Smith International, Inc. Reports First Quarter 2010 Results
Smith International, Inc. (NYSE: SII) today announced first quarter income from continuing operations of $46.5 million, or $0.19 per diluted share, excluding pre-tax charges of $23.0 million and $16.5 million related to the Venezuelan currency devaluation and transaction related costs, respectively. Reported net income for the first quarter was $11.5 million, or $0.05 per diluted share, on revenue of $2.14 billion. On a comparative basis, first quarter 2009 earnings from continuing operations, after excluding charges, were $114.5 million, or $0.52 per diluted share, on revenue of $2.41 billion, while in the fourth quarter of 2009, earnings from continuing operations were $20.1 million, or $0.09 per diluted share, on revenue of $1.98 billion.
Increased drilling activity in the North American market was the primary driver of the improved results and was broad-based, resulting in revenue increases in nearly all of the Company’s lines of business. Smith’s oilfield-related businesses contributed a 22% sequential improvement in North America revenue. M-I SWACO gained 23% while Smith Oilfield improved by 21% sequentially. Driving the quarterly revenue gains in Smith Oilfield segment were drill bits and motors, as well as higher revenue from the cased-hole wireline and borehole enlargement services. The Distribution segment contributed significantly to the sequential improvement in both revenue and operating income as it continues to experience higher volume in its energy sector operations and better margins in part reflecting more favorable LIFO inventory cost impact.
Consolidated revenue increased $154.0 million, or 8 percent, from the fourth quarter of 2009, while the M-I SWACO worldwide rig count increased by 10%. Nearly all of the sequential revenue increase was generated in North America, influenced by a higher level of onshore drilling and completion activity. Outside of North America, revenue was in line with the December 2009 quarter compared to a 2% sequential increase in rig activity.
Inventory balances were relatively unchanged as compared to the prior quarter reflecting increased inventories in M-I SWACO offset by reductions in Distribution. Receivables increased by approximately $126.5 million owing to the higher activity and revenue level. The Company generated $53.0 million of operating cash flow in the first quarter as compared to $367.2 million in the prior quarter.
The Company deployed $370.1 million of cash during the quarter to reduce debt and $29.8 million to pay dividends. An additional $82.8 million and $8.8 million were invested in the Company for net capital expenditures and acquisitions during the quarter, respectively. Total debt was reduced during the quarter to $1.8 billion.
As a result of the more favorable industry environment, the Company has increased its capital expenditure expectation for the year by approximately 15%. The Company indicated that further capital expenditure increases throughout the year are likely and will be implemented in accordance with the terms of the merger agreement between the Company and Schlumberger.
Smith International, Inc. is a leading supplier of premium products and services to the oil and gas exploration and production industry. The Company employs over 22,000 full-time personnel and operates in over 80 countries around the world.
Certain comments contained in this news release concerning among other things, the Company’s outlook, financial projections and business strategies constitute “forward-looking statements” within the meaning of the federal securities laws. Whenever possible, the Company has identified these forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “project,” “should” and similar terms. The forward-looking statements are based upon management’s current expectations and beliefs and, although these statements are based upon reasonable assumptions, actual results might differ materially from expected results due to a variety of risk factors including, but not limited to, satisfaction of the closing conditions to the merger between the Company and Schlumberger, the risk that the contemplated merger does not occur, negative effects from the pendency of the merger, the ability to successfully integrate the merged businesses and to realize expected synergies, the risk that we will not be able to retain key employees, expenses of the merger, overall demand for and pricing of the Company’s products and services, general economic and business conditions, the level of oil and natural gas exploration and development activities, our global operations and global economic conditions and activity, political stability of oil-producing countries, finding and development costs of operations, decline and depletion rates for oil and natural gas wells, seasonal weather conditions, industry conditions, including IP infringement litigation, and changes in and the costs of compliance with laws or regulations, many of which are beyond the control of the Company and other risks and uncertainties detailed in our most recent form 10-K and other filings that the Company makes with the Securities and Exchange Commission. The Company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures. The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures and ratios utilized for internal analysis provide financial statement users meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Certain information discussed in this press release could be considered non-GAAP measures. See the Supplementary Data – Schedule III in this release for the corresponding reconciliations to GAAP financial measures for the three-month periods ended March 31, 2010 and 2009 and December 31, 2009. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results.
Financial highlights follow:
Director, Investor Relations
Shawn Housley, (281) 443-3370
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