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 ended June 30, 2007. Second
quarter 2007 revenue increased to $515.7 million, a 27% increase
over second quarter 2006 revenue of $405.7 million. Net income for
the second quarter 2007 was $26.1 million, or $0.23 earnings per
share, compared with net income of $21.7 million, or $0.21 earnings
per share, in the second quarter 2006. EBITDA(1) from continuing
operations for the second quarter 2007 was a record $121.8 million,
a 17% increase over second quarter 2006 EBITDA of $103.8 million.
Second quarter 2007 EBITDA includes $3.1 million in merger related
expenses. Second quarter 2006 EBITDA included an $8.0 million
pre-tax gain on the sale of fabrication assets in Canada, or
approximately $0.07 per share. �We are pleased with the strong
results for the second quarter, with record revenue, EBITDA,
backlog and fabrication margin,� said John Jackson, President and
CEO. �I want to congratulate the Hanover employees on these
operational records and job well done to position the Company for a
successful merger with Universal.� Summary of Business Line Results
� U.S. Rentals (in thousands) � Three months ended June 30, � 2007
� � 2006 � Increase (Decrease) Revenue $ 99,562 $ 93,073 7 %
Operating expense � 40,258 � � 36,729 � 10 % Gross profit $ 59,304
$ 56,344 5 % Gross margin 60 % 61 % (1 )% � U.S. rental revenue and
gross profit increased during the three months ended June�30, 2007,
compared to the three months ended June�30, 2006, due primarily to
an improvement in market conditions for higher horsepower units
that has led to an improvement in pricing. Gross margin decreased
slightly in the current quarter as compared to the same period last
year due to higher repair and maintenance expenses. � International
Rentals (in thousands) � Three months ended June 30, � 2007 � �
2006 � Increase (Decrease) Revenue $ 69,645 $ 67,520 3 % Operating
expense � 27,675 � � 23,691 � 17 % Gross profit $ 41,970 $ 43,829
(4 )% Gross margin 60 % 65 % (5 )% � During the three months ended
June 30, 2007, international rental revenue increased, compared to
the three months ended June 30, 2006, primarily due to increased
rental activity in Brazil and Mexico. Gross margin and gross profit
decreased primarily due to higher repair and maintenance costs in
Argentina and Venezuela as well as lower revenues in Nigeria in the
second quarter of 2007. Revenue related to our Nigerian Cawthorne
Channel Project was not recognized during the three months ended
June 30, 2007 since the project was not on-line, however, we
recorded expenses of $0.8�million related to maintaining the
project. The three months ended June 30, 2006 included $3.9 million
in revenue and $1.6 million in operating costs related to this
project. � Parts, Service and Used Equipment (in thousands) � Three
months ended June 30, � 2007 � � 2006 � Increase (Decrease) Revenue
$ 72,664 $ 55,737 30 % Operating expense � 56,036 � � 45,061 � 24 %
Gross profit $ 16,628 $ 10,676 56 % Gross margin 23 % 19 % 4 % �
Parts, service and used equipment revenue, gross profit and gross
margin for the three months ended June�30, 2007 were higher than
the three months ended June�30, 2006 primarily due to an increase
in parts and service revenues in both the U.S. and internationally
as well as higher used rental equipment sales. Parts, service and
used equipment revenue includes two business components: (1)�parts
and service and (2)�used rental equipment sales and installation
revenues. For the three months ended June 30, 2007, parts and
service revenue was $49.8�million with a gross margin of 27%,
compared to $41.9 million and 21%, respectively, for the three
months ended June�30, 2006. Used rental equipment and installations
sales for the three months ended June�30, 2007 was $22.8�million
with a gross margin of 14%, compared to $13.8�million with a 14%
gross margin for the three months ended June�30, 2006. Our
installation revenue and used rental equipment sales and gross
margins vary significantly from period to period and are dependent
on the exercise of purchase options on rental equipment by
customers and timing of the start-up of new projects by customers.
� Compressor and Accessory Fabrication (in thousands) � Three
months ended June 30, � 2007 � � 2006 � Increase (Decrease) Revenue
$ 139,508 $ 70,128 99 % Operating expense � 106,016 � � 58,482 � 81
% Gross profit $ 33,492 $ 11,646 188 % Gross margin 24 % 17 % 7 % �
For the three months ended June 30, 2007, 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 June 30, 2007, we had compression fabrication
backlog of $299.0 million, compared to $193.0 million at June 30,
2006. � Production and Processing Equipment Fabrication (in
thousands) � Three months ended June 31, � 2007 � � 2006 � Increase
(Decrease) Revenue $ 122,595 $ 103,653 18 % Operating expense �
104,336 � � 89,203 � 17 % Gross profit $ 18,259 $ 14,450 26 % Gross
margin 15 % 14 % 1 % � Production and processing equipment
fabrication revenue, gross profit and gross margin for the three
months ended June�30, 2007 increased over the three months ended
June�30, 2006, primarily due to an improvement in market conditions
that led to an increase in awarded sales, improved pricing and an
improvement in operating efficiencies. During the quarter ended
June�30, 2007, Belleli�s revenue increased $24.4 million to
$81.0�million and gross profit increased $0.4�million to
$6.3�million compared to the quarter ended June�30, 2006. Belleli�s
gross profit was negatively impacted during the three months ended
June 30, 2007 by approximately $6.7 million of re-work costs on one
of its projects. As of June�30, 2007, we had a production and
processing equipment fabrication backlog of $731.6 million compared
to $521.5�million at June�30, 2006, including Belleli�s backlog of
$569.4�million and $454.2�million at June�30, 2007 and 2006,
respectively. Capital and Other Hanover had capital expenditures of
approximately $69 million in the second quarter of 2007, compared
to approximately $62 million in the second quarter of 2006. At June
30, 2007, the Company had approximately $1.35 billion in debt and
compression equipment lease obligations, compared to $1.44 billion
at June 30, 2006. At June 30 2007, the Company had approximately
$53.8 million in cash on its balance sheet. Total compression
horsepower at June 30, 2007 was approximately 3,343,000, consisting
of approximately 2,419,000 horsepower in the United States and
approximately 924,000 horsepower internationally. � Backlog (in
millions) � Date Compression & Accessory Production &
Processing* Total Fabrication June 30, 2007 $ 299.0 $ 731.6 $
1030.6 December 31, 2006 325.1 482.5 807.6 June 30, 2006 193.0
521.5 714.5 � *Includes Belleli backlog of $569.4 million, $414.0
million and $454.2 million at June 30, 2007, December 31, 2006 and
June 30, 2006, respectively. � � Compression HP Utilization Rate �
Date U.S. International Total June 30, 2007 81% 96% 85% December
31, 2006 84% 97% 87% June 30, 2006 84% 98% 88% � Conference Call
Details Hanover Compressor Company (NYSE: HC) announces the
following schedule and teleconference information for its second
quarter 2007 earnings release: Earnings Release: Tuesday, July 31,
2007 before market open by public distribution through Business
Wire and the Hanover website at www.hanover-co.com. Teleconference:
Tuesday, July 31, 2007 at 11 a.m. EDT hosted by Stephen York, Vice
President, Investor Relations and Technology. Speakers will be John
E. Jackson, President and CEO, and Lee E. Beckelman, Senior Vice
President and CFO. 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
4801055. Live Webcast: The webcast will be available in listen-only
mode via the Company�s website: www.hanover-co.com Webcast Replay:
For those unable to participate, a replay will be available from
1:30 p.m. EDT on Tuesday, July 31, until 1:30 p.m. EDT Tuesday,
August 7, 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 4801055. 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 at
www.hanover-co.com. Forward Looking Statements Certain matters
discussed in this presentation are "forward-looking statements"
intended to qualify for the safe harbors from liabilities
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 certain 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, kidnappings, 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; ability to obtain components used to fabricate our
products; our inability to implement certain business objectives,
such as international expansion, ability to timely and
cost-effectively execute integrated projects, integrating acquired
businesses, generating sufficient cash, accessing the capital
markets, and refinancing existing or incurring additional
indebtedness to fund our business; our inability to consummate the
proposed merger with Universal Compression Holdings, Inc.; changes
in governmental safety, health, environmental and other
regulations, which could require us to make significant
expenditures; 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 Six Months Ended June 30, June 30, 2007 2006
2007 2006 Revenues and other income: U.S. rentals $ 99,562 $ 93,073
$ 199,198 $ 184,716 International rentals 69,645 67,520 136,936
130,026 Parts, service and used equipment 72,664 55,737 154,004
105,008 Compressor and accessory fabrication 139,508 70,128 218,216
124,819 Production and processing equipment fabrication 122,595
103,653 255,833 182,272 Equity in income of non-consolidated
affiliates 6,279 5,230 11,962 11,078 Gain on sale of business and
other income � 5,465 � � 10,330 � 12,797 � � 40,549 � 515,718
405,671 988,946 778,468 Expenses: U.S. rentals 40,258 36,729 79,135
74,820 International rentals 27,675 23,691 50,980 45,023 Parts,
service and used equipment 56,036 45,061 122,881 86,123 Compressor
and accessory fabrication 106,016 58,482 169,261 105,175 Production
and processing equipment fabrication 104,336 89,203 215,874 158,166
Selling, general and administrative 56,240 49,783 108,034 97,838
Foreign currency translation 319 (2,236 ) 11 (3,733 ) Debt
extinguishment costs � � � 5,902 Merger expenses 3,065 � 3,389 �
Other � � � � 1,204 � � � � 1,204 � � 393,945 � � 301,917 � 749,565
� � 570,518 � EBITDA from continuing operations (1) 121,773 103,754
239,381 207,950 Depreciation and amortization 52,772 43,077 103,668
85,045 Interest expense � 26,775 � � 29,287 � 53,640 � � 60,927 � �
79,547 � � 72,364 � 157,308 � � 145,972 � Income from continuing
operations before income taxes and minority interest 42,226 31,390
82,073 61,978 Provision for income taxes � 16,162 � � 9,546 �
30,607 � � 17,993 � Income from continuing operations before
minority interest 26,064 21,844 51,466 43,985 Minority interest,
net of taxes � � � � (93 ) � � � � (93 ) Income from continuing
operations 26,064 21,751 51,466 43,892 Loss from discontinued
operations, net of tax � (47 ) � (139 ) Cumulative effect of
accounting change, net of tax � � � � � � � � � 370 � Net income $
26,064 � $ 21,704 $ 51,466 � $ 44,123 � � Basic income per common
share: Income from continuing operations $ 0.25 $ 0.21 $ 0.49 $
0.44 Loss from discontinued operations, net of tax � � � �
Cumulative effect of accounting change, net of tax � � � � � � � �
� � � Net income $ 0.25 � $ 0.21 $ 0.49 � $ 0.44 � � Diluted income
per common share: Income from continuing operations(2) $ 0.23 $
0.21 $ 0.46 $ 0.43 Loss from discontinued operations, net of tax �
� � � Cumulative effect of accounting change, net of tax � � � � �
� � � � � � Net income $ 0.23 � $ 0.21 $ 0.46 � $ 0.43 � Weighted
average common and common equivalent shares outstanding: Basic �
105,889 � � 101,017 � 104,631 � � 100,888 � Diluted � 118,054 � �
112,052 � 117,828 � � 111,740 � � Gross profit percentage: U.S.
rentals 60 % 61% 60 % 59 % International rentals 60 % 65% 63 % 65 %
Parts, service and used equipment 23 % 19% 20 % 18 % Compressor and
accessory fabrication 24 % 17% 22 % 16 % Production and processing
equipment fabrication 15 % 14% 16 % 13 % � (1) EBITDA from
continuing operations consists of consolidated income from
continuing operations before interest expense, provision for 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 Six Months Ended June 30, June 30,
2007 2006 2007 2006 EBITDA Reconciliation Income from continuing
operations $26,064 $21,751 $51,466 $43,892 Add: Depreciation and
amortization 52,772 43,077 103,668 85,045 Interest expense 26,775
29,287 53,640 60,927 Minority interest � 93 � 93 Provision for
income taxes 16,162 9,546 30,607 17,993 EBITDA from continuing
operations $121,773 $103,754 $239,381 $207,950 � (2) Net income for
the diluted earnings per share calculation for the three and
six-month periods ended June 2007 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 $1.2 million and $2.7 million,
respectively. � Net income for the diluted earnings per share
calculation for the three and six-month periods ended June 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 $1.8 million and $3.6 million,
respectively.
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