HOUSTON--(BUSINESS WIRE)--Oct. 29, 2004--Hanover Compressor
Company (NYSE:HC), a global market leader in full service natural gas
compression and a leading provider of service, fabrication and
equipment for oil and natural gas processing and transportation
applications, today reported financial results for the quarter ended
September 30, 2004.
Summary
Third quarter 2004 revenue increased 17% to $322.5 million
compared to third quarter 2003 revenue of $275.2 million.
EBITDA from continuing operations (consolidated income (loss) from
continuing operations before interest expense, leasing expense,
provision for (benefit from) income taxes, depreciation and
amortization, and goodwill impairment) for the third quarter 2004
increased by 17% to $79.7 million from $68.2 million for the same
period a year earlier. Included in third quarter 2004 EBITDA was a
$4.0 million gain on the early cancellation of the note that was
issued as part of the securities-related litigation settlement. The
third quarter 2003 EBITDA included a $3.5 million reduction in the
estimate for the securities-related litigation settlement.
Net loss for the third quarter 2004 was $5.3 million, or $0.06 per
share, compared with a net loss of $145.4 million, or $1.79 per share,
in the third quarter 2003. Based on the U.S. statutory rate, the
company estimates that its tax expense for the three months ended
September 30, 2004 was approximately $4.7 million higher because of
its current tax position in the U.S. Included in the net loss for the
third quarter 2003 was an $86.9 million after tax charge for the
cumulative effect of the accounting change for the compression
equipment operating leases that were consolidated into Hanover's
financial statements as of July 1, 2003 and a $35.5 million impairment
of the goodwill related to Hanover's investment in Belleli.
"In the third quarter of 2004, we demonstrated improved revenues
across all of our business lines and generated positive cash flow that
allowed the company to continue to pay down debt," said John Jackson,
President and Chief Executive Officer of Hanover. "Going into the
fourth quarter, we will continue to be focused on improving our
operating margins and on finalizing the deployment of three rental
projects in Nigeria and anticipate that all of these projects should
be on line in early 2005. While we will continue to maintain capital
discipline with a balanced approach to debt reduction and growth
capital, we currently see solid growth opportunities in traditional
markets such as Latin America, as well as new markets such as Russia
and the West Coast of Africa, and are positioning the company to take
advantage of these opportunities going into 2005."
Summary of Business Segment Results
Domestic Rentals
(in thousands)
Three months ended
September 30, Increase
-------------------
2004 2003 (Decrease)
--------- -------- -----------
Revenue $ 85,866 $ 82,823 4%
Operating expense 37,816 31,833 19%
--------- --------
Gross profit $ 48,050 $ 50,990 (6)%
Gross margin 56% 62% (6)%
Domestic rental revenue increased in the third quarter 2004,
compared to the same period a year earlier, due primarily to improved
market activity. Gross profit and gross margin for the quarter
decreased, compared to the previous year's results primarily due to
increased maintenance and repair expense at one of the company's three
domestic geographical business units. The decrease in margin at this
business unit decreased the company's overall domestic rental margin
by approximately 4%.
International Rentals
(in thousands)
Three months ended
September 30, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 56,579 $49,519 14%
Operating expense 18,129 17,757 2%
--------- -------
Gross profit $ 38,450 $31,762 21%
Gross margin 68% 64% 4%
Third quarter 2004 international rental revenue, gross profit and
gross margin increased, compared to the third quarter 2003, primarily
due to increased compression and processing plant rental activity in
Venezuela, Brazil and Argentina.
Parts, Service and Used Equipment
(in thousands)
Three months ended
September 30, Increase
------------------
2004 2003 (Decrease)
-------- -------- -----------
Revenue $ 50,872 $ 45,581 12%
Operating expense 36,469 35,307 3%
-------- --------
Gross profit $ 14,403 $ 10,274 40%
Gross margin 28% 23% 5%
Parts, service and used equipment revenue for the third quarter
2004 was higher than the same period a year earlier due primarily to
increased demand resulting from stronger industry conditions. Gross
profit and gross margin for the quarter were higher than the previous
year's results primarily due to a high margin on the sale of a gas
plant. For the third quarter 2004, parts and service revenue was $36.7
million with a gross margin of 23%, compared to $29.7 million and 33%,
respectively, for the third quarter 2003. Used rental equipment and
installation sales revenue in the third quarter 2004 was $14.2 million
with a gross margin of 43%, compared to $15.9 million at a 3% gross
margin for the same period a year earlier.
Compression and Accessory Fabrication
(in thousands)
Three months ended
September 30, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 46,605 $24,039 94%
Operating expense 41,214 22,347 84%
--------- -------
Gross profit $ 5,391 $ 1,692 219%
Gross margin 12% 7% 5%
For the third quarter 2004, compression fabrication revenue and
gross profit increased primarily due to the company's increased focus
on fabrication that led to increased sales. Gross margin increased,
compared to third quarter 2003, as the company benefited from improved
operating efficiencies in its fabrication centers partially as a
result of higher sales volumes.
Production and Processing Equipment Fabrication
(in thousands)
Three months ended
September 30, Increase
------------------
2004 2003 (Decrease)
-------- -------- -----------
Revenue $ 76,193 $ 65,202 17%
Operating expense 68,974 59,095 17%
-------- --------
Gross profit $ 7,219 $ 6,107 18%
Gross margin 9% 9% 0%
Production and processing equipment fabrication revenue for the
third quarter 2004 was higher than the same period in 2003 primarily
due to increased Belleli revenue. Included in production and
processing equipment fabrication revenue and expense for the third
quarter 2004 was $38.5 million in revenue and $34.6 million in expense
for Belleli, compared to $27.1 million in revenue and $24.6 million in
expense for Belleli in the third quarter 2003. In comparison to the
third quarter 2003, third quarter 2004 production and processing
equipment fabrication gross profit increased primarily due to
increased activity at Belleli which was partially offset by the
negative impact of a loss on a production and processing job out of
the company's United Kingdom fabrication facility of approximately
$1.0 million. The loss on this project led to an approximate 1%
reduction in gross margin for the quarter.
Selling, general, and administrative expense ("SG&A") for the
third quarter 2004 was $44.2 million, compared to $40.2 million in the
third quarter 2003. The increase in SG&A was due primarily to
increased administrative costs associated with Sarbanes-Oxley 404
implementation. As a percentage of revenue, SG&A in the third quarter
2004 was 14%, compared to 15% for the same period a year earlier.
Depreciation and amortization expense for the third quarter 2004
decreased to $44.1 million, compared to $56.2 million for the same
period a year ago. Included in the third quarter 2003 expense was a
$14.4 million non-cash charge to write-down a portion of the company's
rental fleet.
The company's effective tax rate for the third quarter 2004 was
(216)%, compared to 14% for the same period a year earlier. Due to
Hanover's recent domestic tax losses, the company cannot reach the
conclusion that it is "more likely than not" that certain of its U.S.
deferred tax assets will be realized in the near future. Accordingly,
the company's provision for income taxes for the third quarter 2004
did not include a full tax benefit for the company's estimate of
anticipated U.S. losses. Based on the U.S. statutory rate, the company
estimates that its tax expense for the third quarter of 2004 was
approximately $4.7 million higher because of its current tax position
in the U.S.
Liquidity and Other
Hanover had capital expenditures of approximately $20 million in
the third quarter 2004, compared to approximately $28 million for the
same period last year. At September 30, 2004, the company had
approximately $13 million in borrowings outstanding under its $350
million bank credit facility, approximately $1.7 billion in debt, and
approximately $31 million in cash.
"In the third quarter, Hanover was able to repay approximately $61
million in debt and compression equipment lease obligations," said
John Jackson. "Through mid October, we have paid off approximately $97
million in debt and compression equipment lease obligations and plan
to pay down approximately $56 million in additional debt from the
proceeds of our recently announced sale of our Canadian rental assets.
We are ahead of schedule on our stated objective to pay off $180
million in debt over a three year period. We have been able to achieve
this debt reduction through our continuing efforts to maintain capital
discipline and selected asset sales, which has led to cash available
for debt reduction. Year to date, we have spent approximately $58
million in capital expenditures and would expect to spend in the range
of $25 million to $50 million in capital in the fourth quarter."
Total compression horsepower at September 30, 2004 was
approximately 3,483,000, including approximately 2,569,000 horsepower
in the United States and approximately 914,000 horsepower
internationally. Hanover's total compression horsepower utilization
rate as of September 30, 2004 was approximately 81.5%, compared to
utilization of approximately 83.1% at June 30, 2004 and 79.9% at
September 30, 2003. Domestic and international utilization at
September 30, 2004 was approximately 76.4% and 95.9%, respectively,
compared to approximately 78.5% and 96.1%, respectively, at June 30,
2004, and approximately 74.7% and 94.4%, respectively, at September
30, 2003.
At September 30, 2004, Hanover's third-party fabrication backlog,
excluding Belleli, was approximately $115 million compared to
approximately $104 million at June 30, 2004 and $61 million at
September 30, 2003. Backlog for Belleli at September 30, 2004 was
approximately $143 million, compared to approximately $162 million at
June 30, 2004 and $66 million at September 30, 2003.
Conference Call Details
Hanover will host a conference call at 10:00 a.m. Eastern Time, on
Friday, October 29, 2004 to discuss financial results for the third
quarter 2004, and other matters. To access the call, U.S. and Canadian
participants should dial 800-601-8584, international participants
should dial 706-643-1959 at least ten minutes before the scheduled
start time. Please reference Hanover conference call number 1386877.
For those unable to participate, a replay will be available from 1:00
p.m. Eastern Time on Friday, October 29th until midnight on Friday,
November 5th. To listen to the replay, please dial 800-642-1687 in the
United States and Canada, or 706-645-9291 internationally, access code
1386877. The company's conference call will also be broadcast live
over the Internet. To access the webcast, log onto the company's web
site (www.hanover-co.com), and click on the webcast link located on
the company's home page.
About Hanover Compressor
Hanover Compressor Company (www.hanover-co.com) is a global market
leader in full service natural gas compression and a leading provider
of service, fabrication and equipment for oil and natural gas
processing and transportation applications. Hanover sells and rents
this equipment and provides complete operation and maintenance
services, including run-time guarantees for both customer-owned
equipment and its fleet of rental equipment. Founded in 1990 and a
public company since 1997, Hanover's customers include both major and
independent oil and gas producers and distributors as well as national
oil and gas companies.
Certain matters discussed in this document are "forward-looking
statements" intended to qualify for the safe harbors established by
the Private Securities Litigation Reform Act of 1995 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking
statements can generally be identified as such because of the context
of the statement or because the statement includes words such as
"believes," "anticipates," "expects," "estimates," or words of similar
import. Similarly, statements that describe Hanover's future plans,
objectives or goals or future revenues or other financial measures are
also forward-looking statements. All forward-looking statements are
subject to risks and uncertainties that could cause our actual results
to differ materially from those anticipated as of the date the
statements were made. These risks and uncertainties include, but are
not limited to: our inability to renew our short-term leases of
equipment with our customers so as to fully recoup our cost of the
equipment; prolonged substantial reduction in oil and gas prices,
which could cause a decline in the demand for our compression and oil
and natural gas production equipment; reduced profit margins or the
loss of market share resulting from competition or the introduction of
competing technologies by other companies; legislative changes or
changes in economic or political conditions in the countries in which
we do business; the inherent risks associated with our operations,
such a equipment defects, malfunctions and failures and natural
disasters; governmental safety, health, environmental and other
regulations, which could require us to make significant expenditures;
our inability to implement certain business objectives such as
integrating acquired businesses, implementing our new enterprise
resource planning systems, generating sufficient cash, accessing
capital markets, refinancing existing or incurring additional
indebtedness to fund our business, and executing our exit and sale
strategy with respect to assets classified on our balance sheet as
discontinued operations and held for sale; our inability to comply
with covenants in our debt agreements and the decreased financial
flexibility associated with our substantial debt. A discussion of
these and other factors is included in the Company's periodic reports
filed with the Securities and Exchange Commission.
HANOVER COMPRESSOR COMPANY
CONSOLIDATED FINANCIAL DATA
AND EBITDA RECONCILIATION
(in thousands of dollars, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2004 2003 2004 2003
-------- --------- -------- ---------
Revenues and other income:
Domestic rentals $ 85,866 $ 82,823 $256,138 $ 241,728
International rentals 56,579 49,519 170,507 151,973
Parts, service and used
equipment 50,872 45,581 137,392 118,327
Compressor and accessory
fabrication 46,605 24,039 118,914 81,839
Production and processing
equipment fabrication 76,193 65,202 192,639 211,152
Equity in income of non-
consolidated affiliates 5,147 7,581 14,906 16,873
Other 1,245 452 2,983 3,356
-------- --------- -------- ---------
322,507 275,197 893,479 825,248
Expenses:
Domestic rentals 37,816 31,833 108,305 94,043
International rentals 18,129 17,757 50,451 47,682
Parts, service and used
equipment 36,469 35,307 101,447 85,781
Compressor and accessory
fabrication 41,214 22,347 107,584 73,950
Production and processing
equipment fabrication 68,974 59,095 170,557 188,802
Selling, general and
administrative 44,196 40,164 125,752 119,658
Foreign currency
translation (532) 1,536 (1,407) 1,336
Provision for (reversal
of) cost of litigation
settlement (4,000) (3,500) (3,903) 40,253
Other 556 2,446 903 2,951
-------- --------- -------- ---------
242,822 206,985 659,689 654,456
-------- --------- -------- ---------
EBITDA from continuing
operations(1) 79,685 68,212 233,790 170,792
Depreciation and
amortization 44,144 56,199 131,588 126,886
Goodwill impairment -- 35,466 -- 35,466
Leasing expense -- -- -- 43,139
Interest expense 37,188 32,849 108,169 57,283
-------- --------- -------- ---------
81,332 124,514 239,757 262,774
-------- --------- -------- ---------
Loss from continuing
operations before income
taxes (1,647) (56,302) (5,967) (91,982)
Provision for (benefit from)
income taxes 3,555 (7,940) 18,006 (18,463)
-------- --------- -------- ---------
Loss from continuing
operations (5,202) (48,362) (23,973) (73,519)
(Gain) loss from
discontinued operations,
net of tax (72) (10,147) 184 (11,382)
Cumulative effect of
accounting change, net of
tax -- (86,910) -- (86,910)
-------- --------- -------- ---------
Net loss $ (5,274) $(145,419) $(23,789) $(171,811)
======== ========= ======== =========
Basic loss per common share:
Loss from continuing
operations $ (0.06) $ (0.59) $ (0.28) $ (0.91)
Loss from discontinued
operations, net of tax -- (0.13) -- (0.14)
Loss from cumulative
effect of accounting
change -- (1.07) -- (1.07)
-------- --------- -------- ---------
Net loss $ (0.06) $ (1.79) $ (0.28) $ (2.12)
======== ========= ======== =========
Diluted loss per common
share:
Loss from continuing
operations $ (0.06) $ (0.59) $ (0.28) $ (0.91)
Loss from discontinued
operations, net of tax -- (0.13) -- (0.14)
Loss from cumulative
effect of accounting
change -- (1.07) -- (1.07)
-------- --------- -------- ---------
Net loss $ (0.06) $ (1.79) $ (0.28) $ (2.12)
======== ========= ======== =========
Weighted average common and
common equivalent shares
outstanding:
Basic 85,418 81,439 84,527 80,907
======== ========= ======== =========
Diluted 85,418 81,439 84,527 80,907
======== ========= ======== =========
Gross profit percentage:
Domestic rentals 56% 62% 58% 61%
International rentals 68% 64% 70% 69%
Parts, service and used
equipment 28% 23% 26% 28%
Compressor and
accessory fabrication 12% 7% 10% 10%
Production and
processing equipment
fabrication 9% 9% 11% 11%
(1) EBITDA from continuing operations consists of consolidated income
(loss) from continuing operations before interest expense, leasing
expense, provision for (benefit from) income taxes, depreciation and
amortization and goodwill impairment. We believe that EBITDA is a
commonly used measure of financial performance for valuing companies
in our industry. EBITDA should not be considered as an alternative to
measures prescribed by generally accepted accounting principles and
may not be comparably calculated from one company to another.
Forward-looking information concerning Hanover's 2004 net income,
which we believe is the most directly comparable GAAP financial
measure to Hanover's EBITDA is unavailable because the following items
are significantly uncertain so as to make a 2004 prediction
inadvisable: interest expense, taxes, depreciation and net results
from and proceeds of the sale of our discontinued operations. The
ultimate outcome of these uncertain items may have an impact on our
net income.
------
CONTACT: Hanover Compressor Company
Lee Beckelman, 281-447-8787 (Investor Relations)
SOURCE: Hanover Compressor Company