Second quarter 2006 revenue increased to $405.7 million, an 18%
increase over second quarter 2005 revenue of $344.8 million. Net
income for the second quarter 2006 was $21.7 million, or $0.21 per
share, compared with a net loss of $6.4 million, or $0.07 per
share, in the second quarter 2005. EBITDA(1) from continuing
operations for the second quarter 2006 was $103.8 million, a 29%
increase over second quarter 2005 EBITDA of $80.3 million. Included
in the Company's EBITDA and EPS from continuing operations for the
second quarter of 2006 was an $8.0 million pre-tax gain from the
sale of the Company's fabrication assets in Canada, or
approximately $0.07 per share. Hanover's total third-party
fabrication backlog reached a record $714.5 million on June 30,
2006, compared to approximately $373.1 million at December 31, 2005
and $260.4 million at June 30, 2005. "We were pleased with the
improvement in our operating performance," said John Jackson,
President and Chief Executive Officer. "Stronger fabrication
pricing, improvements in operational execution, lower cost of debt
and the start-up of several rental projects were the catalysts for
the improvement in our second quarter results. "We remain
optimistic about the remainder of 2006 and beyond based upon a
number of factors," Mr. Jackson continued. "We anticipate the
start-up of previously awarded rental projects; our fabrication
backlog continues to build; and, rental and fabrication quote
activity remains strong in all of our geographic markets. In
addition, we see opportunities to continue to improve pricing and
reduce certain operating costs." -0- *T Business Segment Results
U.S. Rentals (in thousands) Three months ended June 30,
--------------------- Increase 2006 2005 (Decrease) ----------
---------- ---------- Revenue $93,073 $87,691 6% Operating expense
36,729 32,984 11% ---------- ---------- Gross profit $56,344
$54,707 3% Gross margin 61% 62% (1)% *T U.S. rental revenue and
gross profit increased during the three months ended June 30, 2006,
compared to the three months ended June 30, 2005, due primarily to
an improvement in market conditions that has led to an improvement
in pricing. Gross margin for the three months ended June 30, 2006
decreased compared to the three months ended June 30, 2005,
primarily due to expenses of approximately $1.6 million related to
our program to refurbish approximately 200,000 horsepower of idle
U.S. compression equipment and the impact of recording incentive
compensation expenses of approximately $1.0 million after the
adoption of SFAS 123(R). -0- *T International Rentals (in
thousands) Three months ended June 30, ---------------------
Increase 2006 2005 (Decrease) ---------- ---------- ----------
Revenue $67,520 $55,521 22% Operating expense 23,691 17,144 38%
---------- ---------- Gross profit $43,829 $38,377 14% Gross margin
65% 69% (4)% *T During the second quarter of 2006, international
rental revenue and gross profit increased, compared to the second
quarter of 2005, due to increased rental activity in Venezuela,
Argentina and Nigeria. Gross margin decreased primarily due to
higher repair and maintenance costs in Venezuela, Argentina and
Brazil. -0- *T Parts, Service and Used Equipment (in thousands)
Three months ended June 30, ---------------------- Increase 2006
2005 (Decrease) ---------- ---------- ---------- Revenue $55,737
$50,531 10% Operating expense 45,061 36,215 24% ----------
---------- Gross profit $10,676 $14,316 (25)% Gross margin 19% 28%
(9)% *T Parts, service and used equipment revenue for the three
months ended June 30, 2006 increased compared to the three months
ended June 30, 2005 primarily due to higher parts and service
revenues in the U.S. and an increase in installation sales. Gross
profit and gross margin for the three months ended June 30, 2006
were lower than the three months ended June 30, 2005 primarily due
to reduced margins on parts and service revenues and installation
sales. Parts, service and used equipment revenue includes two
business components: (1) parts and service and (2) used rental
equipment and installation sales. For the three months ended June
30, 2006, parts and service revenue was $41.9 million with a gross
margin of 21%, compared to $38.6 million and 27%, respectively, for
the three months ended June 30, 2005. Used rental equipment and
installation sales revenue for the three months ended June 30, 2006
was $13.8 million with a gross margin of 14%, compared to $11.9
million with a 32% gross margin for the three months ended June 30,
2005. Our used rental equipment and installation sales revenue and
gross margins vary significantly from period to period and are
dependent on the exercise of purchase options on rental equipment
by customers and installation sales associated with the start-up of
new projects by customers. -0- *T Compression and Accessory
Fabrication (in thousands) Three months ended June 30,
--------------------- Increase 2006 2005 (Decrease) ----------
---------- ---------- Revenue $70,128 $41,092 71% Operating expense
58,482 36,587 60% ---------- ---------- Gross profit $11,646 $4,505
159% Gross margin 17% 11% 6% *T For the second quarter 2006,
compression and accessory fabrication revenue, gross profit and
gross margin increased, compared to the second quarter of 2005, due
primarily to improved market conditions that led to higher sales
levels and better pricing. As of June 30, 2006, the company had
compression and accessory fabrication backlog of $193.0 million,
compared to approximately $67.5 million at June 30, 2005. -0- *T
Production and Processing Equipment Fabrication (in thousands)
Three months ended June 30, ---------------------- Increase 2006
2005 (Decrease) ---------- ---------- ---------- Revenue $103,653
$104,297 (1)% Operating expense 89,203 92,429 (3)% ----------
---------- Gross profit $14,450 $11,868 22% Gross margin 14% 11% 3%
*T Production and processing equipment fabrication revenue was
slightly lower for the second quarter of 2006 while gross profit
and gross margin increased over second quarter of 2005 due to
improved market conditions leading to improved pricing and an
increase in operating efficiencies. The backlog for production and
processing equipment fabrication was approximately $521.5 million
at June 30, 2006 compared to $192.9 million at June 30, 2005,
including Belleli's backlog of $454.2 million and $131.7 million at
June 30, 2006 and 2005, respectively. Liquidity and Other Hanover
had capital expenditures of approximately $62 million in the second
quarter 2006, compared to approximately $28 million in the second
quarter of 2005. At June 30, 2006, the Company had approximately
$1.44 billion in debt and compression equipment lease obligations,
compared to $1.69 billion at June 30, 2005. At June 30, 2006,
Company debt included approximately $70 million outstanding under
its five-year $450-million bank credit facility and the Company had
approximately $55 million in cash on its balance sheet. Total
compression horsepower at June 30, 2006 was approximately
3,322,000, consisting of approximately 2,435,000 horsepower in the
United States and approximately 887,000 horsepower internationally.
Compression HP Utilization Rate -0- *T Date U.S. International
Total
--------------------------------------------------------------------
June 30, 2006 84% 98% 88%
--------------------------------------------------------------------
December 31, 2005 82% 98% 86%
--------------------------------------------------------------------
June 30, 2005 79% 98% 83%
--------------------------------------------------------------------
*T Conference Call Details Hanover Compressor Company (NYSE:HC)
will host a conference call at 11:00 a.m. Eastern Time, Thursday,
July 27, 2006, to discuss its financial results for the second
quarter of 2006 and other matters. To access the call, United
States and Canadian participants should dial 800-822-4794.
International participants should dial (913) 981-4912 at least 10
minutes before the scheduled start time. Please reference Hanover
conference call number 9236442. A replay will be available from
1:00 p.m. Eastern Time on Thursday, July 27, until midnight on
Thursday, August 3, 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 9236442. 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 1991 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,
refinancing existing or incurring additional indebtedness to fund
our business, and executing our exit and sale strategy with respect
to assets classified on our balance sheet as assets held for sale;
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) -0- *T HANOVER COMPRESSOR COMPANY CONSOLIDATED FINANCIAL
DATA AND EBITDA RECONCILIATION (in thousands, except per share
amounts) (unaudited) Three Months Ended Six Months Ended June 30,
June 30, ------------------- ------------------- 2006 2005 2006
2005 --------- --------- --------- --------- Revenues and other
income: U.S. rentals $93,073 $87,691 $184,716 $174,845
International rentals 67,520 55,521 130,026 109,436 Parts, service
and used equipment 55,737 50,531 105,008 83,968 Compressor and
accessory fabrication 70,128 41,092 124,819 73,616 Production and
processing equipment fabrication 103,653 104,297 182,272 193,868
Equity in income of non- consolidated affiliates 5,230 5,158 11,078
9,732 Other income 10,330 492 40,549 943 --------- ---------
--------- --------- 405,671 344,782 778,468 646,408 Expenses: U.S.
rentals 36,729 32,984 74,820 67,060 International rentals 23,691
17,144 45,023 34,646 Parts, service and used equipment 45,061
36,215 86,123 61,275 Compressor and accessory fabrication 58,482
36,587 105,175 66,204 Production and processing equipment
fabrication 89,203 92,429 158,166 171,554 Selling, general and
administrative 49,783 43,909 97,838 86,067 Foreign currency
translation (2,236) 4,955 (3,733) 5,226 Debut extinguishment costs
-- -- 5,902 -- Other 1,204 274 1,204 393 --------- ---------
--------- --------- 301,917 264,497 570,518 492,425 ---------
--------- --------- --------- EBITDA from continuing operations(1)
103,754 80,285 207,950 153,983 Depreciation and amortization 43,077
45,469 85,045 90,922 Interest expense 29,287 34,662 60,927 70,602
--------- --------- --------- --------- 72,364 80,131 145,972
161,524 --------- --------- --------- --------- Income (loss) from
continuing operations before income taxes and minority interest
31,390 154 61,978 (7,541) Provision for income taxes 9,546 6,102
17,993 10,643 --------- --------- --------- --------- Income (loss)
from continuing operations before minority interest 21,844 (5,948)
43,985 (18,184) Minority interest, net of taxes (93) -- (93) --
--------- --------- --------- --------- Income (loss) from
continuing operations 21,751 (5,948) 43,892 (18,184) Loss from
discontinued operations, net of tax (47) (468) (139) (696)
Cumulative effect of accounting change, net of tax -- -- 370 --
--------- --------- --------- --------- Net income (loss) $21,704
$(6,416) $44,123 $(18,880) ========= ========= ========= =========
Basic income (loss) per common share: Income (loss) from continuing
operations $0.21 $(0.07) $0.44 $(0.21) Loss from discontinued
operations, net of tax 0.00 0.00 0.00 (0.01) Cumulative effect of
accounting change, net of tax 0.00 0.00 0.00 0.00 ---------
--------- --------- --------- Net income (loss) $0.21 $(0.07) $0.44
$(0.22) ========= ========= ========= ========= Dilutive income
(loss) per common share: Income (loss) from continuing
operations(2) $0.21 $(0.07) $0.43 $(0.21) Loss from discontinued
operations, net of tax 0.00 0.00 0.00 (0.01) Cumulative effect of
accounting change, net of tax 0.00 0.00 0.00 0.00 ---------
--------- --------- --------- Net income (loss) $0.21 $(0.07) $0.43
$(0.22) ========= ========= ========= ========= Weighted average
common and common equivalent shares outstanding: Basic 101,017
85,797 100,888 85,744 ========= ========= ========= =========
Diluted 112,052 85,797 111,740 85,744 ========= ========= =========
========= Gross profit percentage: U.S. rentals 61% 62% 59% 62%
International rentals 65% 69% 65% 68% Parts, service and used
equipment 19% 28% 18% 27% Compressor and accessory fabrication 17%
11% 16% 10% Production and processing equipment fabrication 14% 11%
13% 12% (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 Six Months Ended June 30, June 30, -------------------
------------------- 2006 2005 2006 2005 --------- ---------
--------- --------- EBITDA Reconciliation Income (loss) from
continuing operations $21,751 $(5,948) $43,892 $(18,184) Add:
Depreciation and amortization 43,077 45,469 85,045 90,922 Interest
expense 29,287 34,662 60,927 70,602 Minority interest 93 -- 93 --
Provision for income taxes 9,546 6,102 17,993 10,643 ---------
--------- --------- --------- EBITDA from continuing operations
$103,754 $80,285 $207,950 $153,983 ========= ========= =========
========= (2) Net income for the diluted earnings per share
calculation for the three and six-month periods ended June 30, 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. *T
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