Cameron Nets $76M for Second Quarter

Cameron International Corp. reported net income of $76.0 million, or $0.64 per diluted share, for the quarter ended June 30, 2006. This compares with net income of $38.6 million, or $0.35 per diluted share, for the second quarter of 2005. (Per share data for the prior period has been revised to reflect a 2-for-1 stock split effective December 15, 2005.) The second quarter 2006 results include after-tax charges of approximately $5.9 million, or $0.05 per diluted share, related to the integration of the Dresser acquisition, and after-tax gains on foreign currency exposures of approximately $6.5 million, or $0.06 per diluted share. Excluding the above charges and gains, the Company's earnings were $0.63 per diluted share.

Total revenues were $857.8 million for the quarter, up 44 percent from 2005's $594.7 million, while income before income taxes was $116.9 million, more than double the $57.5 million of a year ago. Cameron Chairman, President and Chief Executive Officer Sheldon R. Erikson said that the results reflect continued solid financial performance in each of the Company's businesses.

Integration charges, currency gain addressed

Erikson said that the charges for the quarter were below forecast due to lower-than-expected costs associated with the integration of certain European facilities. "We had expected to recognize about $0.11 per share in integration costs in the second quarter," Erikson said, "but the costs associated with closing certain facilities were significantly lower than we anticipated, and the overall integration process continues to go well. We also benefited from currency gains related to intercompany loans made to our European subsidiaries in concert with the Dresser acquisition." Erikson noted that while Cameron's usual foreign currency gains or losses in any single quarter are not significant, the combination of relatively large intercompany loan balances and the weakening U.S. dollar resulted in the reported gain. Erikson said that the majority of the loans are expected to be repaid over the course of the second half of the year.

Orders, overall market activity push backlog to record level

Orders received during the second quarter of 2006 totaled $1.26 billion, up nearly 14 percent from year-ago levels, and similar to the record $1.34 billion of 2006's first quarter. Erikson noted that while the pace of orders moderated slightly from the first quarter 2006 levels, the second quarter was the second-highest order quarter in the Company's history. "The strength across all product lines, led by another wave of drilling orders, drove our backlog to record levels as orders again exceeded revenues in the quarter," Erikson said. "Our primary challenge will continue to be efficiently converting these record orders into future revenues." He noted that year-to- date orders totaled approximately $2.6 billion, up 45 percent from the first half of 2005, and that at June 30, 2006, total backlog was $3.10 billion, up from the prior quarter's record of $2.69 billion and the June 30, 2005 level of $1.62 billion.

Operating results fuel strong cash flow generation; investments in efficiency, subsea capacity additions underway

Erikson said that the Company's cash flow from operations during the first half of 2006 was approximately $112 million, compared with approximately $182 million in the first half of 2005. "While the current order pace and manufacturing activity have caused an increase in working capital requirements, our operating divisions continue to generate cash," he said. "As previously noted, we are making significant capital investments in new machine tools and productivity enhancements to improve efficiency and respond to the record orders booked in recent quarters."

Erikson also noted that the Drilling & Production Systems group will increase its subsea production equipment capacity through the addition of a manufacturing facility in Malaysia. "This new $30 million-plus facility should be operational during the second half of 2007, and when completed, will increase our subsea tree manufacturing capacity to approximately 175 to 200 trees per year," he said. "We expect this added capacity will allow us to respond to customers' requirements and profitably maintain our relative historical share of the subsea production equipment market." Erikson said that in addition to these investments in improved efficiency and capacity, the Company will continue to consider accretive acquisitions or additional repurchases of common stock as uses of cash.

Balance sheet solid, convertible notes sold

At June 30, 2006, Cameron's total debt, net of cash and short-term investments, was $287.7 million, up from $166.1 million at March 31, 2006, and the Company's net debt-to-capitalization ratio was approximately 15.3 percent. Erikson said that the Company sold $500 million in convertible senior notes during the quarter. "$200 million of the proceeds from this sale will be used to retire an earlier notes issue, $190 million was applied immediately toward the purchase of approximately 4.2 million shares of our common stock, and the remainder is available for acquisitions, further share repurchase or general corporate uses," he said. Erikson also noted that in addition to the share repurchases related to the convertible offering, the Company repurchased another 405,100 shares of its common stock during the quarter at an average price of approximately $43.81 per share.

Full-year earnings expectations raised by approximately 20 percent

Erikson said that Cameron's third quarter earnings are expected to be in the range of approximately $0.64 to $0.69 per share, including charges of approximately $0.06 per share associated with the ongoing integration of the Dresser acquisition. He also noted that full-year earnings are expected to be approximately $2.46 to $2.56 per share, including charges of approximately $0.20 per share related to the integration and the $0.06 foreign currency gain recognized in the second quarter. The Company's previous guidance was $2.05 to $2.15 per share for the year, including charges of approximately $0.23 per share related to the integration. Erikson said the Company has recorded approximately $19.1 million ($12.4 million after-tax, or $0.10 per share) of charges for the Dresser integration through the first half of 2006, of which $8.2 million has been cash.

Cameron is a leading provider of flow equipment products, systems and services to worldwide oil, gas and process industries.


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