HOUSTON--(BUSINESS WIRE)--Feb. 15, 2007--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, 2006.
Summary
Fourth quarter 2006 revenue increased to $468.4 million, a 30%
increase over fourth quarter 2005 revenue of $359.3 million. EBITDA(1)
for the fourth quarter 2006 was $109.0 million, a 39% increase over
fourth quarter 2005 EBITDA of $78.5 million. Net income for the fourth
quarter 2006 was $30.1 million, or $0.28 earnings per share compared
to a net loss of $4.2 million, or $0.04 loss per share in the fourth
quarter 2005. Net income for the fourth quarter of 2006 includes a tax
benefit for the release of $10.2 million valuation allowance on net
deferred tax assets in the U.S., which is recorded as a reduction to
our provision for income taxes. This release is the result of our
conclusion in the current quarter that it is more likely than not that
we will realize the associated net deferred tax assets.
For the year ended December 31, 2006, revenue increased to
$1,670.7 million, a 21% increase over 2005 revenue of $1,375.6
million. EBITDA for 2006 increased to $413.9 million, a 33% increase
over 2005 EBITDA of $310.2 million. For 2006, Hanover recorded net
income of $86.5 million, or $0.81 earnings per share, compared to a
net loss of $38.0 million, or $0.42 loss per share, in 2005. Included
in 2006 EBITDA is a $5.9 million charge for the early extinguishment
of debt, and $36.4 million in pre-tax gains on two asset sales.
During the year 2006, Hanover's U.S. rental, compression and
accessory fabrication, and production and processing equipment
operations recognized record revenues. Hanover's fabrication backlog
of $807.6 million at December 31, 2006, is an all-time high.
"As a result of favorable market conditions and our focus on
return of capital employed, we returned to profitability in 2006 with
record revenue and fabrication backlog," said John Jackson, President
and Chief Executive Officer. "This positioned our company to take
advantage of the strong business climate and move toward the recently
announced merger of equals with Universal Compression Holdings, Inc.
This merger allows both companies to take advantage of Hanover's
international platform, expanded product offerings, and anticipated
benefits of Universal's Master Limited Partnership. The combination of
these two companies, we believe, will significantly enhance
shareholder value through a well-positioned top tier oilfield services
company."
Summary of Business Segment Results
U.S. Rentals
(in thousands)
Three months ended Year ended
December 31, December 31,
------------------ -------------------
Increase Increase
2006 2005 (decrease) 2006 2005 (decrease)
--------- -------- ----------- --------- --------- ----------
Revenue $101,546 $88,580 15% $384,292 $351,128 9%
Operating
expense $38,228 $36,902 4% $152,605 $139,465 9%
--------- -------- --------- ---------
Gross
profit $63,318 $51,678 23% $231,687 $211,663 9%
Gross
margin 62% 58% 4% 60% 60% 0%
U.S. rental revenue, gross profit and gross margin increased in
the fourth quarter 2006 and in the year ended December 31, 2006,
compared to the same periods in the prior year, due primarily to
improvement in market conditions that led to an improvement in pricing
and an increase in contracted horsepower.
For the year ended December 31, 2006, gross margin benefited from
price increases, but was offset by $2.1 million of incremental
expenses related to our program to refurbish approximately 200,000
horsepower of idle U.S. compression equipment and the impact of
recording increased incentive compensation expenses of approximately
$4.3 million for the year 2006, including the impact of the adoption
of SFAS 123(R).
International Rentals
(in thousands)
Three months ended Year ended
December 31, December 31,
------------------ -------------------
Increase Increase
2006 2005 (decrease) 2006 2005 (decrease)
--------- -------- ----------- --------- --------- ----------
Revenue $69,410 $64,943 7% $263,228 $232,587 13%
Operating
expense $26,080 $22,582 15% $96,631 $76,512 26%
--------- -------- --------- ---------
Gross
profit $43,330 $42,361 2% $166,597 $156,075 7%
Gross
margin 62% 65% (3)% 63% 67% (4)%
Fourth quarter 2006 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 Brazil, Mexico
and Indonesia. These increases were somewhat offset by a decrease in
revenue and gross margin from Nigeria.
During the year ended December 31, 2006, international rental
revenue and gross profit increased, compared to the year ended
December 31, 2005, primarily due to increased rental activity in
Venezuela, Mexico, Brazil and Argentina. Gross margin decreased
primarily due to increased labor costs in Argentina of approximately
$2.2 million and higher repair and maintenance costs in Venezuela,
Brazil and Mexico.
Parts, Service and Used Equipment
(in thousands)
Three months ended Year ended
December 31, December 31,
------------------ -------------------
Increase Increase
2006 2005 (decrease) 2006 2005 (decrease)
--------- -------- ----------- --------- --------- ----------
Revenue $71,851 $67,641 6% $224,810 $225,636 0%
Operating
expense $59,948 $52,028 15% $183,965 $169,168 9%
--------- -------- --------- ---------
Gross
profit $11,903 $15,613 (24)% $40,845 $56,468 (28)%
Gross
margin 17% 23% (6)% 18% 25% (7)%
Parts, service and used equipment revenue for the fourth quarter
2006 was higher than the fourth quarter 2005 due primarily to higher
base parts and service sales. Segment revenue includes two business
components: parts and service; and used rental equipment and
installation sales.
For the fourth quarter 2006, parts and service revenue was $50.5
million with a gross margin of 25%, compared to $41.9 million and 26%,
respectively, for the same period a year ago. Used rental equipment
and installation sales revenue in the fourth quarter 2006 was $21.4
million with a gross margin of (2)%, compared to $25.7 million at an
18% gross margin for the same period a year earlier.
Segment revenue for the year ended December 31, 2006 were slightly
lower than the year ended December 31, 2005 primarily due to a
decrease in used rental equipment sales, partially offset by an
increase in base parts and service revenue. For the year ended
December 31, 2006, parts and service revenue was $179.0 million with a
gross margin of 24%, compared to $152.4 million and 26%, respectively,
for the year ended December 31, 2005. Used rental equipment and
installation sales revenue for the year ended December 31, 2006 was
$45.8 million with a gross margin of (4)%, compared to $73.2 million
with a 22% gross margin for the year ended December 31, 2005. Used
rental equipment and installation gross margin was negatively impacted
by approximately $6.0 million of cost overruns on installation jobs in
2006. In 2005, used rental equipment revenue included a $20.3 million
gas plant in Madisonville, Texas at a margin of 25%. Our used rental
equipment and installation sales revenue and gross margins vary
significantly from period to period and are dependent on the sale of
used rental equipment, the exercise of purchase options on rental
equipment by customers and installation sales associated with the
start-up of new projects by customers.
Compression and Accessory Fabrication
(in thousands)
Three months ended Year ended
December 31, December 31,
------------------ -------------------
Increase Increase
2006 2005 (decrease) 2006 2005 (decrease)
--------- -------- ----------- --------- --------- ----------
Revenue $88,245 $54,540 62% $303,205 $179,954 68%
Operating
expense $70,364 $45,792 54% $249,910 $156,414 60%
--------- -------- --------- ---------
Gross
profit $17,881 $8,748 104% $53,295 $23,540 126%
Gross
margin 20% 16% 4% 18% 13% 5%
For the year and quarter ended December 31, 2006, compression and
accessory fabrication revenue, gross profit and gross margin increased
primarily due to improved market conditions that led to higher sales
levels, better pricing, and an improvement in operating efficiencies.
As of December 31, 2006, we had compression and accessory fabrication
backlog of approximately $325.1 million compared to $192.4 million at
September 30, 2006, and $85.4 million at December 31, 2005.
Production and Processing Equipment Fabrication
(in thousands)
Three months ended Year ended
December 31, December 31,
------------------ -------------------
Increase Increase
2006 2005 (decrease) 2006 2005 (decrease)
--------- -------- ----------- --------- --------- ----------
Revenue $131,535 $76,087 73% $429,697 $360,267 19%
Operating
expense $110,749 $71,224 55% $366,590 $325,924 12%
--------- -------- --------- ---------
Gross
profit $20,786 $4,863 327% $63,107 $34,343 84%
Gross
margin 16% 6% 10% 15% 10% 5%
Production and processing equipment fabrication revenue, gross
profit and gross margin for the fourth quarter and year 2006 was
higher than the fourth quarter 2005 due to an improvement in market
conditions that led to an increase in awarded sales, improved pricing
and an improvement in operating efficiencies. The fourth quarter 2005
results included approximately $3 million in cost overruns and late
delivery penalties on projects.
As of December 31, 2006, we had a production and processing
equipment fabrication backlog of $482.5 million compared to $496.4
million at September 30, 2006 and 287.7 million at December 31, 2005.
Capital and Other
Hanover had capital expenditures of approximately $73 million in
the fourth quarter 2006, compared to approximately $52 million in the
fourth quarter of 2005. For 2006, Hanover had capital expenditures of
approximately $247 million compared to $155 million in 2005. At
December 31, 2006, the company had approximately $1.38 billion in debt
and compression equipment lease obligations, compared to $1.49 billion
at December 31, 2005. At December 31, 2006, Company debt included
approximately $20 million outstanding under its five-year $450 million
bank credit facility and the Company had approximately $69.3 million
in cash on its balance sheet.
Total compression horsepower at December 31, 2006 was
approximately 3,338,000, consisting of approximately 2,447,000
horsepower in the United States and approximately 891,000 horsepower
internationally.
Compression HP Utilization Rate
Date U.S. International Total
---------------------------------------------------------------------
December 31, 2006 84% 97% 87%
September 30, 2006 85% 96% 88%
December 31, 2005 82% 98% 86%
Conference Call Details
Hanover Compressor Company (NYSE:HC) will host a conference call
at 11:00 a.m. Eastern Standard Time, Thursday, February 15, 2007, to
discuss its 2006 year-end financial results and other matters.
To access the call, United States and Canadian participants should
dial 800-811-8824. International participants should dial 913-981-4903
at least 10 minutes before the scheduled start time. Please reference
Hanover conference call number 5844833.
For those unable to participate, a replay will be available from
12:30 p.m. Eastern Standard Time on Thursday, February 15, until
midnight on Thursday, February 22, 2007. 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 5844833.
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,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Revenues and other income:
U.S. rentals $101,546 $88,580 $384,292 $351,128
International rentals 69,410 64,943 263,228 232,587
Parts, service and
used equipment 71,851 67,641 224,810 225,636
Compressor and
accessory fabrication 88,245 54,540 303,205 179,954
Production and
processing equipment
fabrication 131,535 76,087 429,697 360,267
Equity in income of
non-consolidated
affiliates 2,039 5,707 19,430 21,466
Gain on sale of
business and other
income 3,785 1,837 46,001 4,551
---------- ---------- ---------- ----------
468,411 359,335 1,670,663 1,375,589
Expenses:
U.S. rentals 38,228 36,902 152,605 139,465
International rentals 26,080 22,582 96,631 76,512
Parts, service and
used equipment 59,948 52,028 183,965 169,168
Compressor and
accessory fabrication 70,364 45,792 249,910 156,414
Production and
processing equipment
fabrication 110,749 71,224 366,590 325,924
Selling, general and
administrative 55,496 50,689 204,247 182,198
Foreign currency
translation (1,489) 1,581 (4,317) 7,890
Debt extinguishment
costs -- -- 5,902 7,318
Other -- -- 1,204 526
---------- ---------- ---------- ----------
359,376 280,798 1,256,737 1,065,415
---------- ---------- ---------- ----------
EBITDA from
continuing
operations (1) 109,035 78,537 413,926 310,174
Depreciation and
amortization 51,064 44,224 181,416 182,681
Interest expense 28,277 31,713 118,006 136,927
---------- ---------- ---------- ----------
79,341 75,937 299,422 319,608
---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before income taxes 29,694 2,600 114,504 (9,434)
Provision for (benefit
from) income taxes (427) 6,792 28,782 27,714
---------- ---------- ---------- ----------
Income (loss) from
continuing operations 30,121 (4,192) 85,722 (37,148)
Income (loss) from
discontinued operations,
net of tax -- (7) 431 (869)
Cumulative effect of
accounting change, net of
tax -- -- 370 --
---------- ---------- ---------- ----------
Net income (loss) $30,121 $(4,199) $86,523 $(38,017)
========== ========== ========== ==========
Basic income (loss) per
common share:
Income (loss) from
continuing operations $0.30 $(0.04) $0.85 $(0.41)
Income (loss) from
discontinued
operations, net of
tax -- -- 0.01 (0.01)
Cumulative effect of
accounting change,
net of tax -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) $0.30 $(0.04) $0.86 $(0.42)
========== ========== ========== ==========
Diluted income (loss) per
common share:
Income (loss) from
continuing
operations(2) $0.28 $(0.04) $0.80 $(0.41)
Income (loss) from
discontinued
operations, net of
tax -- -- 0.01 (0.01)
Cumulative effect of
accounting change,
net of tax -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) $0.28 $(0.04) $0.81 $(0.42)
========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding:
Basic 101,549 100,655 101,178 91,556
========== ========== ========== ==========
Diluted 117,207 100,655 112,035 91,556
========== ========== ========== ==========
Gross profit percentage:
U.S. rentals 62% 58% 60% 60%
International rentals 62% 65% 63% 67%
Parts, service and
used equipment 17% 23% 18% 25%
Compressor and
accessory fabrication 20% 16% 18% 13%
Production and
processing equipment
fabrication 16% 6% 15% 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.
Three Months Ended Year Ended
December 31, December 31,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
EBITDA Reconciliation
Income (loss) from
continuing operations $30,121 $(4,192) $85,722 $(37,148)
Add:
Depreciation and
amortization 51,064 44,224 181,416 182,681
Interest expense 28,277 31,713 118,006 136,927
Provision for (benefit
from) income taxes (427) 6,792 28,782 27,714
---------- ---------- ---------- ----------
EBITDA from continuing
operations $109,035 $78,537 $413,926 $310,174
========== ========== ========== ==========
(2) Income for the diluted earnings per share calculation for the
three-month period ended December 31, 2006 is adjusted to add back
interest expense and amortization of financing costs, net of tax,
relating to the Company's convertible senior notes due 2014 and
convertible subordinated notes due 2029 totaling $2.2 million.
Income for the diluted earnings per share calculation for the year
ended December 31, 2006 is adjusted to add back interest expense and
amortization of financing costs, net of tax, relating to the
Company's convertible senior notes due 2014 totaling $4.7 million.
CONTACT: Hanover Compressor Company, Houston
Vice President, Investor Relations and Technology
Stephen York, 832-554-4856
syork@hanover-co.com
SOURCE: Hanover Compressor Company