 395,726 417,685 450,624 Total costs and expenses 1,810,985 2,104,391 2,169,801 Operating income 133,304 389,767 241,678 Interest expense 42,803 16,244 27,524 Interest income (729 ) (752 ) (358 ) Income before income taxes and noncontrolling interests 91,230 374,275 214,512 Income tax provision 27,957 121,555 70,318 Net income 63,273 252,720 144,194 Noncontrolling interests in net income of subsidiaries 38,887 69,447 47,259 Net income attributable to Smith $ 24,386 $ 183,273 $ 96,935 Earnings per share attributable to Smith: Basic $ 0.11 $ 0.91 $ 0.44 Diluted $ 0.11 $ 0.91 $ 0.44 Weighted average shares outstanding: Basic 219,307 200,938 219,201 Diluted 220,245 202,284 219,603 -------------------------------------------------------------------------------
SMITH INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Six Months Ended June 30, 2009 2008 Revenues $ 4,355,768 $ 4,865,156 Costs and expenses: Costs of revenues 3,134,436 3,276,220 Selling, general and administrative expenses 846,350 820,362 Total costs and expenses 3,980,786 4,096,582 Operating income 374,982 768,574 Interest expense 70,327 32,545 Interest income (1,087 ) (1,648 ) Income before income taxes and noncontrolling interests 305,742 737,677 Income tax provision 98,275 238,846 Net income 207,467 498,831 Noncontrolling interests in net income of subsidiaries 86,146 140,567 Net income attributable to Smith $ 121,321 $ 358,264 Earnings per share attributable to Smith: Basic $ 0.55 $ 1.78 Diluted $ 0.55 $ 1.77 Weighted average shares outstanding: Basic 219,254 200,873 Diluted 219,925 202,169 -------------------------------------------------------------------------------
SMITH INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited) June 30, 2009 December 31, 2008 Current Assets: Cash and cash equivalents $ 224,184 $ 162,508 Receivables, net 1,740,161 2,253,477 Inventories, net 2,120,929 2,367,166 Other current assets 241,130 303,233 Total current assets 4,326,404 5,086,384 Property, Plant and Equipment, net 1,866,301 1,844,036 Goodwill and Other Assets 3,915,938 3,885,804 Total assets $ 10,108,643 $ 10,816,224 Current Liabilities: Short-term borrowings $ 404,885 $ 1,366,296 Accounts payable 598,924 979,000 Other current liabilities 389,383 588,136 Total current liabilities 1,393,192 2,933,432 Long-Term Debt 2,051,474 1,440,525 Other Long-Term Liabilities 613,733 581,958 Stockholders' Equity(a) 6,050,244 5,860,309 Total liabilities and stockholders' equity $ 10,108,643 $ 10,816,224 NOTE (a): Due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 160,cumulative undistributed earnings related to noncontrolling interests in consolidated subsidiaries(formerly referred to as minority interests) is now reflected as a component of stockholders' equity.The December 31, 2008 information has also been recast to reflect the adoption of SFAS No. 160. ------------------------------------------------------------------------------- SMITH INTERNATIONAL, INC. SUPPLEMENTARY DATA -- SCHEDULE I (In thousands) (Unaudited) Three Months Ended Six Months Ended June 30, March 31, June 30, 2009 2008 2009 2009 2008 REVENUE DATA Consolidated: United States $ 772,535 $ 1,145,960 $ 1,089,540 $ 1,862,075 $ 2,158,639 Canada 133,612 146,453 192,284 325,896 380,878 North America 906,147 1,292,413 1,281,824 2,187,971 2,539,517 Latin America 227,499 244,543 276,107 503,606 471,520 Europe/Africa 510,689 646,527 539,815 1,050,504 1,243,019 Middle East/Asia 299,954 310,675 313,733 613,687 611,100 Non-North America 1,038,142 1,201,745 1,129,655 2,167,797 2,325,639 Total $ 1,944,289 $ 2,494,158 $ 2,411,479 $ 4,355,768 $ 4,865,156 Non-Distribution: North America $ 518,725 $ 708,807 $ 736,234 $ 1,254,959 $ 1,418,090 Latin America 223,820 237,597 270,565 494,385 457,878 Europe/Africa 498,734 629,139 528,728 1,027,462 1,209,328 Middle East/Asia 292,204 303,027 306,210 598,414 596,201 Non-North America 1,014,758 1,169,763 1,105,503 2,120,261 2,263,407 Total $ 1,533,483 $ 1,878,570 $ 1,841,737 $ 3,375,220 $ 3,681,497 SEGMENT DATA (b) Revenues: M-I SWACO $ 1,013,016 $ 1,285,754 $ 1,159,337 $ 2,172,353 $ 2,514,183 Smith Oilfield 520,467 592,816 682,400 1,202,867 1,167,314 Subtotal 1,533,483 1,878,570 1,841,737 3,375,220 3,681,497 Distribution 410,806 615,588 569,742 980,548 1,183,659 Total $ 1,944,289 $ 2,494,158 $ 2,411,479 $ 4,355,768 $ 4,865,156 Operating Income: M-I SWACO $ 121,325 $ 212,294 $ 147,508 $ 268,833 $ 420,092 Smith Oilfield 47,622 162,864 105,765 153,387 325,870 Subtotal 168,947 375,158 253,273 422,220 745,962 Distribution (9,799 ) 36,518 15,521 5,722 66,402 General corporate (25,844 ) (21,909 ) (27,116 ) (52,960 ) (43,790 ) Total $ 133,304 $ 389,767 $ 241,678 $ 374,982 $ 768,574 NOTE (b): During 2008, the Company revised its segment reporting in connection with the inclusion of the W-H Energy Services operations to reflect three segments: M-I SWACO, Smith Oilfield and Distribution. In connection with this change, the Company no longer allocates corporate costs to the operating segments. All periods shown have been recast to conform to the current segment reporting structure. -------------------------------------------------------------------------------
SMITH INTERNATIONAL, INC. SUPPLEMENTARY DATA -- SCHEDULE II (In thousands) (Unaudited) Three Months Ended Six Months Ended June 30, March 31, June 30, 2009 2008 2009 2009 2008 OTHER DATA(c) Operating Income: Smith ownership interest $ 85,825 $ 305,104 $ 180,264 $ 266,089 $ 597,574 Noncontrolling ownership interest 47,479 84,663 61,414 108,893 171,000 Total $ 133,304 $ 389,767 $ 241,678 $ 374,982 $ 768,574 Depreciation and Amortization: Smith ownership interest $ 78,596 $ 39,533 $ 78,434 $ 157,030 $ 80,010 Noncontrolling ownership interest 13,116 12,285 12,661 25,777 24,409 Total $ 91,712 $ 51,818 $ 91,095 $ 182,807 $ 104,419 Gross Capital Spending: Smith ownership interest $ 62,542 $ 67,995 $ 85,762 $ 148,304 $ 125,726 Noncontrolling ownership interest 10,087 20,979 11,339 21,426 37,278 Total $ 72,629 $ 88,974 $ 97,101 $ 169,730 $ 163,004 Net Capital Spending(d): Smith ownership interest $ 47,020 $ 56,478 $ 64,429 $ 111,449 $ 101,133 Noncontrolling ownership interest 9,305 20,680 10,275 19,580 35,681 Total $ 56,325 $ 77,158 $ 74,704 $ 131,029 $ 136,814 NOTE (c): The Company derives a significant portion of its revenues and earnings from M-I SWACO and other majority-owned operations. Consolidated operating income, depreciation and amortization and capital spending amounts have been separated between the Company's portion and the noncontrolling interests' portion in order to aid in analyzing the Company's financial results. NOTE (d): Net capital spending reflects the impact of proceeds from lost-in-hole and fixed asset equipment sales. -------------------------------------------------------------------------------
SMITH INTERNATIONAL, INC. SUPPLEMENTARY DATA -- SCHEDULE III RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share data) (Unaudited) A service of YellowBrix, Inc.
