Business Segment Results
For the first quarter of 2006, Well Intervention generated $10.0 million of revenues and $2.0 million of EBITDA compared to $3.1 million and $1.0 million, respectively, for the first quarter of 2005. The year-over-year increase in revenues and EBITDA of 223 percent and 91 percent, respectively, were due primarily to the March results for HWC and growth in the Company's Safeguard services. Acquired on March 3, 2006, the Hydraulic Well Control business contributed one month's results of $4.4 million of revenues and $1.3 million of EBITDA for the first quarter of 2006. EBITDA margins for the quarter were down due to start up expense for the expansion of the Company's Safeguard program and expense related to the adoption of SFAS 123(R).
The Response segment reported revenues of $1.5 million and EBITDA of $0.6 million for the first quarter of 2006 compared to $11.2 million and $2.0 million, respectively, in the first quarter of 2005. First quarter 2006 results were down from the prior year due to lower response work in Iraq, but margins were up as the Company did not recognize any third-party pass through revenues and expenses for security. The Response segment's results were also negatively impacted by the adoption of SFAS 123(R).
"Led by Hydraulic Well Control, our Well Intervention segment, which we previously referred to as the prevention segment of the business, reported the strongest quarterly results to date, generating revenues in this quarter that equal 72 percent of the revenues generated all of last year for this segment," stated Jerry Winchester, President and Chief Executive Officer. "With only one month's results included in the quarter, Hydraulic Well Control generated approximately 42 percent of the quarter's operating income. Despite below average response activity during the quarter, we were able to generate positive earnings for our shareholders, which has been our objective.
"The addition of Hydraulic Well Control also brings additional depth to our pressure control services," added Winchester. "We are well poised to expand those services through cross selling efforts both internationally and in the North American market in which HWC was not active prior to the acquisition."
Net income attributable to common stockholders was $1.3 million, or $0.03 per diluted share for the current period, compared to $2.3 million, or $0.07 per diluted share in the prior year period. The decrease in net income attributable to common shareholders was due primarily to lower operating income as mentioned above, higher interest expense costs and a higher effective tax rate, partially offset by a preferred dividend credit. Interest expense of $575,000 during the first quarter of 2006 included the one time write-off deferred finance costs of $809,000 related to retired subordinated debt, and interest expense of $168,000 related to the HWC acquisition, partially offset by a one time interest credit of $598,000 related to the payment of the subordinated debt. The effective tax rate in the first quarter of 2006 was 51.1 percent compared to 7.6 percent in the first quarter of 2005. The higher effect tax rate was due primarily to 382 limitations put on previously reserved net operating loss carryforwards due to the HWC acquisition, and higher pre-tax foreign income. The Company benefited from an adjustment to preferred dividends of $769,000 relating to discounts on the settlement of its redeemable preferred stock, partially offset by dividend expense of $153,000. Going forward, the Company will no longer incur preferred dividend expense.
During the quarter, the Company adopted Statement of Financial Accounting Standards No. 123(R) (revised 2004) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors; including employee stock options based on estimated fair values. For the current quarter, the Company incurred non- cash charges of $412,000, or $0.01 per diluted share, as compared to zero in the comparable quarter of 2005.
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