EX-99.1 2 h58716exv99w1.htm NEWS RELEASE exv99w1
Exhibit 99.1
NEWS RELEASE
 
Thursday, July 24, 2008
     
Contact:
  Margaret K. Dorman
 
  Chief Financial Officer
 
  (281) 443-3370
SMITH INTERNATIONAL, INC. REPORTS
QUARTERLY EARNINGS OF 91 CENTS PER SHARE
     HOUSTON, Texas (July 24, 2008)... Smith International, Inc. (NYSE: SII) today announced record earnings of $183.3 million, or 91 cents per diluted share, for the second quarter of 2008. Profitability levels increased 20 percent when compared to the year-earlier period and were five percent higher on a sequential quarter basis.
     Consolidated revenues for the second quarter of 2008 totaled $2.49 billion, as 10 percent sequential business growth in markets outside Canada was partially masked by the impact of the seasonal weakness in Canadian drilling. The sequential revenue improvement was concentrated in the United States and Europe/Africa, reflecting increased investment in exploration and production programs due to strong commodity prices. A significant portion of the sequential quarter profitability growth was provided by the Distribution operations, as higher Oilfield segment earnings associated with improved business levels in the United States and Europe/Africa was largely offset by reduced Canadian earnings. Excluding the impact of lower Canadian drilling activity, which resulted in the loss of high-margin product sales, Oilfield earnings grew nine percent on a sequential quarter basis.
     Compared to the prior year quarter, Smith’s consolidated revenues grew 18 percent. Increased customer spending outside North America, influenced by continued expansion in key drilling markets including the Former Soviet Union (“FSU”), the North Sea and Mexico, accounted for more than half of the year-on-year revenue growth. Non-North American business volumes were primarily driven by the performance of the Oilfield segment operations — which reported 23 percent year-on-year growth due to improved activity levels, new Latin American contract awards, and increased operator investment in the Europe/Africa offshore market. The consolidated revenue improvement was also impacted by higher U.S. land-based business activity, which increased 18 percent over the June 2007 period.

 

 

     Commenting on the results, Chairman and CEO, Doug Rock stated, “We at Smith are encouraged by the improving market conditions for the second half of 2008. We’re also pleased to see crude oil prices begin to moderate as the most immediate threat to drilling activity is demand destruction caused by high oil prices. Additionally, we look forward to the merger of W-H Energy Services and Smith International, Inc. during the current quarter. Our customers, employees and shareholders will all benefit from this combination.”
     Margaret Dorman, Chief Financial Officer, commented, “We’re pleased with the second quarter results. Our Oilfield and Distribution segments reported strong year-over-year earnings growth and, even with the seasonal downturn in Canadian drilling activity, both segments posted improved profitability levels over the March 2008 quarter. Moreover, Smith’s balance sheet position remains solid — evidenced, in part, by our debt-to-total capitalization improving to 18 percent at June 30, 2008. Although funding the W-H transaction will lead to modestly higher leverage, we expect our debt-to-total capitalization will remain at very manageable levels post-closing.”
     M-I SWACO’s second quarter revenues totaled $1.29 billion, five percent above the March 2008 quarter and 18 percent higher on a year-on-year basis. The sequential revenue growth was influenced by a significant increase in completion activity in the U.S. Gulf, the Norwegian sector of the North Sea and West Africa — which resulted in increased demand for completion fluid products. To a lesser extent, increased environmental equipment sales for the Europe/Africa region contributed to the sequential growth — reflecting demand for produced water treatment equipment in the North Sea market and fluid processing units for the FSU region. North American revenues were in-line with March 2008 levels as increased U.S. onshore fluid volumes were largely offset by reduced activity levels in Western Canada.
      Smith Technologies reported revenues of $281.3 million, two percent higher on a sequential quarter basis and 13 percent above the June 2007 period. The unit’s sequential results were impacted by the seasonal weakness in Canada, which resulted in reduced demand for three-cone and diamond product offerings. Higher sales of drill bits specifically developed for unconventional land-based drilling programs in the United States and increased market penetration in key Latin American markets more than offset the reduction in Canadian business volumes. To a lesser extent, increased Eastern Hemisphere export orders, improved drill bit pricing and heightened demand for turbine drilling motors contributed to the sequential revenue improvement.

 

 

     Smith Services’ revenues increased to $311.5 million in the second quarter of 2008, four percent above the March 2008 period and 11 percent above the year-ago level. The revenue increase over the first quarter of 2008 was primarily related to new contract awards for completion, fishing and remedial products and services outside North America — enabling Non-North American business volumes to expand eight percent on a sequential quarter basis. To a lesser extent, higher U.S. drilling activity has had a favorable impact on demand for the unit’s premium product and service offerings, including tubular drill collars and casing exit technologies.
     Wilson reported record revenues of $615.6 million, evidencing eight percent sequential and 23 percent year-on-year top-line growth. The improvement over the March 2008 quarter primarily reflects increased demand for line pipe and other operating supplies associated with unconventional drilling projects in the U.S. market. To a lesser extent, higher business volumes related to engineering and construction projects in the energy and downstream sector operations also contributed to the sequential revenue improvement. These factors were partially offset by the impact of the seasonal drilling slowdown in Canada — which impacted the level of drilling and completion activity and associated revenues.
     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 (800) 233-1182 and requesting the Smith International call hosted by Doug Rock. A replay of the conference call will also be available through Thursday, July 31, 2008, by dialing (888) 843-8996 and entering conference call identification number 22001431.
     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,” “should” 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, 2007 and other filings of the Company with the Securities and Exchange Commission.
     Financial highlights follow:

 

 

SMITH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                         
    Three Months Ended
    June 30,     March 31,  
    2008     2007     2008  
 
 
                        
Revenues
   $ 2,494,158     $ 2,114,373     $ 2,370,998  
 
Costs and expenses:
                        
Costs of revenues
     1,686,706       1,417,827       1,589,514  
Selling expenses
     331,854       287,162       320,399  
General and administrative expenses
     85,831       76,935       82,278  
 
 
                        
Total costs and expenses
     2,104,391       1,781,924       1,992,191  
 
 
                        
Operating income
     389,767       332,449       378,807  
 
                        
Interest expense
     16,244       17,605       16,301  
Interest income
     (752 )     (895 )     (896 )
 
 
                        
Income before income taxes and minority interests
     374,275       315,739       363,402  
 
                        
Income tax provision
     121,555       100,891       117,291  
 
                        
Minority interests
     69,447       61,795       71,120  
 
 
                        
Net income
   $ 183,273     $ 153,053     $ 174,991  
 
 
                        
Earnings per share:
                        
Basic
   $ 0.91     $ 0.76     $ 0.87  
 
Diluted
   $ 0.91     $ 0.76     $ 0.87  
 
 
                        
Weighted average shares outstanding:
                        
Basic
     200,938       200,499       200,808  
 
Diluted
     202,284       202,097       201,942  
 

 

 

SMITH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                 
    Six Months Ended June 30,  
    2008     2007  
 
 
                
Revenues
   $ 4,865,156     $ 4,222,097  
 
 
                
Costs and expenses:
                
Costs of revenues
     3,276,220       2,849,586  
Selling expenses
     652,253       559,495  
General and administrative expenses
     168,109       149,439  
 
 
                
Total costs and expenses
     4,096,582       3,558,520  
 
 
                
Operating income
     768,574       663,577  
 
                
Interest expense
     32,545       36,139  
Interest income
     (1,648 )     (1,659 )
 
 
                
Income before income taxes and minority interests
     737,677       629,097  
 
                
Income tax provision
     238,846       193,990  
 
                
Minority interests
     140,567       121,896  
 
 
                
Net income
   $ 358,264     $ 313,211  
 
 
                
Earnings per share:
                
Basic
   $ 1.78     $ 1.56  
 
Diluted
   $ 1.77     $ 1.55  
 
 
                
Weighted average shares outstanding:
                
Basic
     200,873       200,241  
 
Diluted
     202,169       201,815  
 

 

 

SMITH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
                 
    June 30,     December 31,  
    2008     2007  
 
 
                
Current Assets:
                
Cash and cash equivalents
   $ 141,503     $ 158,267  
Receivables, net
     1,941,289       1,750,561  
Inventories, net
     1,918,934       1,658,172  
Other current assets
     189,779       160,735  
 
Total current assets
     4,191,505       3,727,735  
 
 
                
Property, Plant and Equipment, net
     1,192,186       1,105,880  
 
                
Goodwill and Other Assets
     1,258,334       1,228,265  
 
Total Assets
   $ 6,642,025     $ 6,061,880  
 
 
                
Current Liabilities:
                
Short-term borrowings
   $ 121,771     $ 139,481  
Accounts payable
     817,522       655,413  
Other current liabilities
     365,958       378,406  
 
Total current liabilities
     1,305,251       1,173,300  
 
 
                
Long-Term Debt
     806,408       845,624  
 
                
Other Long-Term Liabilities
     332,115       317,286  
 
                
Minority Interests
     1,258,674       1,130,773  
 
                
Stockholders’ Equity
     2,939,577       2,594,897  
 
Total Liabilities and Stockholders’ Equity
   $ 6,642,025     $ 6,061,880  
 

 

 

SMITH INTERNATIONAL, INC.
SUPPLEMENTARY DATA — SCHEDULE I
(In thousands)
(Unaudited)
                                         
    Three Months Ended     Six Months Ended  
    June 30,     March 31,     June 30,  
    2008     2007     2008     2008     2007  
 
REVENUE DATA
                                        
 
                                        
Consolidated:
                                        
United States
   $ 1,145,960     $ 987,046     $ 1,012,679     $ 2,158,639     $ 1,948,550  
Canada
     146,453       138,703       234,425       380,878       375,842  
 
North America
     1,292,413       1,125,749       1,247,104       2,539,517       2,324,392  
 
Latin America
     244,543       173,213       226,977       471,520       321,551  
Europe/Africa
     646,527       512,335       596,492       1,243,019       991,013  
Middle East/Asia
     310,675       303,076       300,425       611,100       585,141  
 
Non-North America
     1,201,745       988,624       1,123,894       2,325,639       1,897,705  
 
 
                                        
 
Total
   $ 2,494,158     $ 2,114,373     $ 2,370,998     $ 4,865,156     $ 4,222,097  
 
 
                                        
Oilfield (a):
                                        
 
North America
   $ 708,807     $ 661,933     $ 709,283     $ 1,418,090     $ 1,343,513  
 
Latin America
     237,597       169,938       220,281       457,878       313,335  
Europe/Africa
     629,139       487,503       580,189       1,209,328       950,171  
Middle East/Asia
     303,027       295,541       293,174       596,201       569,580  
 
Non-North America
     1,169,763       952,982       1,093,644       2,263,407       1,833,086  
 
 
                                        
 
Total
   $ 1,878,570     $ 1,614,915     $ 1,802,927     $ 3,681,497     $ 3,176,599  
 
 
                                        
BUSINESS UNIT/SEGMENT DATA
                                        
 
                                        
Revenues:
                                        
M-I SWACO
   $ 1,285,754     $ 1,086,524     $ 1,228,429     $ 2,514,183     $ 2,121,608  
Smith Technologies
     281,317       248,294       274,725       556,042       492,385  
Smith Services
     311,499       280,097       299,773       611,272       562,606  
 
Oilfield
     1,878,570       1,614,915       1,802,927       3,681,497       3,176,599  
 
 
                                        
 
Distribution
     615,588       499,458       568,071       1,183,659       1,045,498  
 
 
                                        
 
Total
   $ 2,494,158     $ 2,114,373     $ 2,370,998     $ 4,865,156     $ 4,222,097  
 
 
                                        
Operating Income:
                                        
Oilfield
   $ 365,856     $ 322,940     $ 361,495     $ 727,351     $ 633,953  
Distribution
     35,743       20,031       29,209       64,952       49,266  
General corporate
     (11,832 )     (10,522 )     (11,897 )     (23,729 )     (19,642 )
 
Total
   $ 389,767     $ 332,449     $ 378,807     $ 768,574     $ 663,577  
 
NOTE (a): Excludes revenues from the Wilson Distribution operations.

 

 

SMITH INTERNATIONAL, INC.
SUPPLEMENTARY DATA — SCHEDULE II
(In thousands)
(Unaudited)
                                         
    Three Months Ended     Six Months Ended  
    June 30,     March 31,     June 30,  
    2008     2007     2008     2008     2007  
 
OTHER DATA
                                        
 
                                        
Operating Income(b):
                                        
Smith ownership interest
   $ 305,104     $ 257,990     $ 292,470     $ 597,574     $ 515,492  
Minority partner ownership interest
     84,663       74,459       86,337       171,000       148,085  
 
Total
   $ 389,767     $ 332,449     $ 378,807     $ 768,574     $ 663,577  
 
 
                                        
Depreciation and Amortization(b):
                                        
Smith ownership interest
   $ 39,533     $ 36,152     $ 40,477     $ 80,010     $ 69,787  
Minority partner ownership interest
     12,285       11,415       12,124       24,409       22,160  
 
Total
   $ 51,818     $ 47,567     $ 52,601     $ 104,419     $ 91,947  
 
 
                                        
Gross Capital Spending(b):
                                        
Smith ownership interest
   $ 67,995     $ 71,965     $ 57,731     $ 125,726     $ 133,057  
Minority partner ownership interest
     20,979       19,290       16,299       37,278       35,031  
 
Total
   $ 88,974     $ 91,255     $ 74,030     $ 163,004     $ 168,088  
 
 
                                        
Net Capital Spending(b) (c):
                                        
Smith ownership interest
   $ 56,478     $ 63,797     $ 44,655     $ 101,133     $ 112,100  
Minority partner ownership interest
     20,680       18,419       15,001       35,681       32,276  
 
Total
   $ 77,158     $ 82,216     $ 59,656     $ 136,814     $ 144,376  
 
NOTE (b): The Company derives a significant portion of its revenues and earnings from M-I SWACO and other joint venture operations. Consolidated operating income, depreciation and amortization and capital spending amounts have been separated between the Company’s portion and the minority partners’ portion in order to aid in analyzing the Company’s financial results.
NOTE (c): Net capital spending reflects the impact of proceeds from lost-in-hole and fixed asset equipment sales.