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, 2005.
Summary Fourth quarter 2005 revenue increased to $359.3 million, a
16% increase over fourth quarter 2004 revenue of $310.1 million.
EBITDA(1) for the fourth quarter 2005 was $78.5 million, a 17%
increase over fourth quarter 2004 EBITDA of $67.4 million. Net loss
for the fourth quarter 2005 was $4.2 million, or $0.04 per share
compared to a net loss of $20.2 million, or $0.24 per share in the
fourth quarter 2004. Included in fourth quarter 2005 EBITDA is $1.6
million in foreign currency translation losses compared to $4.6
million in foreign currency translation gains during fourth quarter
2004. The company's provision for income taxes for the fourth
quarters of 2005 and 2004 did not include a tax benefit for the
company's tax losses in the U.S. and certain international
jurisdictions. For the year ended December 31, 2005, revenue
increased to $1,375.6 million, a 16% increase over 2004 revenue of
$1,188.6 million. EBITDA for 2005 increased to $310.2 million, a 6%
increase over 2004 EBITDA of $293.0 million. For 2005, Hanover
recorded a net loss of $38.0 million, or $0.42 per share, compared
to a net loss of $44.0 million, or $0.52 per share in 2004.
Included in 2005 EBITDA is a $7.3 million charge for the early
extinguishment of debt and $7.9 million in foreign currency
translation losses. Included in 2004 EBITDA is a $4.2 million
benefit from the reversal of a provision for the cost of the
securities related litigation and foreign currency translation
gains of $5.2 million. "During 2005, Hanover made significant
progress in building the foundation for a profitable future," said
John Jackson, President and Chief Executive Officer of Hanover.
"However, we will not be satisfied until we achieve targeted
profitability levels with our return on investment consistently
exceeding our cost of capital. We are continuing our disciplined
growth strategy in 2006, improving returns on existing assets while
selectively adding to assets and project backlog in all regions of
the world." -0- *T Summary of Business Segment Results U.S. Rentals
(in thousands) Three months ended Year ended December 31, December
31, ----------------- ------------------- Increase Increase 2005
2004 (decrease) 2005 2004 (decrease) ---- ---- ---------- ---- ----
---------- Revenue $88,580 $85,432 4% $351,128 $341,570 3%
Operating expense $36,902 $36,275 2% $139,465 $144,580 (4)%
-------- -------- --------- --------- Gross profit $51,678 $49,157
5% $211,663 $196,990 7% Gross margin 58% 58% 0% 60% 58% 2% *T U.S.
rental revenue increased in the fourth quarter 2005 and in the year
ended December 31, 2005, compared to the same periods in the prior
year, due primarily to improvement in market conditions that led to
an improvement in pricing. Gross margin was flat for the fourth
quarter 2005. For the year ended December 31, 2005, gross margin
increased compared to the same period in the prior year due
primarily to improved pricing in 2005 and our efforts to reduce
current fleet maintenance and repair expenses. During the second
half of 2005, we opened a facility to repair and overhaul
approximately 200,000 horsepower of idle equipment over the next
two years. We incurred repair expenses in connection with this
program that decreased our gross margin by approximately 2% for the
fourth quarter of 2005 and 1% for the year ended 2005. -0- *T
International Rentals (in thousands) Three months ended Year ended
December 31, December 31, ----------------- -------------------
Increase Increase 2005 2004 (decrease) 2005 2004 (decrease) ----
---- ---------- ---- ---- ---------- Revenue $64,943 $55,702 17%
$232,587 $214,598 8% Operating expense $22,582 $18,416 23% $76,512
$63,953 20% -------- -------- --------- --------- Gross profit
$42,361 $37,286 14% $156,075 $150,645 4% Gross margin 65% 67% (2)%
67% 70% (3)% *T Fourth quarter 2005 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 Nigeria and Latin America. Gross margin in the fourth
quarter 2005 was impacted by approximately 3% due to increased
labor and repair and maintenance costs in Argentina. The Company's
Argentine operations have experienced an increase in labor costs
due to pressures from unions for increased compensation for workers
only a portion of which is recoverable from customers. During the
year ended December 31, 2005, international rental revenue and
gross profit increased, compared to the year ended December 31,
2004, due primarily to new rental projects that have come on-line
in 2005. Gross margin as a percentage decreased primarily by
approximately 1% due to lower margin projects in Nigeria and by
approximately 2% due to an increase in costs in Argentina. -0- *T
Parts, Service and Used Equipment (in thousands) Three months ended
Year ended December 31, December 31, -----------------
-------------------- Increase Increase 2005 2004 (decrease) 2005
2004 (decrease) ---- ---- ---------- ---- ---- ---------- Revenue
$67,641 $45,784 48% $225,636 $180,321 25% Operating expense $52,028
$37,177 40% $169,168 $135,929 24% -------- -------- ---------
---------- Gross profit $15,613 $8,607 81% $56,468 $44,392 27%
Gross margin 23% 19% 4% 25% 25% 0% *T Parts, service and used
equipment revenue and gross profit for the fourth quarter 2005 was
higher than the fourth quarter 2004 due primarily to higher used
rental equipment and installation sales. Parts, service and used
equipment revenue includes two business components: parts and
service; and used rental equipment and installation sales. The
company's used rental equipment sales and installation revenues and
related gross margin vary significantly from period to period and
are dependent upon the exercise of purchase options on rental
equipment by customers and the start of new projects by customers.
For the fourth quarter 2005, parts and service revenue was $41.9
million with a gross margin of 26%, compared to $42.2 million and
22%, respectively, for the same period a year ago. Gross margin
improved due primarily to higher pricing in the U.S. market
resulting from improved market conditions. Used rental equipment
and installation sales revenue in the fourth quarter 2005 was $25.7
million with a gross margin of 18%, compared to $3.6 million at a
(17)% gross margin for the same period a year earlier. Parts,
service and used equipment revenue for the year ended December 31,
2005 were higher than the year ended December 31, 2004 due
primarily to improved business conditions and an increase in used
rental equipment and installation sales. For the year ended
December 31, 2005, parts and service revenue was $152.4 million
with a gross margin of 26%, compared to $139.3 million and 24%,
respectively, for the year ended December 31, 2004. Used rental
equipment and installation sales revenue for the year ended
December 31, 2005 was $73.2 million with a gross margin of 22%,
compared to $41.1 million with a 27% gross margin for the year
ended December 31, 2004. The increase in revenue in 2005 was
primarily due to a $20.3 million sale of used rental equipment
related to a gas plant in Madisonville, TX. -0- *T Compression and
Accessory Fabrication (in thousands) Three months ended Year ended
December 31, December 31, ----------------- -------------------
Increase Increase 2005 2004 (decrease) 2005 2004 (decrease) ----
---- ---------- ---- ---- ---------- Revenue $54,540 $39,715 37%
$179,954 $158,629 13% Operating expense $45,792 $37,248 23%
$156,414 $144,832 8% -------- -------- --------- --------- Gross
profit $8,748 $2,467 255% $23,540 $13,797 71% Gross margin 16% 6%
10% 13% 9% 4% *T For the fourth quarter 2005 and year ended
December 31, 2005, compression fabrication revenue, gross profit
and gross margin increased compared to the fourth quarter and the
year ended December 31, 2004, due primarily to improved market
conditions in 2005 that led to improved pricing and also improved
due to our focus on operational efficiencies. As of December 31,
2005, we had compression and accessory fabrication backlog of
approximately $85.4 million compared to $56.7 million at December
31, 2004. -0- *T Production and Processing Equipment Fabrication
(in thousands) Three months ended Year ended December 31, December
31, ----------------- ------------------- Increase Increase 2005
2004 (decrease) 2005 2004 (decrease) ---- ---- ---------- ---- ----
---------- Revenue $76,087 $77,645 (2)% $360,267 $270,284 33%
Operating expense $71,224 $71,694 (1)% $325,924 $242,251 35%
-------- -------- --------- --------- Gross profit $4,863 $5,951
(18)% $34,343 $28,033 23% Gross margin 6% 8% (2)% 10% 10% 0% *T
Production and processing equipment fabrication gross profit and
gross margin for the fourth quarter 2005 was lower than the fourth
quarter 2004 due to approximately $3 million in expected cost
overruns and late delivery penalties on projects due to poor
performance. The impact of the cost overruns was partially offset
by favorable foreign currency trends. Production and processing
equipment fabrication revenue for the year ended December 31, 2005
was greater than for the year ended December 31, 2004, primarily
due to our focus on fabrication sales and an improvement in market
conditions. As of December 31, 2005, we had a production and
processing equipment fabrication backlog of $287.7 million compared
to $234.2 million at December 31, 2004. General Selling, general,
and administrative expense ("SG&A") for the fourth quarter 2005
was $50.7 million, compared to $46.9 million in the fourth quarter
2004. As a percentage of revenues, SG&A was 14.1% in the fourth
quarter 2005 versus 15.1% in the fourth quarter of 2004.
Depreciation and amortization expense for the fourth quarter 2005
decreased to $44.2 million, from $46.4 million in the same period
of 2004. Fourth quarter 2005 depreciation and amortization expense
decreased primarily due to reduced amortization of deferred debt
issuance costs associated with the debt that was repaid in 2004 and
2005. Depreciation and amortization expense for 2005 was $182.7
million, compared to $175.3 million in 2004. Depreciation and
amortization expense increased in 2005, in comparison to 2004, due
to net additions of property, plant and equipment placed in service
during the year. The company's effective tax rate for the fourth
quarter 2005 was 261% compared to (47)% for the fourth quarter
2004. For 2005, Hanover's effective tax rate was (294)%, compared
to (84)% in 2004. Due to the company's recent tax losses in certain
jurisdictions (primarily U.S.), Hanover cannot reach the conclusion
that it is "more likely than not" that certain of its deferred tax
assets will be realized in the near future. Accordingly, the
company's provision for income taxes for 2005 did not include a
full tax benefit for the company's tax loss in the U.S. and certain
international jurisdictions. Capital and Other Hanover had capital
expenditures of approximately $52 million in the fourth quarter
2005, compared to approximately $33 million in the fourth quarter
of 2004. For 2005, Hanover had capital expenditures of
approximately $155 million compared to $90 million in 2004. At
December 31, 2005, the company had approximately $1.49 billion in
debt and compression equipment lease obligations, compared to $1.66
billion at December 31, 2004. At December 31, 2005, Company debt
included approximately $48 million outstanding under its new
five-year $450 million bank credit facility and the Company had
approximately $53.4 million in cash on its balance sheet. Total
compression horsepower at December 31, 2005 was approximately
3,320,000 including approximately 2,438,000 horsepower in the
United States and approximately 882,000 horsepower internationally.
Hanover's compression horsepower utilization rate as of December
31, 2005, on a total horsepower basis, was approximately 86%, an
increase over utilization of approximately 85% at September 30,
2005 and 82% at December 31, 2004. U.S. and international
utilization at December 31, 2005 was approximately 82% and 98%,
respectively, compared to approximately 80% and 98%, respectively,
at September 30, 2005, and approximately 77% and 98%, respectively,
at December 31, 2004. Conference Call Details Hanover Compressor
Company will host a conference call at 11:00 a.m. Eastern Standard
Time, Wednesday, February 15, 2006, to discuss its fourth quarter
and full year 2005 financial results and other matters. To access
the call, United States and Canadian participants should dial
800-811-0667. International participants should dial 913-981-4901
at least 10 minutes before the scheduled start time. Please
reference Hanover conference call number 4962029. A replay will be
available from 12:30 p.m. Eastern Standard Time on Wednesday,
February 15, until midnight on Wednesday, February 22, 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
4962029. 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) -0- *T 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, ------------------ ---------------------
2005 2004 2005 2004 -------- --------- ---------- ----------
Revenues and other income: U.S. rentals $88,580 $85,432 $351,128
$341,570 International rentals 64,943 55,702 232,587 214,598 Parts,
service and used equipment 67,641 45,784 225,636 180,321 Compressor
and accessory fabrication 54,540 39,715 179,954 158,629 Production
and processing equipment fabrication 76,087 77,645 360,267 270,284
Equity in income of non- consolidated affiliates 5,707 4,913 21,466
19,780 Other 1,837 886 4,551 3,413 -------- --------- ----------
---------- 359,335 310,077 1,375,589 1,188,595 Expenses: U.S.
rentals 36,902 36,275 139,465 144,580 International rentals 22,582
18,416 76,512 63,953 Parts, service and used equipment 52,028
37,177 169,168 135,929 Compressor and accessory fabrication 45,792
37,248 156,414 144,832 Production and processing equipment
fabrication 71,224 71,694 325,924 242,251 Selling, general and
administrative 50,689 46,933 182,198 173,066 Foreign currency
translation 1,581 (4,622) 7,890 (5,222) Securities related
litigation settlement -- (260) -- (4,163) Debt extinguishment costs
-- -- 7,318 -- Other -- (162) 526 407 -------- --------- ----------
---------- 280,798 242,699 1,065,415 895,633 -------- ---------
---------- ---------- EBITDA from continuing operations (1) 78,537
67,378 310,174 292,962 Depreciation and amortization 44,224 46,426
182,681 175,308 Interest expense 31,713 38,809 136,927 146,978
-------- --------- ---------- ---------- 75,937 85,235 319,608
322,286 -------- --------- ---------- ---------- Income (loss) from
continuing operations before income taxes 2,600 (17,857) (9,434)
(29,324) Provision for income taxes 6,792 8,352 27,714 24,767
-------- --------- ---------- ---------- Loss from continuing
operations (4,192) (26,209) (37,148) (54,091) Income (loss) from
discontinued operations, net of tax (7) 5,992 (869) 10,085 --------
--------- ---------- ---------- Net loss $(4,199) $(20,217)
$(38,017) $(44,006) ======== ========= ========== ========== Basic
and diluted loss per common share: Loss from continuing operations
$(0.04) $(0.31) $(0.41) $(0.64) Income (loss) from discontinued
operations, net of tax -- 0.07 (0.01) 0.12 -------- ---------
---------- ---------- Net loss $(0.04) $(0.24) $(0.42) $(0.52)
======== ========= ========== ========== Weighted average common
and common equivalent shares outstanding: Basic 100,655 85,561
91,556 84,792 ======== ========= ========== ========== Diluted
100,655 85,561 91,556 84,792 ======== ========= ==========
========== Gross profit percentage: U.S. rentals 58% 58% 60% 58%
International rentals 65% 67% 67% 70% Parts, service and used
equipment 23% 19% 25% 25% Compressor and accessory fabrication 16%
6% 13% 9% Production and processing equipment fabrication 6% 8% 10%
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. 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 Year
Ended December 31, December 31, ------------------
--------------------- 2005 2004 2005 2004 -------- ---------
---------- ---------- EBITDA Reconciliation Loss from continuing
operations $(4,192) $(26,209) $(37,148) $(54,091) Add: Depreciation
and amortization 44,224 46,426 182,681 175,308 Interest expense
31,713 38,809 136,927 146,978 Provision for income taxes 6,792
8,352 27,714 24,767 -------- --------- ---------- ---------- EBITDA
from continuing operations $78,537 $67,378 $310,174 $292,962
======== ========= ========== ========== *T
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