HOUSTON--(BUSINESS WIRE)--Feb. 15, 2006--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 production, processing and treating
applications, today reported financial results for the quarter and
year ended December 31, 2005.
Summary
Fourth quarter 2005 revenue increased to $359.3 million, a 16%
increase over fourth quarter 2004 revenue of $310.1 million. EBITDA(1)
for the fourth quarter 2005 was $78.5 million, a 17% increase over
fourth quarter 2004 EBITDA of $67.4 million. Net loss for the fourth
quarter 2005 was $4.2 million, or $0.04 per share compared to a net
loss of $20.2 million, or $0.24 per share in the fourth quarter 2004.
Included in fourth quarter 2005 EBITDA is $1.6 million in foreign
currency translation losses compared to $4.6 million in foreign
currency translation gains during fourth quarter 2004. The company's
provision for income taxes for the fourth quarters of 2005 and 2004
did not include a tax benefit for the company's tax losses in the U.S.
and certain international jurisdictions.
For the year ended December 31, 2005, revenue increased to
$1,375.6 million, a 16% increase over 2004 revenue of $1,188.6
million. EBITDA for 2005 increased to $310.2 million, a 6% increase
over 2004 EBITDA of $293.0 million. For 2005, Hanover recorded a net
loss of $38.0 million, or $0.42 per share, compared to a net loss of
$44.0 million, or $0.52 per share in 2004. Included in 2005 EBITDA is
a $7.3 million charge for the early extinguishment of debt and $7.9
million in foreign currency translation losses. Included in 2004
EBITDA is a $4.2 million benefit from the reversal of a provision for
the cost of the securities related litigation and foreign currency
translation gains of $5.2 million.
"During 2005, Hanover made significant progress in building the
foundation for a profitable future," said John Jackson, President and
Chief Executive Officer of Hanover. "However, we will not be satisfied
until we achieve targeted profitability levels with our return on
investment consistently exceeding our cost of capital. We are
continuing our disciplined growth strategy in 2006, improving returns
on existing assets while selectively adding to assets and project
backlog in all regions of the world."
Summary of Business Segment Results
U.S. Rentals
(in thousands)
Three months
ended Year ended
December 31, December 31,
----------------- -------------------
Increase Increase
2005 2004 (decrease) 2005 2004 (decrease)
---- ---- ---------- ---- ---- ----------
Revenue $88,580 $85,432 4% $351,128 $341,570 3%
Operating
expense $36,902 $36,275 2% $139,465 $144,580 (4)%
-------- -------- --------- ---------
Gross
profit $51,678 $49,157 5% $211,663 $196,990 7%
Gross
margin 58% 58% 0% 60% 58% 2%
U.S. rental revenue increased in the fourth quarter 2005 and in
the year ended December 31, 2005, compared to the same periods in the
prior year, due primarily to improvement in market conditions that led
to an improvement in pricing. Gross margin was flat for the fourth
quarter 2005. For the year ended December 31, 2005, gross margin
increased compared to the same period in the prior year due primarily
to improved pricing in 2005 and our efforts to reduce current fleet
maintenance and repair expenses. During the second half of 2005, we
opened a facility to repair and overhaul approximately 200,000
horsepower of idle equipment over the next two years. We incurred
repair expenses in connection with this program that decreased our
gross margin by approximately 2% for the fourth quarter of 2005 and 1%
for the year ended 2005.
International Rentals
(in thousands)
Three months
ended Year ended
December 31, December 31,
----------------- -------------------
Increase Increase
2005 2004 (decrease) 2005 2004 (decrease)
---- ---- ---------- ---- ---- ----------
Revenue $64,943 $55,702 17% $232,587 $214,598 8%
Operating
expense $22,582 $18,416 23% $76,512 $63,953 20%
-------- -------- --------- ---------
Gross
profit $42,361 $37,286 14% $156,075 $150,645 4%
Gross
margin 65% 67% (2)% 67% 70% (3)%
Fourth quarter 2005 international rental revenue and gross profit
increased, compared to the same period a year earlier, due primarily
to increased compression and plant rental activity in Nigeria and
Latin America. Gross margin in the fourth quarter 2005 was impacted by
approximately 3% due to increased labor and repair and maintenance
costs in Argentina. The Company's Argentine operations have
experienced an increase in labor costs due to pressures from unions
for increased compensation for workers only a portion of which is
recoverable from customers.
During the year ended December 31, 2005, international rental
revenue and gross profit increased, compared to the year ended
December 31, 2004, due primarily to new rental projects that have come
on-line in 2005. Gross margin as a percentage decreased primarily by
approximately 1% due to lower margin projects in Nigeria and by
approximately 2% due to an increase in costs in Argentina.
Parts, Service and Used Equipment
(in thousands)
Three months
ended Year ended
December 31, December 31,
----------------- --------------------
Increase Increase
2005 2004 (decrease) 2005 2004 (decrease)
---- ---- ---------- ---- ---- ----------
Revenue $67,641 $45,784 48% $225,636 $180,321 25%
Operating
expense $52,028 $37,177 40% $169,168 $135,929 24%
-------- -------- --------- ----------
Gross
profit $15,613 $8,607 81% $56,468 $44,392 27%
Gross
margin 23% 19% 4% 25% 25% 0%
Parts, service and used equipment revenue and gross profit for the
fourth quarter 2005 was higher than the fourth quarter 2004 due
primarily to higher used rental equipment and installation sales.
Parts, service and used equipment revenue includes two business
components: parts and service; and used rental equipment and
installation sales. The company's used rental equipment sales and
installation revenues and related gross margin vary significantly from
period to period and are dependent upon the exercise of purchase
options on rental equipment by customers and the start of new projects
by customers.
For the fourth quarter 2005, parts and service revenue was $41.9
million with a gross margin of 26%, compared to $42.2 million and 22%,
respectively, for the same period a year ago. Gross margin improved
due primarily to higher pricing in the U.S. market resulting from
improved market conditions. Used rental equipment and installation
sales revenue in the fourth quarter 2005 was $25.7 million with a
gross margin of 18%, compared to $3.6 million at a (17)% gross margin
for the same period a year earlier.
Parts, service and used equipment revenue for the year ended
December 31, 2005 were higher than the year ended December 31, 2004
due primarily to improved business conditions and an increase in used
rental equipment and installation sales. For the year ended December
31, 2005, parts and service revenue was $152.4 million with a gross
margin of 26%, compared to $139.3 million and 24%, respectively, for
the year ended December 31, 2004. Used rental equipment and
installation sales revenue for the year ended December 31, 2005 was
$73.2 million with a gross margin of 22%, compared to $41.1 million
with a 27% gross margin for the year ended December 31, 2004. The
increase in revenue in 2005 was primarily due to a $20.3 million sale
of used rental equipment related to a gas plant in Madisonville, TX.
Compression and Accessory Fabrication
(in thousands)
Three months
ended Year ended
December 31, December 31,
----------------- -------------------
Increase Increase
2005 2004 (decrease) 2005 2004 (decrease)
---- ---- ---------- ---- ---- ----------
Revenue $54,540 $39,715 37% $179,954 $158,629 13%
Operating
expense $45,792 $37,248 23% $156,414 $144,832 8%
-------- -------- --------- ---------
Gross
profit $8,748 $2,467 255% $23,540 $13,797 71%
Gross
margin 16% 6% 10% 13% 9% 4%
For the fourth quarter 2005 and year ended December 31, 2005,
compression fabrication revenue, gross profit and gross margin
increased compared to the fourth quarter and the year ended December
31, 2004, due primarily to improved market conditions in 2005 that led
to improved pricing and also improved due to our focus on operational
efficiencies.
As of December 31, 2005, we had compression and accessory
fabrication backlog of approximately $85.4 million compared to $56.7
million at December 31, 2004.
Production and Processing Equipment Fabrication
(in thousands)
Three months
ended Year ended
December 31, December 31,
----------------- -------------------
Increase Increase
2005 2004 (decrease) 2005 2004 (decrease)
---- ---- ---------- ---- ---- ----------
Revenue $76,087 $77,645 (2)% $360,267 $270,284 33%
Operating
expense $71,224 $71,694 (1)% $325,924 $242,251 35%
-------- -------- --------- ---------
Gross
profit $4,863 $5,951 (18)% $34,343 $28,033 23%
Gross
margin 6% 8% (2)% 10% 10% 0%
Production and processing equipment fabrication gross profit and
gross margin for the fourth quarter 2005 was lower than the fourth
quarter 2004 due to approximately $3 million in expected cost overruns
and late delivery penalties on projects due to poor performance. The
impact of the cost overruns was partially offset by favorable foreign
currency trends.
Production and processing equipment fabrication revenue for the
year ended December 31, 2005 was greater than for the year ended
December 31, 2004, primarily due to our focus on fabrication sales and
an improvement in market conditions.
As of December 31, 2005, we had a production and processing
equipment fabrication backlog of $287.7 million compared to $234.2
million at December 31, 2004.
General
Selling, general, and administrative expense ("SG&A") for the
fourth quarter 2005 was $50.7 million, compared to $46.9 million in
the fourth quarter 2004. As a percentage of revenues, SG&A was 14.1%
in the fourth quarter 2005 versus 15.1% in the fourth quarter of 2004.
Depreciation and amortization expense for the fourth quarter 2005
decreased to $44.2 million, from $46.4 million in the same period of
2004. Fourth quarter 2005 depreciation and amortization expense
decreased primarily due to reduced amortization of deferred debt
issuance costs associated with the debt that was repaid in 2004 and
2005.
Depreciation and amortization expense for 2005 was $182.7 million,
compared to $175.3 million in 2004. Depreciation and amortization
expense increased in 2005, in comparison to 2004, due to net additions
of property, plant and equipment placed in service during the year.
The company's effective tax rate for the fourth quarter 2005 was
261% compared to (47)% for the fourth quarter 2004. For 2005,
Hanover's effective tax rate was (294)%, compared to (84)% in 2004.
Due to the company's recent tax losses in certain jurisdictions
(primarily U.S.), Hanover cannot reach the conclusion that it is "more
likely than not" that certain of its deferred tax assets will be
realized in the near future. Accordingly, the company's provision for
income taxes for 2005 did not include a full tax benefit for the
company's tax loss in the U.S. and certain international
jurisdictions.
Capital and Other
Hanover had capital expenditures of approximately $52 million in
the fourth quarter 2005, compared to approximately $33 million in the
fourth quarter of 2004. For 2005, Hanover had capital expenditures of
approximately $155 million compared to $90 million in 2004. At
December 31, 2005, the company had approximately $1.49 billion in debt
and compression equipment lease obligations, compared to $1.66 billion
at December 31, 2004. At December 31, 2005, Company debt included
approximately $48 million outstanding under its new five-year $450
million bank credit facility and the Company had approximately $53.4
million in cash on its balance sheet.
Total compression horsepower at December 31, 2005 was
approximately 3,320,000 including approximately 2,438,000 horsepower
in the United States and approximately 882,000 horsepower
internationally. Hanover's compression horsepower utilization rate as
of December 31, 2005, on a total horsepower basis, was approximately
86%, an increase over utilization of approximately 85% at September
30, 2005 and 82% at December 31, 2004. U.S. and international
utilization at December 31, 2005 was approximately 82% and 98%,
respectively, compared to approximately 80% and 98%, respectively, at
September 30, 2005, and approximately 77% and 98%, respectively, at
December 31, 2004.
Conference Call Details
Hanover Compressor Company will host a conference call at 11:00
a.m. Eastern Standard Time, Wednesday, February 15, 2006, to discuss
its fourth quarter and full year 2005 financial results and other
matters.
To access the call, United States and Canadian participants should
dial 800-811-0667. International participants should dial 913-981-4901
at least 10 minutes before the scheduled start time. Please reference
Hanover conference call number 4962029. A replay will be available
from 12:30 p.m. Eastern Standard Time on Wednesday, February 15, until
midnight on Wednesday, February 22, 2006. To listen to the replay,
please dial 888-203-1112 in the U.S. and Canada, or 719-457-0820
internationally and enter access code 4962029.
Additionally, the conference call will be broadcast live over the
Internet. To access the webcast, log on to 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 Company
Hanover Compressor Company (NYSE:HC) 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 production,
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. More information can be found on the Internet
(www.hanover-co.com).
Forward-looking Statements
Certain matters discussed in this presentation 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, as amended.
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. Such 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; a prolonged substantial
reduction in oil and natural gas prices, which could cause a decline
in the demand for our compression and oil and natural gas production
and processing equipment; reduced profit margins or the loss of market
share resulting from competition or the introduction of competing
technologies by other companies; changes in economic or political
conditions in the countries in which we do business, including civil
uprisings, riots, terrorism, the taking of property without fair
compensation and legislative changes; changes in currency exchange
rates; the inherent risks associated with our operations, such as
equipment defects, malfunctions 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 international expansion
(including our ability to timely and cost-effectively execute projects
in new international operating environments), integrating acquired
businesses, generating sufficient cash, accessing capital markets and
refinancing existing or incurring additional indebtedness to fund our
business; risks associated with any significant failure or malfunction
of our enterprise resource planning system and 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.
(Tables Follow)
HANOVER COMPRESSOR COMPANY
CONSOLIDATED FINANCIAL DATA AND EBITDA RECONCILIATION
(in thousands of dollars, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
------------------ ---------------------
2005 2004 2005 2004
-------- --------- ---------- ----------
Revenues and other income:
U.S. rentals $88,580 $85,432 $351,128 $341,570
International rentals 64,943 55,702 232,587 214,598
Parts, service and used
equipment 67,641 45,784 225,636 180,321
Compressor and accessory
fabrication 54,540 39,715 179,954 158,629
Production and processing
equipment fabrication 76,087 77,645 360,267 270,284
Equity in income of non-
consolidated affiliates 5,707 4,913 21,466 19,780
Other 1,837 886 4,551 3,413
-------- --------- ---------- ----------
359,335 310,077 1,375,589 1,188,595
Expenses:
U.S. rentals 36,902 36,275 139,465 144,580
International rentals 22,582 18,416 76,512 63,953
Parts, service and used
equipment 52,028 37,177 169,168 135,929
Compressor and accessory
fabrication 45,792 37,248 156,414 144,832
Production and processing
equipment fabrication 71,224 71,694 325,924 242,251
Selling, general and
administrative 50,689 46,933 182,198 173,066
Foreign currency
translation 1,581 (4,622) 7,890 (5,222)
Securities related
litigation settlement -- (260) -- (4,163)
Debt extinguishment costs -- -- 7,318 --
Other -- (162) 526 407
-------- --------- ---------- ----------
280,798 242,699 1,065,415 895,633
-------- --------- ---------- ----------
EBITDA from continuing
operations (1) 78,537 67,378 310,174 292,962
Depreciation and
amortization 44,224 46,426 182,681 175,308
Interest expense 31,713 38,809 136,927 146,978
-------- --------- ---------- ----------
75,937 85,235 319,608 322,286
-------- --------- ---------- ----------
Income (loss) from
continuing operations
before income taxes 2,600 (17,857) (9,434) (29,324)
Provision for income taxes 6,792 8,352 27,714 24,767
-------- --------- ---------- ----------
Loss from continuing
operations (4,192) (26,209) (37,148) (54,091)
Income (loss) from
discontinued operations,
net of tax (7) 5,992 (869) 10,085
-------- --------- ---------- ----------
Net loss $(4,199) $(20,217) $(38,017) $(44,006)
======== ========= ========== ==========
Basic and diluted loss per
common share:
Loss from continuing
operations $(0.04) $(0.31) $(0.41) $(0.64)
Income (loss) from
discontinued operations,
net of tax -- 0.07 (0.01) 0.12
-------- --------- ---------- ----------
Net loss $(0.04) $(0.24) $(0.42) $(0.52)
======== ========= ========== ==========
Weighted average common and
common equivalent shares
outstanding:
Basic 100,655 85,561 91,556 84,792
======== ========= ========== ==========
Diluted 100,655 85,561 91,556 84,792
======== ========= ========== ==========
Gross profit percentage:
U.S. rentals 58% 58% 60% 58%
International rentals 65% 67% 67% 70%
Parts, service and used
equipment 23% 19% 25% 25%
Compressor and accessory
fabrication 16% 6% 13% 9%
Production and processing
equipment fabrication 6% 8% 10% 10%
(1) EBITDA from continuing operations consists of consolidated income
(loss) from continuing operations before interest expense,
provision for (benefit from) income taxes, and depreciation and
amortization. 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 2006 net income
(loss), 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 2006
prediction inadvisable: interest expense, foreign currency
translation, taxes and depreciation. The ultimate outcome of these
uncertain items may have an impact on our net income (loss).
Three Months Ended Year Ended
December 31, December 31,
------------------ ---------------------
2005 2004 2005 2004
-------- --------- ---------- ----------
EBITDA Reconciliation
Loss from continuing
operations $(4,192) $(26,209) $(37,148) $(54,091)
Add:
Depreciation and
amortization 44,224 46,426 182,681 175,308
Interest expense 31,713 38,809 136,927 146,978
Provision for income
taxes 6,792 8,352 27,714 24,767
-------- --------- ---------- ----------
EBITDA from continuing
operations $78,537 $67,378 $310,174 $292,962
======== ========= ========== ==========
CONTACT: Hanover Compressor Company, Houston
Stephen York, 832-554-4856
syork@hanover-co.com
SOURCE: Hanover Compressor Company