HYDL Hydril (MM)

Hydril (Nasdaq:HYDL) reported earnings for the second quarter ended June 30, 2006 of $1.04 per diluted share, up 11% sequentially from $0.94 reported in the first quarter of 2006, and up 44% from $0.72 reported for the second quarter of 2005. On a sequential basis, second quarter revenue of $142.1 million increased 25%, operating income of $36.2 million was up 10%, and net income of $25.0 million was up 10%. Compared to the second quarter of 2005, revenue increased 55%, operating income increased 45%, and net income increased 45%. Chris Seaver, President and CEO, commented, "The strong second quarter results reflect the growing demand for our products and services in worldwide markets. As a result of our continuing strong cash flows from operations we have committed to expand our manufacturing capabilities to meet our customers' needs and return value to our shareholders through share repurchases, which we began in the second quarter with purchases of $25 million." Premium Connection Segment Sequentially, second quarter revenue for Hydril's premium connection segment increased 22% to $89.4 million, while operating income increased 4% to $28.6 million, and operating margin decreased to 32% from 37%. The majority of the increase in revenue resulted from our successful efforts in the international markets to supply a larger percentage of orders with pipe in addition to threaded connections. As a result, the increase in low margin pass-through pipe reduced the segment's operating margin for the quarter. Pressure Control Segment Second quarter revenue for the pressure control segment increased 30% sequentially to $52.7 million and operating income increased 31% to $13.6 million. Capital equipment revenue increased 45% sequentially to $28.5 million and aftermarket revenue increased 16% to $24.2 million. The increase in capital equipment revenue was primarily the result of progress made on offshore blowout prevention system projects and strong blowout preventer equipment shipments. Segment operating margin for the second quarter was 26%, flat with the first quarter, due to the increase in lower-margin capital equipment revenue. The capital equipment backlog was $266 million at June 30, 2006, up 14% from $233 million at March 31, 2006, and up from $47 million at June 30, 2005. Market Indicators As more fully described on our website at www.hydril.com on the "Market Indicators" page, our principal business drivers are: (1) the U.S. rig count for rigs drilling at targets deeper than 15,000 feet, (2) the number of Gulf of Mexico rigs under contract, (3) the international rig count, (4) the worldwide offshore rigs under contract, and (5) the total U.S. rig count. Conference Call Hydril's conference call to discuss second quarter financial results is scheduled for Wednesday, July 26, 2006 at 8:30 a.m. EDT, (7:30 a.m. CDT) and is accessible by dialing 888-889-5345 (domestic) or 973-935-8516 (international) and referencing passcode # 7611130. For further information on the call or the webcast, please visit the company's website at www.hydril.com or see the company's press release announcing the earnings conference call dated July 13, 2006. To the extent not provided in the call, reconciliations of any non-GAAP financial measures discussed in the call will be available on the Investor Relations page of Hydril's website. Hydril, headquartered in Houston, Texas, is engaged worldwide in engineering, manufacturing and marketing premium connection and pressure control products used for oil and gas drilling and production. Forward-Looking Statements This press release contains forward-looking statements concerning expected future results. These statements relate to future events and the company's future financial performance, including the company's business strategy and product development plans, and involve known and unknown risks, uncertainties and assumptions. These risks, uncertainties and assumptions, many of which are more fully described in Hydril Company's Quarterly Report on Form 10-Q for the quarter-ended March 31, 2006 filed with the Securities and Exchange Commission, include but are not limited to competition from steel mills, limitations on the availability of pipe for threading, the impact of imports of tubular to goods and of international and domestic trade laws, the loss of or change to distribution methods of premium connections, the consolidation of end-users, the risks associated with fixed-price contracts, the impact of changes in oil and natural gas prices and worldwide and domestic economic conditions on drilling activity and demand for and pricing of Hydril's products, the ability to attract and retain skilled labor and Hydril's ability to successfully develop new technologies and products and maintain and increase its market share. These factors may cause Hydril's or the industry's actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. -0- *T HYDRIL COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Amounts) -------------------------------------------------- ----------------------------------- Three Months Ended (unaudited) ----------------------------------- June 30, March 31, June 30, 2006 2006 2005 ----------------------------------- Revenue Premium Connection $89,422 $73,549 $59,904 Pressure Control Capital Equipment 28,513 19,722 11,714 Aftermarket 24,179 20,789 19,989 ----------- ----------- ----------- Subtotal Pressure Control 52,692 40,511 31,703 Total Revenue 142,114 114,060 91,607 Total Gross Profit 54,911 49,879 40,465 Gross Margin 39% 44% 44% Selling, General, and Admin. Expenses 18,666 17,028 15,468 ----------- ----------- ----------- Operating Income (Loss) Premium Connection 28,584 27,526 19,891 Pressure Control 13,601 10,373 9,572 Corporate Administration (5,940) (5,048) (4,466) ----------- ----------- ----------- Total Operating Income 36,245 32,851 24,997 Operating Margin 26% 29% 27% Loss from Unconsolidated Entites 31 (45) - Interest Income 1,891 1,470 943 Other Income/(Expense) (70) (99) (146) ----------- ----------- ----------- Income Before Income Taxes 38,097 34,177 25,794 Provision for Income Taxes 13,094 11,508 8,545 ----------- ----------- ----------- Net Income $25,003 $22,669 $17,249 Net Income Per Share: Basic $1.05 $0.96 $0.74 Diluted $1.04 $0.94 $0.72 Weighted Average Shares Outstanding: Basic 23,734,236 23,697,639 23,455,850 Diluted 24,151,659 24,120,861 23,996,733 Depreciation Premium Connection $2,372 $2,257 $2,160 Pressure Control 834 810 755 Corporate Administration 529 506 485 ----------- ----------- ----------- Total Depreciation 3,735 3,573 3,400 Capital Expenditures 9,320 5,005 2,700 Pressure Control Backlog Capital Equipment $266,357 $232,614 $47,305 ----------------------- Six Months Ended (unaudited) ----------------------- June 30, 2006 2005 ----------------------- Revenue Premium Connection $162,971 $110,412 Pressure Control Capital Equipment 48,235 23,780 Aftermarket 44,968 36,232 ----------- ----------- Subtotal Pressure Control 93,203 60,012 Total Revenue 256,174 170,424 Total Gross Profit 104,790 75,872 Gross Margin 41% 45% Selling, General, and Admin. Expenses 35,694 28,776 ----------- ----------- Operating Income (Loss) Premium Connection 56,110 38,296 Pressure Control 23,974 17,378 Corporate Administration (10,988) (8,578) ----------- ----------- Total Operating Income 69,096 47,096 Operating Margin 27% 28% Loss from Unconsolidated Entites (14) - Interest Income 3,361 1,604 Other Income/(Expense) (169) (253) ----------- ----------- Income Before Income Taxes 72,274 48,447 Provision for Income Taxes 24,602 16,186 ----------- ----------- Net Income $47,672 $32,261 Net Income Per Share: Basic $2.01 $1.38 Diluted $1.98 $1.35 Weighted Average Shares Outstanding: Basic 23,716,039 23,408,931 Diluted 24,129,478 23,942,291 Depreciation Premium Connection $4,629 $4,119 Pressure Control 1,644 1,515 Corporate Administration 1,035 1,006 ----------- ----------- Total Depreciation 7,308 6,640 Capital Expenditures 14,325 6,764 HYDRIL COMPANY CONSOLIDATED BALANCE SHEETS (In Thousands) ---------------------------------------------------------------------- June 30, December 31, 2006 2005 ---- ---- (unaudited) ------------------------- CURRENT ASSETS: Cash and cash equivalents $187,055 $65,145 Investments 7,557 108,084 Total receivables 126,916 78,204 Total inventories 72,255 57,646 Deferred tax asset 12,330 11,390 Other current assets 4,781 3,669 ------------ ------------ Total current assets 410,894 324,138 ------------ ------------ LONG-TERM ASSETS: Property, net 111,462 105,138 Other long-term assets 19,954 21,286 ------------ ------------ Total long-term assets 131,416 126,424 ------------ ------------ TOTAL $542,310 $450,562 ============ ============ CURRENT LIABILITIES: Accounts payable $43,003 $23,443 Accrued liabilities and other current liabilities 79,384 39,934 ------------ ------------ Total current liabilities 122,387 63,377 ------------ ------------ LONG-TERM LIABILITIES: Deferred tax liability and other tax obligations 15,144 12,143 Post retirement, pension benefits and other 15,040 14,207 ------------ ------------ Total long-term liabilities 30,184 26,350 ------------ ------------ STOCKHOLDERS' EQUITY: Total stockholders' equity 389,739 360,835 ------------ ------------ TOTAL $542,310 $450,562 ============ ============ *T