EX-99.1
2
h32482exv99w1.txt
PRESS RELEASE


                                                                    EXHIBIT 99.1
PRESS RELEASE
--------------------------------------------------------------------------------

SMITH INTERNATIONAL, INC.
P.O. BOX 60068
HOUSTON, TX 77205-0068
WEBSITE ADDRESS: smith.com

FOR RELEASE

January 30, 2006

Contact:  Margaret K. Dorman
          Chief Financial Officer
          (281) 443-3370

                  SMITH INTERNATIONAL, INC. REPORTS 57 PERCENT
                       YEAR-OVER-YEAR INCREASE IN EARNINGS

      HOUSTON, Texas (January 30, 2006)... Smith International, Inc. (NYSE: SII)
today announced fourth quarter net income of $88.6 million, or 44 cents per
share, on revenues of $1.53 billion. The fourth quarter financial results
include a non-recurring charge of $5.6 million associated with a drill bit
patent settlement entered into during the period. After excluding the after-tax
impact of the charge, fourth quarter earnings were $92.3 million, or 45 cents
per share.

      The consolidated results compare favorably to both the third quarter of
2005 and the prior year period. Earnings for the third quarter of 2005,
excluding a $2.5 million after-tax gain related to the sale of Smith's ownership
interest in a mining bit joint venture, were $77.0 million, or 38 cents per
share. After eliminating the impact of non-recurring items, quarterly earnings
grew 60 percent year-over-year and 20 percent on a sequential quarter basis.

      Consolidated revenues increased 26 percent over the prior year quarter and
were nine percent above the September 2005 period, the strongest
sequential-quarter revenue and earnings growth rates achieved in 2005. The
majority of the revenue and earnings improvement over the third quarter was
reported in North America, benefiting from the higher level of land-based
drilling activity, a favorable mix of business in the U.S. offshore market and
the impact of price increases implemented during the last half of 2005. Revenue
growth in markets outside of North America also contributed to the sequential
comparison, largely associated with increased offshore exploration and
production spending in West Africa.





      For the year ended December 31, 2005, earnings were $302.3 million, or
$1.48 per share, on revenues of $5.58 billion. For the 2004 fiscal year, the
Company reported net income of $182.5 million, or 89 cents per share, on
revenues of $4.42 billion. The 2004 results included a $20.4 million after-tax
charge related to the drill bit patent litigation matter which was resolved in
December 2005. Excluding the impact of the litigation charge, 2004 earnings were
$202.9 million, or 99 cents per share.

      M-I SWACO's fourth quarter revenues totaled $726.4 million, seven percent
above the third quarter of 2005 and 22 percent higher on a year-over-year basis.
The majority of the sequential revenue improvement was generated in North
America, influenced by higher U.S. offshore revenue volumes and the impact of
price increases implemented in the last half of 2005. U.S. offshore revenues
increased despite a decline in associated drilling activity, as operators
transitioned from workover and completion projects to more revenue-intensive
drilling and exploration activities. Compared to the prior year period, the
majority of the revenue growth was reported in the Eastern Hemisphere reflecting
new contract awards and increased customer investment in offshore markets,
primarily the North Sea and West Africa. In addition, North American revenue
growth significantly outpaced the 19 percent change in underlying activity
levels - driven by improved pricing and higher offshore business volumes in the
U.S. Gulf of Mexico.

      Smith Technologies reported fourth quarter revenues of $167.5 million,
eight percent above the September 2005 quarter and 21 percent higher than the
prior year period. Over half of the sequential revenue increase was associated
with the seasonal activity pick-up in Canada, with the remainder concentrated in
markets outside of North America, including Latin America and the Middle East.
Strong demand for recent product introductions, including the new Sharc(TM)
series of diamond drill bits, increased market activity and the impact of recent
price increases contributed to the sequential revenue growth. On a
year-over-year basis, the revenue improvement reflects increased demand for
diamond bit products in markets outside of North America and higher Eastern
Hemisphere export orders. To a lesser extent, improved pricing and significant
expansion of the Neyrfor operations contributed to the year-over-year revenue
growth.

      Smith Services' revenues totaled $195.5 million, 10 percent higher on a
sequential quarter basis and 39 percent above the December 2004 period. The
improvement over the third quarter of 2005 was reported in North America and
West Africa, as higher activity levels resulted in increased demand for
high-margin drilling and remedial products. Increased sales of tubular products





and the impact of acquired operations also contributed to the sequential revenue
comparison. On a year-over-year basis, the revenue growth was driven by higher
tubular sales volumes in the United States, including the HEVI-WATE(TM) product
line. Excluding tubular sales, revenues grew 29 percent - with the favorable
comparison to the rig count associated with increased remedial business volumes
in markets outside of North America, including the North Sea and Middle East
regions.

      Wilson reported revenues of $441.0 million, 10 percent higher on a
sequential basis and 29 percent above the prior year period. The majority of the
revenue growth over the September quarter was reported by the upstream energy
operations benefiting from higher North American drilling and completion
activity levels. Increased industrial sector project spending in the United
States, primarily in the engineering and construction and petrochemical customer
base, contributed approximately one-third of the sequential quarter revenue
improvement. On a year-over-year basis, energy sector revenues increased 37
percent - driven by improved North American drilling activity, new contracts in
the upstream operations and increased line pipe project spending. Industrial and
downstream revenues grew 13 percent above the prior year quarter, as higher
customer spending levels more than offset the impact of the completion of a
large engineering and construction export order in the prior year period.

      Commenting on the results, Chairman and CEO, Doug Rock stated, "Smith had
a great year in 2005, but that's old news. I'm excited about the momentum we
have going into 2006. With fourth quarter 2005 operating earnings up 20 percent
sequentially and 60 percent year-over-year, Smith's financial performance is
accelerating. Due to improved pricing and product volumes, sequential
incremental operating margins for the oilfield segment have topped 30 percent
for the past two quarters. As a result, we now expect Smith's 2006 earnings to
range between $2.00 and $2.10 per share."

      Loren Carroll, Executive Vice President, also noted that, "We had a strong
finish to 2005 and our prospects for this year are even better. Considering the
higher level of planned investment by exploration and production companies and
our exposure to some of the fastest-growing segments in the oilfield service
market - drilling waste management, brownfield development and production
chemicals - I'm confident that Smith can continue to deliver exceptional
growth."






      Smith International, Inc. is a leading worldwide supplier of premium
products and services to the oil and gas exploration and production industry,
the petrochemical industry and other industrial markets through its four
principal business units - M-I SWACO, Smith Technologies, Smith Services and
Wilson. The Company will host a conference call today beginning at 10:00 a.m.
Central to review the quarterly results. Participants may join the conference
call by dialing (706) 634-6555 and requesting the Smith International, Inc.
call. A replay of the conference call will also be available through Monday,
February 6, 2006, by dialing (706) 645-9291 and entering conference call
identification number "4109126".

      Certain comments contained in this news release and today's scheduled
conference call concerning the anticipated financial results of the Company
constitute "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Whenever possible, the Company has
identified these "forward-looking" statements by words such as "believe",
"encouraged", "expect", "expected" and similar phrases. The forward-looking
statements are based upon management's 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 factors including,
but not limited to, overall demand for and pricing of the Company's products,
changes in the level of oil and natural gas exploration and development, and
variations in global business and economic conditions. The Company assumes no
obligation to update publicly any forward-looking statements whether as a result
of new information, future events or otherwise. For a discussion of additional
risks and uncertainties that could impact the Company's results, review the
Smith International, Inc. Annual Report on Form 10-K for the year ended December
31, 2004 and other filings of the Company with the Securities and Exchange
Commission.

      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 and in the scheduled conference call could be considered non-GAAP
measures. See the Supplementary Data - Schedule II in this release for the
corresponding reconciliations to GAAP financial measures for the periods ended
December 31, 2005 and 2004 and September 30, 2005. Non-GAAP financial measures
should be viewed in addition to, and not as an alternative for, the Company's
reported results.

      Financial highlights follow:





                            SMITH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

Three Months Ended --------------------------------------------------------- December 31, September 30, ------------------------------------- 2005 2004 2005 --------------------------------------------------------------------------------------------------------------------- Revenues $ 1,530,440 $ 1,217,593 $ 1,410,162 --------------------------------------------------------------------------------------------------------------------- Costs and expenses: Costs of revenues 1,054,456 846,007 985,558 Selling expenses 211,502 184,382 199,972 General and administrative expenses 68,890 56,653 53,217 --------------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,334,848 1,087,042 1,238,747 --------------------------------------------------------------------------------------------------------------------- Operating income 195,592 130,551 171,415 Interest expense 12,113 9,959 11,001 Interest income (549) (319) (339) --------------------------------------------------------------------------------------------------------------------- Income before income taxes and minority interests 184,028 120,911 160,753 Income tax provision 58,799 38,766 51,970 Minority interests 36,640 23,914 29,279 --------------------------------------------------------------------------------------------------------------------- Net income $ 88,589 $ 58,231 $ 79,504 ===================================================================================================================== Earnings per share: Basic $ 0.44 $ 0.29 $ 0.40 ===================================================================================================================== Diluted $ 0.44 $ 0.28 $ 0.39 ===================================================================================================================== Weighted average shares outstanding: Basic 200,427 202,777 201,013 ===================================================================================================================== Diluted 203,233 205,050 203,031 =====================================================================================================================
Earnings per share and weighted average shares outstanding for 2004 have been restated for the impact of a two-for-one stock split, which was effective August 24, 2005. SMITH INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Year Ended December 31, ---------------------------------------- 2005 2004 --------------------------------------------------------------------------------------------------------------------- Revenues $ 5,579,003 $ 4,419,015 --------------------------------------------------------------------------------------------------------------------- Costs and expenses: Costs of revenues 3,893,865 3,067,076 Selling expenses 786,668 685,272 General and administrative expenses 227,909 227,903 --------------------------------------------------------------------------------------------------------------------- Total costs and expenses 4,908,442 3,980,251 --------------------------------------------------------------------------------------------------------------------- Operating income 670,561 438,764 Interest expense 44,446 38,762 Interest income (1,692) (1,300) --------------------------------------------------------------------------------------------------------------------- Income before income taxes and minority interests 627,807 401,302 Income tax provision 202,743 129,721 Minority interests 122,759 89,130 --------------------------------------------------------------------------------------------------------------------- Net income $ 302,305 $ 182,451 ===================================================================================================================== Earnings per share: Basic $ 1.50 $ 0.90 ===================================================================================================================== Diluted $ 1.48 $ 0.89 ===================================================================================================================== Weighted average shares outstanding: Basic 201,651 202,664 ===================================================================================================================== Diluted 204,522 205,138 =====================================================================================================================
Earnings per share and weighted average shares outstanding for 2004 have been restated for the impact of a two-for-one stock split, which was effective August 24, 2005. SMITH INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
December 31, December 31, 2005 2004 --------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 62,543 $ 53,596 Receivables, net 1,200,289 963,622 Inventories, net 1,059,992 890,462 Other current assets 114,407 111,952 --------------------------------------------------------------------------------------------------------------------- Total current assets 2,437,231 2,019,632 --------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, net 665,389 576,954 Goodwill and Other Assets 957,294 910,192 --------------------------------------------------------------------------------------------------------------------- Total Assets $ 4,059,914 $ 3,506,778 ===================================================================================================================== Current Liabilities: Short-term borrowings $ 133,650 $ 211,375 Accounts payable 479,206 376,782 Other current liabilities 320,297 299,200 --------------------------------------------------------------------------------------------------------------------- Total current liabilities 933,153 887,357 --------------------------------------------------------------------------------------------------------------------- Long-Term Debt 610,857 387,798 Other Long-Term Liabilities 194,691 176,129 Minority Interests 742,708 654,683 Stockholders' Equity 1,578,505 1,400,811 --------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 4,059,914 $ 3,506,778 =====================================================================================================================
SMITH INTERNATIONAL, INC. SUPPLEMENTARY DATA - SCHEDULE I (In thousands) (Unaudited)
Three Months Ended ------------------------------------------------------ Year Ended December 31, December 31, ------------------------------------- September 30, --------------------------------- 2005 2004 2005 2005 2004 ----------------------------------------------------------------------------------------------------------------------------------- REVENUE DATA United States $ 693,403 $ 538,250 $ 625,167 $ 2,520,706 $ 1,982,467 Canada 217,168 158,880 181,441 713,565 487,552 ----------------------------------------------------------------------------------------------------------------------------------- North America 910,571 697,130 806,608 3,234,271 2,470,019 ----------------------------------------------------------------------------------------------------------------------------------- Latin America 113,247 121,859 109,829 452,349 424,053 Europe/Africa 322,334 253,602 310,357 1,188,038 961,755 Middle East 125,896 93,626 123,084 476,686 366,114 Far East 58,392 51,376 60,284 227,659 197,074 ----------------------------------------------------------------------------------------------------------------------------------- Non-North America 619,869 520,463 603,554 2,344,732 1,948,996 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 1,530,440 $ 1,217,593 $ 1,410,162 $ 5,579,003 $ 4,419,015 =================================================================================================================================== SEGMENT DATA REVENUES: M-I SWACO $ 726,385 $ 597,176 $ 677,609 $ 2,682,511 $ 2,231,884 Smith Technologies 167,465 138,080 154,451 601,821 511,410 Smith Services 195,547 140,980 178,378 694,667 493,045 ----------------------------------------------------------------------------------------------------------------------------------- Oilfield Products and Services 1,089,397 876,236 1,010,438 3,978,999 3,236,339 Wilson 441,043 341,357 399,724 1,600,004 1,182,676 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 1,530,440 $ 1,217,593 $ 1,410,162 $ 5,579,003 $ 4,419,015 =================================================================================================================================== OPERATING INCOME: Oilfield Products and Services $ 178,897 $ 126,397 $ 162,755 $ 625,384 $ 423,648 Distribution 23,187 9,593 13,966 64,714 26,513 General corporate (6,492) (5,439) (5,306) (19,537) (11,397) ----------------------------------------------------------------------------------------------------------------------------------- Total $ 195,592 $ 130,551 $ 171,415 $ 670,561 $ 438,764 =================================================================================================================================== OTHER DATA OPERATING INCOME(a): Smith ownership interest $ 150,532 $ 100,136 $ 134,106 $ 515,923 $ 325,231 Minority partner ownership interest 45,060 30,415 37,309 154,638 113,533 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 195,592 $ 130,551 $ 171,415 $ 670,561 $ 438,764 =================================================================================================================================== DEPRECIATION AND AMORTIZATION(a): Smith ownership interest $ 24,053 $ 20,869 $ 22,629 $ 90,596 $ 82,062 Minority partner ownership interest 7,114 6,338 6,973 27,126 24,431 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 31,167 $ 27,207 $ 29,602 $ 117,722 $ 106,493 =================================================================================================================================== GROSS CAPITAL SPENDING(a): Smith ownership interest $ 44,912 $ 25,603 $ 32,087 $ 129,853 $ 81,777 Minority partner ownership interest 17,288 10,278 12,235 47,992 29,672 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 62,200 $ 35,881 $ 44,322 $ 177,845 $ 111,449 =================================================================================================================================== NET CAPITAL SPENDING(a) (b): Smith ownership interest $ 39,480 $ 20,562 $ 25,152 $ 105,459 $ 63,293 Minority partner ownership interest 16,671 9,733 11,775 45,960 27,477 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 56,151 $ 30,295 $ 36,927 $ 151,419 $ 90,770 ===================================================================================================================================
NOTE (a): The Company derives a significant portion of its revenues and earnings from M-I SWACO and other joint venture operations. Consolidated operating income, depreciation and amortization and capital spending amounts have been separated between the Company's portion and the minority partners' portion in order to aid in analyzing the Company's financial results. NOTE (b): Net capital spending reflects the impact of proceeds from lost-in-hole and fixed asset equipment sales. SMITH INTERNATIONAL, INC. SUPPLEMENTARY DATA - SCHEDULE II RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share data) (Unaudited)
Three Months Ended --------------------------------------------------- Year Ended December 31, December 31, September 30, December 31, -------------------------------- 2005 2005 2004 2005 2004 --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATING INCOME: GAAP consolidated operating income $ 195,592 $ 171,415 $ 130,551 $ 670,561 $ 438,764 Litigation-related charges(a) 5,640 - - 5,640 31,439 Gain on sale of equity interest in Sandvik-Smith and other - (6,770) - (6,770) - Hurricane-related costs - 3,917 - 3,917 - --------------------------------------------------------------------------------------------------------------------------------- Non-GAAP consolidated operating income $ 201,232 $ 168,562 $ 130,551 $ 673,348 $ 470,203 ================================================================================================================================= OILFIELD OPERATING INCOME: GAAP Oilfield operating income $ 178,897 $ 162,755 $ 126,397 $ 625,384 $ 423,648 Litigation-related charges(a) 5,640 - - 5,640 31,439 Gain on sale of equity interest in Sandvik-Smith and other - (6,770) - (6,770) - Hurricane-related costs - 3,170 - 3,170 - --------------------------------------------------------------------------------------------------------------------------------- Non-GAAP Oilfield operating income $ 184,537 $ 159,155 $ 126,397 $ 627,424 $ 455,087 ================================================================================================================================= DISTRIBUTION OPERATING INCOME: GAAP Distribution operating income $ 23,187 $ 13,966 $ 9,593 $ 64,714 $ 26,513 Hurricane-related costs - 747 - 747 - --------------------------------------------------------------------------------------------------------------------------------- Non-GAAP Distribution operating income $ 23,187 $ 14,713 $ 9,593 $ 65,461 $ 26,513 --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED NET INCOME: GAAP consolidated net income $ 88,589 $ 79,504 $ 58,231 $ 302,305 $ 182,451 Litigation-related charges, net of tax(a) 3,666 - - 3,666 20,435 Gain on sale of equity interest in Sandvik-Smith and other - (4,401) - (4,401) - Hurricane-related costs - 1,880 - 1,880 - --------------------------------------------------------------------------------------------------------------------------------- Non-GAAP consolidated net income $ 92,255 $ 76,983 $ 58,231 $ 303,450 $ 202,886 ================================================================================================================================= DILUTED EARNINGS PER SHARE: GAAP diluted earnings per share(b) $ 0.44 $ 0.39 $ 0.28 $ 1.48 $ 0.89 Litigation-related charges, net of tax(a) 0.01 - - 0.01 0.10 Gain on sale of equity interest in Sandvik-Smith and other - (0.02) - (0.02) - Hurricane-related costs - 0.01 - 0.01 - --------------------------------------------------------------------------------------------------------------------------------- Non-GAAP diluted earnings per share(b) $ 0.45 $ 0.38 $ 0.28 $ 1.48 $ 0.99 =================================================================================================================================
NOTE (a): These amounts represent losses associated with the settlement of a three-cone drill bit patent infringement case. On an after-tax basis, these charges approximated $20.4 million, or 10 cents per share in 2004 and $3.7 million, or one cent per share in 2005. NOTE (b): Earnings per share for the 2004 periods have been restated for the impact of a two-for-one stock split, which was effective August 24, 2005.

The following information was filed by Smith International Inc on Monday, January 30, 2006 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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